If you are a professional contractor, you can claim back a wide variety of expenses against your limited company’s tax bill. Here we look at the most typical contractor expenses, and the rules you must follow to ensure any claims you make are legitimate.
Contractor expenses – the basics
The golden rule is that you can only claim for business expenses you incur wholly and exclusively in the course of your contracting work.
You may have paid these our of your own pocket – and reclaimed them from your company, or the company may have paid them directly. It doesn’t matter how they were paid for, as long as they are legitimate in nature.
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 expenses your company is allowed to claim back against its Corporation Tax bill:
Typical contractor expenses
- Professional fees, such as accountancy fees, or the costs of using a solicitor for business purposes.
- Your salary (and spouse, if applicable).
- Any Employers’ National Insurance payable on salaries.
- Business insurance, such as professional indemnity insurance and business liability cover.
- Computers, laptops, other equipment.
- Cost of phone and broadband – if the contracts are in the company name. Or, just business phone calls if itemised on a personal bill.
- Business travel. You can claim 45p/mile for the first 10,000 miles (and 25p thereafter) if you use your own car for business reasons. 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.
- Executive pension contributions.
- You can pay for life insurance via your company, as long as it’s a relevant life policy – this is very tax efficient.
- Subscriptions to professional magazines.
- Subscriptions to eligible professional organisations (on HMRC’s prescribed list).
- Cost of postage, stationery, printing, etc.
- Training courses – if directly related to your contract work.
- Accommodation expenses, such as hotels – as long as you are working away from your permanent residential address.
- Relocation, including removal expenses – subject to certain conditions.
- Subsistence costs – as long as you are not working at a temporary workplace for 24 months of more.
- Finance charges, such as monthly business banking fee.
- You can claim for the cost of a yearly eye test.
- The cost of an annual medical check-up.
- You can claim a flat £4/week or £18/month fee for your home office – and receipts are unnecessary. Alternatively, you may claim for a proportion of certain household expenses – but only when you can validly allocate the business element. Find out more here.
- Claim up to £150 per eligible person for an annual company event (e.g. office party).
IR35 and the 5% allowance
If you are a limited company contractor, and your contract work is caught by the IR35 rules, you are provided with a fixed ‘5% allowance’ which is intended to cover administrative expenses associated with running a business.
It is worth noting that, from April 2017, if you are caught by IR35 and work in the public sector, the 5% is no longer available to you. This rule will be extended to private sector contractors from April 2020 onwards.
This expenses 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.
You may also wish to refer to the IR35 expenses FAQ on the HMRC website.
You should always ensure that any expenses you claim are genuine and were incurred solely for business purposes, and you should always keep receipts for any expenses you claim.
If you’re in any doubt, ask your accountant for advice.
You can read more in our guide to the deemed salary and the treatment of expenses here.