Contractor expenses guide and limited company expenses -allowable business expenses

Share This Guide, Choose Your Platform!

Introduction 

This is the official UK contractor expenses guide from Contractor Advice UK. When we consider what expenses can I claim as a contractor, what should we think about? Besides the limited company expenses advice in this guide being aimed at UK limited company contractors, most tips also apply to small and medium business owners too. When we consider business costs, they must always meet the wholly and exclusively test which means such costs must be only for business reasons. Therefore, in this guide, we’ll look at a contractor expenses list which includes many different types of company expense. Indeed, contractor business costs and expenses cover a wide range. What’s more, many expenses have certain rules to consider before you can make a business expense claim. Therefore, we’ll research what are allowable business expenses for UK contractors and look at some of the rules around these.

In this guide, we’ll study what can you expense as a contractor. Also, within this contractor business expenses guide, we’ll look at UK limited company contracting expenses and research what are business expenses for contractors. What’s more, we’ll research what are genuine HMRC business expenses when you run your own business. When a contractor claims all genuine costs, this’ll help reduce a contractor’s tax bill. Therefore, we’ll look at what are allowable business expenses (UK) and legitimate business expenses for your contractor company. We’ll also look at a contractor expenses list and discover what general costs you can claim.

Initial thoughts on allowable expenses for limited company contractor 

First thoughts 

When you’re becoming a contractor (UK) and set up your company for the first time, or are already running your own company, a common question arises. That is, as a limited company contractor, what expenses can I claim? As part of my contractor expenses list, what are legitimate company costs? As a business contractor, you may work in IT or indeed some other industry and incur many different expenses as a limited company. However, which expenses and legitimate business costs can you claim through your business? If you do work in IT, as many contractors do, what can you claim as part of your IT contractor tax deductions?

In this guide, we’ll consider what expenses can an independent contractor claim through their company as tax-deductible business expenses? Indeed, as a UK contractor, when we consider what expenses can I claim (limited company) and what can you include as tax write-offs for contractors, we need to look at UK tax office guidelines.

Wholly and exclusively test

Per HM Revenue & Customs (HMRC), under BIM37000 guidelines, tax-deductible expenses (UK limited company) are only allowed where they meet the wholly and exclusively test. Therefore, in other words, your ltd company allowable expenses (UK) should satisfy the following rule:

`The cost incurred is `wholly, exclusively and necessary for your business.’

The above means that a contractor’s expenses will be in line with their company’s business engagements and activities. Furthermore, it also means that the limited company expenses and the contractor’s tax deductions for which you make a business expense claim shouldn’t include any personal element. In contrast, as part of the items on your contractor list of expenses, you may incur a personal element with certain costs such as phone or computer use. However, when such amounts are only minor, HMRC will accept this.

Further initial thoughts

In this guide, we’ll cover what can I claim as a contractor and go over UK company legitimate business expenses. What’s more, we’ll also look at the various tax deductions for contractors by way of a contractor expenses list. We’ll also research different aspects when it comes to allowable expenses for limited companies. We’ll take an excellent in-depth look into UK contractor allowable expenses (limited company). Also, we’ll research the different types of expenses for a business and look at a UK business expenses list. Furthermore, we’ll go over what you can claim as your tax-deductible contracting expenses and explain some contractor tax benefits.

Common questions

There are many questions around the expenses of a business which arise from contractors and small company owners. Therefore, some examples of questions about expenses in business will include:

  • How do expenses work for limited company?
  • What are allowable expenses for a limited company?
  • What can you claim as a business expense?
  • Can contractors claim expenses?
  • What does claiming business expenses mean?
  • What can I claim as a limited company?
  • As a contractor, what expenses can I claim?
  • What expenses can I claim as a limited company?
  • What can contractors claim on tax?
  • When are contractor expenses tax-deductible?
  • How to claim expenses as a contractor?
  • Are business cards an advertising expense?
  • Can I claim glasses as a business expense?
  • Can you claim life insurance as a business expense?
  • Is coffee a business expense (UK)?

In this guide, we’ll cover all the above. We’ll also investigate what you can claim as expenses and look at various allowable business expenses examples.

