If you’re a limited company contractor, you can offset a wide range of expenses against your company’s profits – reducing its Corporation Tax liability.
Here we look at some of the typical expenses you will incur as a contractor and how they are treated for tax purposes.
Limited company contractor expenses – the basics
The golden rule is that you can only claim business expenses incurred wholly and exclusively while carrying out your trade.
You may pay for these costs out of your own pocket – and reclaim them from your company, or the company may pay for them directly.
It doesn’t matter how they were paid for as long as they are genuine business costs.
There are many ‘grey areas’ – for example, if you claim for something that has a ‘dual-purpose’ (personal and business use).
Remember that accurate record-keeping is essential. Not only is this required by HMRC, but it will also make your accountant’s job easier and ensure you claim every allowable expense.
You should always check with your accountant if you are unsure about the validity of your expense claims.
Typical contractor expenses
Here are some typical tax-deductible expenses your company can typically offset its Corporation Tax liability.
Accommodation
Such as hotels and guest houses – as long as you work away from your permanent residential address.
Advertising and marketing
Online advertising (e.g., Google Ads, social media promotions).
Print media advertisements.
Design costs for marketing materials like flyers or brochures.
If you belong to a membership organisation that offers training, certification, or industry networking opportunities, these costs may also be allowable.
Stationery
The costs of postage, stationery, printing, business cards, etc.
You can also claim business phone calls if they are itemised on a personal bill, although this is less commonplace nowadays with inclusive minutes.
Training
Training courses are allowable if they are directly related to your contract work.
Courses to update your professional skills or obtain certifications required for your work are typically tax-deductible.
Travel costs
You can reclaim the cost of parking, all other types of transport, and any congestion charge fees.
Make sure to keep tickets, receipts, or invoices as evidence for these claims.
Website costs
The costs of setting up a business website, including web design and buying domain names.
Costs associated with maintaining or updating the website, including hosting, email and SEO services.
Working from home
You can claim a flat £6/week allowance for your home office – and receipts are unnecessary.
Alternatively, you can claim for a proportion of certain household expenses – but only when you can validly allocate the business element. Find out more here.
Work clothes
There is limited scope for claiming work clothing expenses.
If you need to buy protective clothing purely for work, this may be allowable.
Standard ‘everyday’ clothes don’t count.
IR35 and the 5% allowance
When IR35 was first implemented in 2000, limited companies caught by the rules could claim a fixed 5% allowance to cover the administration expenses associated with running a business.
Following the introduction of the ‘Off Payroll’ rules in April 2017 (public sector) and April 2021 (private sector), the allowance was scrapped for most contractors – with one notable exception.
If you’re an umbrella company contractor, your scope to offset the cost of any expenses you incur against your contract income is very limited.
This is due to the 2016 SDC rules – which mean your ability to claim expenses is similar to that of a standard ’employee’ if you’re under your client’s supervision, direction and control.
However, some expenses (e.g., mileage or subsistence) may still be allowable if they are incurred while working at temporary sites and meet the necessary conditions.
