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Contractor Expenses Guide 2024: Limited Company Costs Guide

Contractor expenses guide and limited company expenses -allowable business expenses

Introduction 

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

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

Initial thoughts on allowable expenses for UK contractors 

First thoughts 

A common question arises when you’re becoming a contractor (UK) and setting up your company for the first time or are already running your own company. That is, as a limited company contractor, what expenses can I claim? As part of a standard contracting expenses list, what are legitimate company costs? As a business contractor, you may work in IT or some other industry and incur many expenses as a limited company. However, which expenses and legitimate business costs can you claim through your business? If you 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 an independent contractor claims through their company as tax-deductible business expenses. Indeed, as a UK contractor, we must look at UK tax office guidelines when considering what expenses I can claim (limited company) and what you can include as tax write-offs for contractors.

What is the 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’s allowable expenses (UK) should satisfy the following rule:

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

The above means a contractor’s expenses align with their company’s business engagements and activities. Furthermore, limited company costs and your 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.

What we’ll look at in this guide

This guide will cover what I can claim as a contractor and look at a UK company’s legitimate business expenses. What’s more, we’ll look at the various tax deductions for contractors through a contractor expenses list. We’ll research different aspects of allowable costs for limited companies and take an excellent in-depth look into UK contractor allowable expenses (limited company). In addition, we’ll research the different types of costs for a business and look at a UK business expenses list. Furthermore, we’ll review what you can claim as your tax-deductible contracting expenses and explain some contractor tax benefits.

Further initial thoughts

What should you consider first for your business expenses in the UK?

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

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

Your contractor limited company expenses and income are shown in your company’s Profit and Loss account. Indeed, you or your accountant will include this information when preparing 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.

What are the benefits when you claim your legitimate business costs?

On one hand, as a 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 pay for some business costs directly yourself. Indeed, you could be using a personal credit card for business expenses (UK). Moreover, you may pay some business costs in cash or via your personal bank account. Nonetheless, you should record and keep receipts for all company expenses to receive tax relief.

In this IT contractor expenses guide, it’s key to explain that when you pay for limited company allowable expenses personally, two benefits arise when you ensure your company reimburses you for business expenses. Most business owners will ensure there is a reimbursement for small business expenses to the owner/director regularly. Most will make an expense reimbursement at the end of the month.

What are the 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 costs and expenses. When you have a UK company and are a contractor claiming expenses, your business will save Corporation Tax (CT). This will 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, claiming all your genuine business costs is key, as you’ll receive contractor tax deductions.
  • Your company can reimburse you for independent contractor expenses. Your business will refund the value of these Ltd company expenses. This is because you paid for these business costs in the first place. As a result, you feel the benefit of the reimbursement.

Contractor expenses guide -expenses processes 

Record your business expenses

When you incur contractor costs and expenses as part of your daily work, you should record them on an ongoing basis. You can also collect evidence of each spend through an invoice or receipt and record it in your accounts system. Moreover, when using an online accounting system such as FreeAgent, you can take photos of your contractor receipts and store these online.

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

Recharge your business expenditure

When you run your own business, you incur the `usual’ running costs. As part of your contract work, you may 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.

Moreover, if you’ve paid for any business costs personally when you recharge expenses, please claim these back from your own company, as mentioned earlier.

Obtain & retain contractor receipts

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

When you buy a product or service, invoices or receipts should be in your business’s name as opposed to your personal name. Moreover, having a receipt in the business name is important as it shows the product or service is for the company.

Contractor expenses guide -what else should you consider regarding business costs?

Duality of purpose 

As a business owner, explaining another area in this guide to claiming expenses is key. This is why 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 uses 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 may be part of a business trip and holiday. Therefore, they could disallow it when there’s a query from HMRC that the expense may not have occurred without the personal element.

What sorts of business costs can you claim?

There are many types of tax-deductible limited company expenses for business contractors. In addition, these can range across many different business expense categories. Indeed, contractors can claim many business expenses and costs when they own their own business. Furthermore, your allowable company expenses and contractor tax write-offs may differ depending on your industry and the service you provide.

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

VAT 

When contracting, you may need to 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 scheme, you can reclaim VAT on all your costs, including VAT, subject to a few exceptions.

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

Contractor expenses list 

Let’s now investigate what a contractor can deduct on taxes through a contracting expenses list. Basically, there are 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 contracting expenses are shown below in a list of business expenses. 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 assumes 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 expenses list above covers basic costs one can claim through a contractor’s limited company. Indeed, these types of contractor costs and what you can write off as a contractor, as shown in the list of expenses above, are covered in more detail below. Moreover, we include other types of allowable business expenditures you can claim.

Claiming travel expenses as a contractor for your business trips

One of the main items on your contactor expenses list is limited company travel expenses. Therefore, many often ask if a contractor can claim travel expenses for business journeys. The HMRC advice states you can only claim travelling-type costs if you meet the criteria. Indeed, the criteria are 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. These expenses will occur 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. Other extra travel costs could be when you attend training courses and seminars or travel to buy company supplies.

When considering whether contractors can claim travel expenses, we cover the basic rules above. These state that you can claim costs when visiting a temporary workplace or undertaking other business-related journeys. 

What type of travelling expenses can you claim?

As we mentioned above, you can claim for travel to and from temporary workplaces. Therefore, we’ll now consider the types of travel charges for contractors within your UK contracting expenses. Indeed, the 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. In addition to business mileage, other costs could include rail 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 working away. Some HMRC standard meal allowances are also available, which 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 that covers sundry types of costs. These’ll cover phone calls home, coffee, 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 claiming mileage as a contractor, HMRC sets the rates 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 changes to 25 pence per mile for each mile travelled thereafter. *
  • 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., a claim for the distance travelled). *

* Please note that all travelling and motor expenses are subject to some travelling tax rules, 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. Moreover, it includes the tax/NI costs and salary-related expenses, such as pensions. As a result, they’ll help reduce company tax. The salary costs may consist of:

  • Company pension scheme contributions.
  • Employer’s NI payments on any wages above the NI threshold.
  • Staff pension schemes. Under auto-enrolment, employers must now 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 & broadband charges 

You’ll probably incur phone charges as a UK contractor and business owner. 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.

Contractor expenses guide -office expenses

Another prominent item on your small business expenses list (UK) is your contractor office costs. You’ll incur allowable business expenses as part of your work, especially when you work from home. The 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 the use of the home as an office, which we explain below.
  • Contractor office supplies, such as postage, stationery and business cards.
  • Printing costs.
  • Use of home as office allowance when you work from home. If you work from home, it only seems fair that you can claim a proportion of your home running costs. These costs would include electric and gas as well as water rates. However, you shouldn’t include council tax as it’s 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 must 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, printer toners etc.
  • Technical books and journals which relate to the work you do.

Advertising expenses 

When considering what I can 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. Thus, such contracting expenses for business could consist of the following:

  • 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 & subscriptions 

Another item on your business and corporate expenses list could include training costs. In addition, it may consist of business subscriptions. Occasionally, you may need to take training courses relating to your work. In addition, your company may pay for professional subscriptions. Therefore, such training and subscriptions for business are an allowable company expense providing:

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

Insurance costs 

In this contractor expenses guide, it’s key to explain you may require business insurance for your company. Indeed, taking out insurance may be necessary for your business and could be a requirement of your client(s). If you pay for business insurance, they’ll be tax-deductible costs for your company. Usually, your contract will state which insurance 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, it may be required 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 contractor website is that you can receive a contractor discount on your insurance. Please visit the insurance guide links above if you require business insurance. Moreover, you can use code CAUK10 to receive a 10% discount. One of the best contract insurance providers in the UK writes the guides. 

Other financial policies

There are 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)? Taking out a Relevant Life Insurance policy through your company is much cheaper than paying privately. Indeed, it can be up to 50% more affordable when you pay via your company compared to 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 paying 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 an income if you can’t perform your contract work for some time. Key, this is a tax-deductible business expense.

Accountancy & legal costs 

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

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

Contractor expenses guide -other business expenditure

When we consider what you can claim as a contractor, which other business expenses are allowable for tax? Basically, your company may incur many different 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. Client entertaining costs aren’t tax-deductible. However, you can claim to entertain 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 £34 fee you pay to Companies House each year when you file the Confirmation Statement online (£62 when filing on paper). What’s more, you can claim for other Companies House fees you incur when you make specific 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 list of allowable company expenses (UK) could include:

  • Trivial Benefits are tax-deductible expenses (limited company). They 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. Moreover, only directors and employees of a `close company’ can claim these. On an annual basis, you can claim £300 for each director and employee.
  • Business clothing is tax-deductible in some cases; however, when are clothes for work tax-deductible? You’ll only receive tax relief for specific clothing items if you meet certain rules. Therefore, please read the guide to see what’s covered. Furthermore, you can only claim if the clothing is part of a uniform or is protective clothing for your work.

Contractor expenses guide -further UK contracting expenses 

There are further potential costs regarding what contractors can claim as expenses. Indeed, these are allowable if you follow the rules and may form part of your business contractor expenses list: 

  • Business gifts. You can claim up to £50 for each gift. However, these are subject to certain conditions.
  • The costs of an annual event are allowable expenses (limited company). Indeed, it’s 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. In 2024/25, you can now pay £60,000 per annum and use up any unused relief from the previous three tax years.
  • Depreciation. This amount is the value of an asset you write off as an expense.

Other expenses & commonly searched questions online 

There are more allowable business costs when determining what expenses a contractor can claim. 

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 or business reasons.

In addition, are glasses tax-deductible (UK) when you use them for work? Your company can pay for basic glasses for your job. However, you can’t claim designer-type glasses, which will 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, and you’ll receive tax relief.

Guide to expenses for UK contractors -are there any 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 include in your expenses list:

  • An annual health check-up for yourself. This will be fully deductible against tax. However, it only applies to the actual check-up and not surgery costs.
  • If the need arises, you can 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.

Further expenses considerations

Contractor expenses guide -self-employed & simplified expenses

HMRC have a guide on self-employed costs and, in addition, `simplified expenses’ which are 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, more information on the HMRC website covers simplified expenses. Also, HMRC’s customer forums give further guidance on claiming expenses to reduce tax.

Tax savings

The expenses you pay 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. This will 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 many types of allowable business costs. Indeed, it covers almost all kinds of tax-deductible business expenses you may come across. Therefore, when researching what expenses you can write off as a contractor, many items are listed here that you can include as part of your contractor expenses list.

Depending on what type of business you run, you may be able to claim other types of limited company expenses in addition to those listed. However, you can claim any costs or expenses you incur, provided 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 and obtain contractor receipts or invoices each time you incur a business expense. In summary, your contractor accountant can guide you if you’re unsure.

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

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