Further initial thoughts -contractor expenses guide 

What to consider first for your business expenses in UK

In this guide to expenses, it’s key to note, when you’re in business as a contractor limited company, you can claim all your contractor’s costs or limited company expenses which you incur for business purposes. However, when you’re claiming expenses as a contractor you should also bear in mind the wholly and exclusively test which we mention earlier for these to count as UK contractor allowable expenses (limited company).

When you investigate what can I claim as a business expense, your contractor accountant can guide you what to include in your contractor expenses (limited company). They’ll advise what sort of costs you can deduct when you’re claiming business expenses (UK). You can check this with them if you’re unsure or in doubt.

Your contractor limited company expenses along with its income will be shown in your company’s Profit and Loss account. Indeed, you or your accountant will do this when you prepare the business year-end accounts. Each financial year, you’ll report the profits on the company tax return and calculate the company’s tax bill on your taxable profits.

The benefits when you claim your legitimate business costs

On one hand, as a limited company contractor, when your company pays for expenses, it’ll do so through the company bank account. On the other hand, as a director, you may also pay for some business costs directly yourself. Indeed, you could be using a personal credit card for business expenses. What’s more, you may for some business costs pay in cash or via your personal bank account. Nonetheless you should record and keep receipts for all company expenses so that you receive tax relief on these.

It’s key to explain, in this IT contractor expenses guide, that when you pay for limited company allowable expenses personally, two benefits arise when you ensure your company goes ahead with reimbursing yourself for business expenses. Most business owners will ensure there is a reimbursement for small business expenses to the owner/director on a regular basis. In fact, most will make an expenses reimbursement at the end of the month.

The actual benefits of claiming expenses

When your company reimburses your expenses, such business expense claims for contractors have two benefits for you:

  • Your business will receive tax relief on the value of your limited company expenses (UK). When you have a UK company and are a contractor claiming expenses, your business will save Corporation Tax (CT). This’ll be at a rate of 19% or 25%, depending on whether your company is small or large. Please see our Corporation Tax guide for details on this. The CT saving will reduce your company’s annual Corporation Tax bill. If you’re self-employed, you’ll save Income Tax at your highest personal tax rate. Therefore, it’s key to claim for all your genuine business costs as you’ll receive contractor tax deductions for these.
  • Your company can make an independent contractor expense reimbursement to you. Basically, your business will refund the value of these ltd company expenses to you. This is because you paid for these business costs in the first place. As a result, you feel the benefit of the reimbursement.

UK contractor expenses guide -processes 

Record your business expenses

When you incur contractor costs and expenses as part of your daily work, you should record these. Indeed, you should do this on an ongoing basis. Also, you can collect evidence of each spend by way of an invoice or receipt and record it in your accounts system. What’s more, if you use an online accounting system such as FreeAgent, you can take photos of your contractor receipts and store these online.

Please read our guide which covers tax tips for UK contractors. This contains some handy advice you should know when you’ve your own business. In addition, this guide also includes our latest guidance for the best tax planning tips and ideas.

Recharge your business expenditure

You incur the `usual’ running costs when you run your own business. As part of your contract work, you may also be able to recharge your expenses to your client. This area can often confuse business owners, especially regarding how to recharge VAT. Therefore, our guide on how to recharge expenses covers this in more detail.

What’s more, if you’ve paid for any of the business costs personally when you recharge expenses, please make sure that you claim these back from your own company, as mentioned earlier.

Obtain and retain contractor receipts

As mentioned above, you should obtain and retain receipts or invoices. You should do this for your contractor costs and limited company director expenses, wherever you can. When you buy a product or service, you’ll receive a receipt from a shop, store, or business. Nowadays, some shops and stores also email you a receipt. As a result, you can save it electronically. Alternatively, when you purchase something online, you might also receive the invoice via email. Therefore, you can also store this electronically.

When you buy a product or service, invoices or receipts should be in your business’s name. To explain further, this is better than the receipts being in your personal name. Certainly, this is important as it shows that the product or service is for the company.

UK contractor expenses guide -what else to consider in terms of business costs

Duality of purpose 

As a business owner, in this contractor expenses guide, it’s key to explain another area. This is that you should be aware of any contractor expense with a `duality of purpose.’ Indeed, as part of this guide to expenses for UK contractors, it’s key to note that HMRC use this term where there’s both a business and a personal element as part of a cost. Such an expense could include a trip abroad which is part business and part holiday. Therefore, when there’s a query from HMRC that the expense may not have occurred if it weren’t for the personal element, they could disallow it.

What sorts of business costs can you claim?

There are many types of tax-deductible limited company expenses for business contractors. These can also range across lots of different business expenses categories. Indeed, there’s many different types of business expenses and costs for contractors which you can claim when you’ve your own business. Furthermore, your allowable company expenses and contractor tax write-offs also differ depending on which industry you’re in and which type of service you’re providing.

As we mention earlier, you can pay your contractor costs and ltd company expenses by the company bank account. On the other hand, you can pay for these with your personal funds. Indeed, you should record each contractor expense that you pay yourself so the company can reimburse you for these.

VAT 

When you’re contracting, you may need register for VAT. Recently, the VAT Flat Rate Scheme (a sub-scheme of VAT registration) was a more attractive tax scheme. However, the `normal’ VAT scheme is better for most contractors now. Under this, you’ll be able to reclaim the VAT on all your costs which include VAT, subject to a few exceptions.

UK contractor expenses guide -what counts as a business expense (UK)? 

Limited company contractor expenses list 

Let’s now investigate what can a contractor deduct on taxes by way of a contractor expenses list. Basically, there’s some main types of UK business expense categories of costs which you can claim. Indeed, these costs are different types of business expenses you incur for your company. In addition, you’ll incur these over the working week, month, or year.

The main types of contractor expense are shown below in a list of business expenses. Basically, when you’re limited company contracting, you can claim expenses that fall under these categories. As a result, you’ll record them as a contractor cost through your business. Indeed, this of course assumes that such costs meet the wholly and exclusively test. Therefore, our basic list of deductible business expenses is:

1 Travelling expenses including mileage allowances
2 Salary costs
3 Phone and broadband charges
4 Office costs
5 Computer expenses
6 Advertising costs
7 Business training courses
8 Professional subscriptions
9 Business insurance
10 Relevant life insurance
11 Accountancy costs
12 Legal fees
13 Other sundry expenses that are business related
14 Plus, many others

The contractor expenses list above covers basic costs one can claim through a contractor’s limited company. Indeed, these types of contractor costs and what can you write off as a contractor as shown in the list of expenses above, are covered in more detail below. What’s more, we also include other types of allowable business expenses you can claim.

Claiming travel expenses as a contractor for your business trips

One of the main items on your contactor expenses list are limited company travel expenses. Therefore, it’s often asked by many can a contractor claim travel expenses for business travel. Basically, the HMRC advice states that you can only claim travelling-type costs if you meet the criteria. Indeed, the criteria is you can claim your travel cost as tax-deductible expenses when you visit a temporary workplace. However, the word temporary isn’t so well defined. But, there’s something called the 24-month rule for contractors. Indeed, this rule covers how HMRC treat a `temporary workplace’.

As part of your day-to-day work, you’ll incur contractor travel expenses. What’s more, you’ll incur these when you visit your main worksite or even different client sites. You may also incur business travel costs when you travel to other locations for business reasons. Such costs could include when you go to interviews or visit the bank or accountant. Extra travel costs could also be when you attend training courses and seminars or travel to buy company supplies.

When we consider can contractors claim travel expenses, we cover the basic rules above. Therefore, these state you can claim expenses when you visit a temporary workplace or undertake other business-related journeys. 

The types of travelling expenses

As we mention above, you can claim for travel to and from temporary workplaces. Therefore, we’ll now consider within your UK contracting expenses, the types of travel charges for contractors. Indeed, types of expenses you may claim as part of your business travel expenses list include:

  • Business travel to/from your work sites and on other company business. Besides business mileage, other costs could include rail fares and taxi fares. Further costs could include bus fares, flights, parking fees and road tolls.
  • You’ll receive tax deductions as a contractor for business meals and subsistence while you’re working away. There’s also some HMRC standard meal allowances available that you can claim as a contractor subsistence allowance within your company expense claims. *
  • Personal Incidental Expenses are part of your allowable business expenses (limited company) when you stay away from home overnight for work reasons. These are known as PIEs. The rate you can claim is £5 per night in the UK and £10 per night outside the UK. HMRC sets the rates at a level to cover sundry types of costs. These’ll cover phone calls home, coffees, laundry, newspapers etc., which are personal costs, but PIEs allow you to make a claim to cover all or part of these. *

