As accountants, we’re always on the lookout for ways clients can make more tax-efficient decisions, especially directors running their own limited companies.
This week, we were asked a great question by a client that turned into a surprising and insightful numbers exercise.
She wanted to know whether her company could pay for her £4,000 laser eye surgery, or if it would be more sensible to take dividends and pay for it personally.
It sounds like a simple “no, it’s a personal expense.” But when we put pen to paper, the numbers told a different story.
(Read Time: Approx. 6 minutes)
Topics Discussed:
- Comparing different ways to cover personal costs using your company
- Why the right tax treatment can save you money, even on non-allowable expenses
What Are Dividends?
When business owners need to extract money from their company, dividends are often the first option considered.
They are generally more tax-efficient than salary because they aren’t subject to National Insurance. However, they still attract tax once you exceed your allowances.
For the 2025/26 tax year:
- The dividend allowance is £500
- Higher-rate taxpayers pay 33.75% on dividends above this
So, if you’re a higher-rate taxpayer wanting to take home £4,000, you’d need to extract around £6,040 gross in dividends. That extra £2,040 is lost to dividend tax.
What Can You Buy Through Your Company?
When you run a limited company, it’s common to ask whether certain things can be purchased through the business.
From equipment and training to travel or even healthcare, it often depends on how the purchase relates to the business itself.
While your company can pay for many things, not everything will be classed as tax-deductible. The key question is whether HMRC considers it a legitimate business expense.
What’s an Allowable Expense (and What Isn’t)?
Let’s be clear: Not everything you pay for via your company qualifies as a business expense.
HMRC requires that expenses must be “wholly and exclusively” for the purposes of trade.
Personal services, like medical treatment or leisure travel, won’t meet that condition.
Examples of allowable business expenses include:
- Office rent, supplies, and equipment
- Employee salaries and pensions
- Business-related travel and subsistence
- Advertising, marketing, and software subscriptions
Examples of non-allowable (personal) expenses include:
- Private healthcare or surgery
- Gym memberships (unless medically required and job-related)
- Clothing that isn’t branded or protective gear
That’s why laser eye surgery, in this case, wouldn’t qualify as an expense.
However, that didn’t mean the company couldn’t pay for it.
The Client Example: A Surprising Tax Saving
To give you a real-world perspective, here’s the scenario we ran through with our client.
She was considering whether to pay for a £4,000 personal expense through the company or to take dividends and cover the cost herself.
Here’s how each route played out.
Option 1: The Company Pays
Let’s start with the company covering the cost directly.
Since the expense is personal in nature and not “wholly and exclusively” for business purposes, it’s treated as a benefit-in-kind.
This means both the company and the director face tax implications. As you’ll see, there’s still an advantage.
Step 1: Cost to the company
- The surgery costs £4,000.
- Because it’s a personal benefit, the company must also pay employers’ National Insurance (Class 1A) on the value of the benefit. At a rate of 15%, this adds £600 to the cost.
- So, the total gross cost to the company becomes £4,600.
Step 2: Corporation tax relief
- Although this isn’t a tax-deductible business expense in the conventional sense, HMRC still allows the company to offset the full cost against its corporation tax bill.
- At the 2025/26 corporation tax rate of 25%, that tax saving comes to £1,150 (25% of £4,600).
- After deducting this relief, the net cost to the company drops to £3,450.
Step 3: Personal tax on the benefit
- The director is receiving a personal benefit worth £4,000, so she will be taxed on it as if it were additional income.
- As a higher-rate taxpayer, she pays 40%, which comes to £1,600 in personal tax.
Final combined cost:
- Add the company’s net cost (£3,450) to the director’s personal tax (£1,600) and the total overall cost becomes £5,050.
Option 2: Pay Personally Using Dividends
Alternatively, the director could take dividends and pay for the procedure from her personal account.
Step 1: Calculating the gross dividend required
- The surgery costs £4,000, and the director wants to pay this from her personal account.
- However, as a higher-rate taxpayer, she pays 33.75% tax on any dividends over her £500 allowance (as per the 2025/26 rules).
- To receive £4,000 after tax, she needs to extract £6,040 in gross dividends.
- Why? Because when you take 33.75% off £6,040, you’re left with £4,000.
Step 2: Company position
- The company must pay out £6,040 in dividends, which come out of post-corporation-tax profits.
- There is no further tax relief available to the company for paying dividends. So, the full £6,040 is a direct cost to the business.
Final combined cost:
- Since there’s no benefit-in-kind and no offsetting corporation tax relief, the total cost (from the company’s point of view) is £6,040.
Benefit-in-Kind Can Be Smarter
While the benefit-in-kind route involves both company and personal tax, the overall cost ends up being nearly £1,000 cheaper than simply taking dividends and paying out of pocket.
This isn’t intuitive at first glance. After all, laser eye surgery isn’t a business expense.
But once the figures are run through correctly, it becomes clear that the company-funded option is more tax-efficient.
It’s a perfect example of why it’s worth checking with your accountant before making financial decisions, even with seemingly personal purchases.
So Why Does This Matter?
This example doesn’t just apply to laser surgery.
Similar logic can be applied to other personal benefits, such as club memberships, wellbeing services, or even certain types of insurance.
If the benefit can be structured correctly and reported properly, it may prove more efficient for the company to pay, even when it’s not deductible as a business expense.
We often see directors assume that company payments for anything personal are automatically off-limits.
But when you consider the full picture, including employer NI, corporation tax relief, and dividend tax rates, the difference in cost can be significant.
Summary
This case is a perfect reminder that owning your own company opens the door to strategic planning opportunities.
Even when an expense doesn’t qualify as business-related, it may still be more efficient to have your company cover it.
The savings here were nearly £1,000, and that was on a relatively modest personal cost.
Thinking of doing something similar? Get in touch with us today to find out the most tax-efficient way to handle your next expense.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel