IT contractor expenses – what can you claim for?

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.

Contractor expenses – the basics

The golden rule is that you can only claim business expenses that are incurred wholly and exclusively in the course of 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).

So you should always check with your accountant if you are unsure about the validity of your expense claims.

Here are some of the typical tax-deductible expenses your company is allowed to claim.

Typical contractor expenses

Professional fees

Such as accountancy fees, or the costs of using a solicitor for business purposes.

Salaries

Any wages paid to directors and other employees. This is often a company’s biggest single annual expense.

National Insurance

Any Employers’ National Insurance your company pays on salaries above the current threshold.

Business Insurance

This includes professional indemnity, business liability and tax investigation cover. Find out more about contractor insurance.

Computing equipment

The tax treatment of PCs, laptops and other equipment is accounted for via a system of capital allowances.

Computer software

Most contractors incur software costs on anything from Microsoft Office to Norton Antivirus.

Telephones, Broadband

Mobile and internet costs – if the contracts are in the company name. You can also claim business phone calls if they are itemised on a personal bill, although this is less commonplace these days with inclusive minutes.

Mileage

You can claim 45p/mile for the first 10,000 miles (and 25p thereafter) if you use your own car for business. Find out more about mileage expenses and be aware of the 24-month rule.

Other travel costs

You can reclaim the cost of parking, all other types of transport, and any congestion charge fees.

Pension contributions

Executive pension contributions represent a popular tax-deductible expense.

Relevant Life Insurance

You can pay for life insurance via your company, as long as it’s a relevant life policy – saving up to 50% compared to a traditional life cover policy purchased out of post-tax income.

Income Protection

Executive income protection premiums are allowable. This type of insurance pays out if a director is unable to work due to illness or injury.

Professional magazines

Subscriptions to magazines and periodicals if strictly related to your business.

Subscriptions to professional organisations

Allowable as long as the organisation appears on HMRC’s prescribed list.

Entertainment

The cost of entertaining clients is not an allowable expense. The company can still foot the bill, but won’t be able to offset the costs against Corporation Tax. One small exception is the tax treatment of an annual staff event (below).

Stationery

The costs of postage, stationery, printing, business cards, etc.

Website costs

The costs relating to setting up and running a business website, including web hosting, email and domain names.

Training

Training courses are allowable if they are directly related to your contract work.

Accommodation

Such as hotels and guest houses – as long as you are working away from your permanent residential address.

Relocation

Relocation, including removal expenses – subject to certain conditions.

Subsistence

As long as you are not working at a temporary workplace for 24 months or more.

Finance charges

Including business banking monthly fees. You can also claim for the cost of interest on loans and overdrafts.

Eye test

You can claim for an annual eye test if you use computer equipment!

Medical check-up

The cost of an annual check-up with BUPA, etc.

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 to claim work clothing expenses. If you need to buy protective clothing purely for work, this may be allowable. Standard ‘everyday’ clothes don’t count.

Annual company staff event

Claim up to £150 per eligible person for an annual company event (e.g. a Christmas party).

IR35 and the 5% allowance

Historically, if your contract work was caught by IR35, HMRC granted companies a fixed 5% allowance to cover the administration expenses associated with running a business.

However, following the introduction of the ‘Off Payroll’ rules in April 2017 (public sector) and April 2021 (private sector), this allowance has been scrapped for most contractors – with one notable exception.

If you work for a ‘small company’ client, you can still claim the 5% allowance if your contract work is caught by IR35.

This allowance is a flat rate deduction of 5% of the gross fees receivable for any relevant contracts.

You can find out more about the ‘5% allowance’ in our dedicated article, IR35 deemed payment and the treatment of expenses.

Final considerations

Always ensure that any expenses you claim are genuine and were incurred solely for business purposes, and keep receipts for any expenses you claim.

If you’re in any doubt, ask your accountant for advice.