Motor vehicle/bike expenses 

If you use your own private car or motor vehicle for business reasons, these are genuine business costs. Therefore, when we investigate as a contractor what can I write off, instead of contractor fuel expenses, you can claim business mileage as a company expense and your business can make a contractor claim for:

  • Mileage allowances for business journeys in your private car are allowed as part of your contract expenses. When you’re claiming mileage as a contractor, HMRC sets the rates that you can claim for business mileage. These are 45 pence per mile for the first 10,000 business miles travelled in a tax year. The rate then changes to 25 pence per mile for each mile travelled after that. *
  • You can claim mileage allowances for travel if you use a private motorbike or bicycle for business journeys. The rates you can claim are 24 pence per mile for a motorbike. Alternatively, the rate is 20 pence per mile for a bicycle. *
  • Motoring expenses using fixed-rate allowances (e.g., claim for the distance travelled). *

* Please note, all travelling, and motor expenses are subject some travelling tax rules. This is known as the `24-month rule.’

Contractor expenses guide -salary expenses 

Salaries above a certain level incur tax and National Insurance. Your company’s business expenditure includes the total wages. What’s more, it includes the tax/NI costs, and salary-related expenses, such as pensions. As a result, these’ll help reduce company tax. The salary costs may include:

  • Company pension scheme contributions.
  • Employer’s NI payments on any wages above the NI threshold.
  • Staff pension schemes. Under auto-enrolment, employers now need to ask their employees who earn above a certain amount if they’d like to join this. If they do join, both the employee and employer will pay into the pension scheme that the government organises.

Phone bills and broadband charges 

As a UK contractor and business owner, you’ll probably incur phone charges. If you do, these can be part of your business expense list. Therefore, as part of any day-to-day business, you can include your phone and broadband costs as part of your limited company allowable expenses. Therefore, these contracting expenses consist of:

  • Business calls on your home phone.
  • Mobile phone costs related to business use.
  • Broadband charges for business internet use. If you use your home broadband for business, it seems only fair you can claim part of this as a business expense claim. Please see our guide on phone and broadband costs for detailed rules on this.

Contractor expenses guide -office expenses

Another main item on your small business expenses list (UK) are your contractor office costs. As part of your work, especially when you work from home, you’ll incur allowable business expenses. Basically, business office expenses list may include:

  • Business premises costs. If you pay rent for business premises, you can claim for this. In addition, you can claim for the business rates and any utility bills. However, most contractors don’t have separate business premises. Therefore, if you don’t have separate premises, you can claim for the use of the home as an office which we explain below.
  • Contractor office supplies, such as postages and stationery, business cards.
  • Printing costs.
  • Use of home as office allowance when you work from home. It only seems fair, if you work from home, that you can claim a proportion of your home running costs. These costs would include electric and gas as well as water rates. However, they wouldn’t include council tax as this is fixed, whether you work from home or not. Under HMRC’s present allowed rates, you can claim £6 per week as a business expense claim. In some cases, you may be able to claim more than this. This is more likely if you spend long hours working at home. In addition, if you claim more, you need to show that your extra household expenses cost more per week due to running your business from home.

Computer expenses 

If you have a company computer, you may incur UK contracting expenses when you use this. As a result, any computer type business costs are an allowable company expense.

As part of a contractor claim for expenses, these computer costs may include:

  • An annual eye test and the cost of basic glasses if you require these when you’re working.
  • Business software for your work.
  • Printer cartridges, printer paper and printer toners etc.
  • Technical books and journals which relate to the work you do.

Advertising expenses 

As we consider what can I write off as a contractor, you may incur advertising-related costs as part of your business expense list. Indeed, some types of advertising may be necessary when you promote your business and are therefore allowable for tax. Therefore, such contracting expenses for business could consist of:

  • Local business sponsorship if it can benefit your business.
  • The cost of a professional update of your CV, LinkedIn profile, and other social media adverts.

Training and subscriptions 

Another item on your business and corporate expenses list could include training costs. In addition, it may include business subscriptions. Basically, from time to time, you may need to take training courses that relate to your work. In addition, your company may also pay for professional subscriptions. Therefore, such training and subscriptions for business are an allowable company expense providing that:

  • Any magazine and newspaper subscriptions which you pay for relate to your work.

Insurance costs 

In this contractor expenses guide, it’s key to explain that you may need business insurance for your company. Indeed, taking out insurance may be necessary for your business and may also be a requirement of your client(s). If you pay for business insurance costs, they’ll be tax-deductible limited company expenses. Usually, your contract will state which insurances you should take out.

Within your contractor finances, the types of insurance policies you may require are:

  • Business insurance, such as Employers and Public Liability insurance (E&PL). Although E&PL may not be mentioned in your contract, they may be required, too, in some cases. This would apply if you employ staff and work perhaps on client sites and in public areas.

One of the benefits of using this website is you can receive a contractor discount on your insurance. Please visit the insurance guides links above if you need business insurance. What’s more, you can use code CAUK10 to receive a great 10% contractor discount. The guides are written by one of the best contract insurance providers in the UK. 

Other financial policies

There are also other financial products to consider as part of your overall contractor finances. These include:

  • Relevant Life Insurance (RLI). As a contractor, can I claim life insurance as a business expense (UK)? When you take out a Relevant Life Insurance policy through your company it’s much cheaper than paying privately. Indeed, it can be up to 50% cheaper when you pay via your company, compared to you paying this cost personally. In addition, this is one of your claimable business expenses therefore your company saves tax on the policy costs. Basically, if you’re considering life insurance, or currently pay for this personally and are looking to save on the policy costs, please read our Relevant Life Insurance guide. There’s a form at the bottom of the guide which you can complete to see what you can save.
  • Income protection insurance. This policy will provide you with an income if you cannot perform your contract work for some time. This is also a tax-deductible business expense.

Accountancy and legal costs 

While you run your own business, you’ll incur accountancy costs in respect of your company. You may also, from time to time, incur legal charges for your company. These are both genuine business costs and include:

  • Accountancy fees. Typically, a monthly payment, plus any one-off fees.
  • Legal and other professional fees which are related to business issues.

Contractor expenses guide -other business expenditure

When we consider what can you claim as a contractor, which other business expenses are allowable for tax? Basically, your company may incur many other costs and expenses. Therefore, as part of your contractor deductions, what else is tax-deductible as a company expense? Any that are, should meet the wholly and exclusively test to qualify as limited company business expenses for contractors. Therefore, such costs which you make a contractor claim may consist of:

  • Entertaining costs -these can be for the entertaining of past, present, or potential future clients. Basically, client entertaining costs aren’t tax-deductible. However, you can claim for entertaining employees. Indeed, this falls under the annual event allowance (see below). Furthermore, although client entertaining expenses aren’t tax-deductible, it’s better if your business pays for them rather than paying for these yourself.
  • Bank charges and interest you incur on your business bank account.
  • The annual £13 fee you pay to Companies House each year. You do this when your business files the Confirmation Statement on an annual basis. You can also claim for any other Companies House fees you incur when you make certain changes. Basically. most changes with Companies House don’t incur a fee. However, a few changes do incur a fee. Such as when you change the company name and one or two others.

Further business expenditure

Some further business expense items in your contractor expenses list of allowable company expenses (UK) could include:

  • Trivial Benefits are one of your tax-deductible expenses (limited company). Basically, these are one of your contractor tax benefits. This is because sole traders and partnerships can’t claim these. Basically, the Trivial Benefit can’t be more than £50 each time. What’s more, only directors and employees of a `close company’ can claim these. On an annual basis, the amount you can claim is £300 for each director and employee.
  • Business clothing in some cases, however when are clothes for work tax-deductible? Basically, you’ll only receive tax relief for certain items of clothing and if you meet certain rules. Therefore, please read the guide on this to see what’s covered. Furthermore, you’re only allowed to claim if the clothing is part of a uniform or is protective clothing for your work.

Contractor expenses guide -further UK contracting expenses 

As part of thinking about what can contractors claim as expenses, there’s further potential costs. Indeed, these are allowable if you follow the rules and may also form part of your business contractor expenses list: 

  • Business gifts. You can claim up to £50 for each gift. However, these are also subject to certain conditions.
  • The costs of an annual event are allowable expenses (limited company). Indeed, this is another one of your contractor tax benefits when working through your own company. Basically, the outing can be a meal out or a similar excursion. It may include your annual Christmas dinner and other events throughout the year. The available claim is up to £150 per employee per year.
  • Relocation costs. You can claim up to £8,000 per annum in tax-deductible expenses. However, these costs are subject to certain conditions.
  • Pension contributions to a company pension scheme.
  • Depreciation. This amount is the value of an asset you write off as an expense.

Other expenses and commonly searched questions online 

As part of looking into what expenses can a contractor claim, there’s a couple more allowable business expenses. 

Can you claim glasses as a business expense (UK)?

If you need glasses for work, can you make a business expense claim when you pay for your eye tests? Indeed, if you can, this could be regarded as your HMRC eye test allowance. Basically, there’s no actual allowance as such. However, you can claim for the eye test if you need it for work/business reasons.

In addition, are glasses tax-deductible (UK) when you use these for work? Basically, the rule is your company can pay for basic glasses for your work. However, you can’t claim for designer type glasses which’ll be more expensive.

Can you claim coffee as a business expense (UK)? 

When you buy coffee or tea for personal use, it’s not tax-deductible. However, when you buy coffee or tea for your home office, this expense is an allowable business cost. As a result, you’ll receive tax relief.

Guide to expenses for UK contractors -some other not-so-well-known expenses

There are two other allowable business expenses which aren’t very well known. Indeed, when we consider what can I expense as a contractor, you could also include in your contractor expenses list:

  • As a contractor, you can claim for an annual health check-up for yourself. This’ll be fully deductible against tax. However, it only applies to the actual check-up itself and not any surgery costs.
  • If the need arises, you can also claim for counselling fees if you have mental health type issues. This doesn’t include issues arising from the use of alcohol or drugs and other self-inflicted issues.

Other considerations

Contractor expenses guide -self-employed and simplified expenses

HMRC have a guide on self-employed expenses and, in addition, `simplified expenses’ that’re available. Indeed, these are an option that can be used by:

  • Sole traders.
  • Business partnerships that have no companies as partners.

If you fall into the above worker category, there’s more information on the HMRC website covering simplified expenses. Also, HMRC’s customer forums give further guidance on claiming for expenses to reduce tax.

Tax savings

The expenses you pay for personally, as well as the expenses your company pays directly, will reduce the taxable profit of your company or self-employed business. Therefore, it’s key to claim all your genuine business expenditures. In turn, this’ll result in a lower tax charge for your business. What’s more, when you come to pay tax, the amount due will be less than it’d have otherwise been.

Final thoughts 

This guide to expenses for contractors includes lots of different types of allowable business costs. Indeed, it covers almost all types of tax-deductible business expenses you may come across. Therefore, when researching what expenses can you write off as a contractor, there’s many items listed here you can include as part of your contractor expenses list.

Depending on what type of business you run, there may be other types of limited company expenses you can claim. These could be in addition to the items on the limited company expenses list shown earlier. However, you can claim any costs or expenses you incur providing they meet the wholly and exclusively test.

As mentioned earlier in this business expenses guide, you should record each contractor expense you incur when operating your business. What’s more, you should obtain contractor receipts or invoices each time you incur a business expense. To sum up, your contractor accountant can guide you if you’re ever unsure.

As a final word, besides this contractor expenses guide, we’ve written many guides on this contractor website. We cover most of the UK business expenses items which are listed above. Please look at these for more detailed information on what you can claim and the rules which pertain to these. If you’re looking for contractor tax help and how to work tax efficiently, our guides cover many of the areas to consider when you’re UK contracting.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

Published On: January 4th, 2024 / Categories: Contractor Tips, Expenses, Main Guides, Most Read Articles, Tax Saving Guides /

Share This Guide, Choose Your Platform!

Leave A Comment