UK Contractor expenses guide -learn what you can claim

Introduction 

This article 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 advice in this article being aimed at UK limited company contractors, most tips also apply to small and medium business owners too. Within this business expenses guide, we’ll look at UK limited company contracting expenses and investigate what are business expenses for contractors. In addition, we’ll look at a contractor expenses list which includes many different types of company expense. Indeed, contractor and small business owner costs and expenses cover a wide range. In addition, many of these have certain rules to consider before you can make a business expense claim.

In this guide, we’ll study what can you expense as a contractor. What’s more, we’ll take a look at what are 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 are allowable business expenses (UK) and legitimate business expenses for your contractor company.

Initial thoughts on allowable expenses for limited company contractor

First thoughts

When you are 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 and what are allowable business expenses (UK)? 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 costs can you claim through your business? If you do work in IT, as many contractors do, what can claim as part of your IT contractor tax deductions?

What expenses can an independent contractor claim through their company as legitimate business costs, and 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 tax office guidelines.

Wholly and exclusively test

Per HM Revenue & Customs (HMRC) 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, this also means that the limited company expenses and the contractor’s tax deductions which you make a business expense claim for should not 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? In addition, we will also look at the various tax deductions for contractors which are available and we’ll look at 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). In addition, we’ll look at the different types of expenses for a business and take a 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 will cover all of the above. We will also look into what you can claim as expenses and look at various 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 is key to note, when you are in business as a contractor limited company, you can claim for any of your contractor’s costs or limited company expenses which you incur for business purposes. However, when you are 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 will advise what sort of costs you can deduct when you are claiming business expenses (UK). You can check this with them if you are unsure or in doubt.

Your contractor limited company expenses along with its income will be shown in your company’s income statement. Indeed, you or your accountant will do this when you prepare the business year-end accounts. Each financial year, you will 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 allowable business expenses (UK)

On one hand, as a limited company contractor, when your company pays for expenses, it will 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 (UK). On the other hand, you may for some business expenses in cash or via your personal bank account.

It is 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 these 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 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 are self-employed, you will save Income Tax at your highest personal tax rate. Therefore, it’s key to claim for all your UK business expenses as you will 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 contractor business expenses (UK)

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 this data as a receipt or invoice 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 article that covers tax tips for UK contractors. This contains some handy advice you should know when you have your own business. In addition, this article 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 have paid for any of the 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 will 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 on paper or electronically.

When you purchase something online, you might receive the invoice via email. On the other hand, you can download it from the website where you buy this. As a result, you can store this electronically or print it out.

Finally, 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 cost 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 is key to explain another area to consider. 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 is key to note that HMRC use this term where there is 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 is any query from HMRC that the expense may not have occurred if it were not for the personal element, they could disallow it.

What sorts of contractor business expenses (UK) 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 are many different types of business expenses and costs for contractors which you can claim when you have your own business. Furthermore, your allowable company expenses and contractor tax write-offs will also differ depending on which industry you are in and which type of service you are 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 

It may also be worth thinking about registering 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 will be able to reclaim the VAT on all of 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. Basically, there are some main types of UK business expense categories of costs which you can claim. Indeed, these costs will be different types of business expenses that you incur for your company. In addition, you will 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 are limited company contracting, you can claim expenses that fall under these categories. As a result, you will record them as a contractor cost through your business. Indeed, this is of course assuming that such costs meet the wholly and exclusively test. Therefore, our list of deductible business expenses is shown below.

The UK business expenses list above covers basic types of contractor costs that you can claim through a contractor’s limited company. Indeed, when we consider what can you write off as a contractor, we cover the items in the list of expenses above in more detail below. What’s more, we also include other types of expenses that 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 is 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 allowable expenses when you visit a temporary workplace. However, the word temporary is not so well defined. But, there is something called the 24-month rule for contractors. Indeed, this rule explains how HMRC treat a `temporary workplace’.

As part of your day-to-day work, you will incur contractor travel expenses. What’s more, you will 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 explain the rules above. Therefore, these are you can claim 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.

• The costs for any overnight stays for work reasons. These costs include hotels or B&Bs. It may even include a temporary rented house or flat and the property running costs such as gas, electric, etc. *

• You will 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 also 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 will 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, you will incur allowable business expenses. Therefore, when we look into 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 are 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 will help reduce company tax. The salary costs may include:

• A salary for you as the contractor and wages for all business staff. The staff will usually be you and perhaps your spouse.

• 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 would 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 will 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 will 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 that 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 will 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 do not have separate business premises. Therefore, if you do not 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, if you can claim a proportion of your home running costs. These costs would include electric and gas as well as water rates. However, they would not include council tax as this is fixed, whether you work from home or not. Under HMRC’s present allowed rates, you can now claim for £6 per week as a business expense claim. In some cases, you may be able to claim for more than this. This is even more the case 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 costs will be a 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 are working.

• Computer and other equipment purchased for the business. Such equipment could include desktops, laptops and different types of computer equipment or office equipment.

• Business software for your work.

• Printer cartridges, printer paper and printer toners etc.

• Technical books and journals that relate to the work that 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. Therefore, such contracting expenses could consist of:

• Advertising and marketing for your business. This includes the cost of business cards and flyers.

• The cost to set up and run a business website.

• 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 will be a company expense providing:

• Professional training courses, if these relate to the work that you do.

• Certain professional subscriptions to professional bodies and organisations representing and supporting your work area.

• Magazine and newspaper subscriptions, if these 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 will be tax-deductible limited company expenses. Usually, your contract will state which insurances you need to take out.

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

• Professional indemnity insurance.

• Business insurance, such as Employers and public liability insurance. Although they may not be mentioned in your contract, they may be required, too, in some cases. This would be the case if you have employees 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 article links above if you need business insurance policies. In addition, you can use code CAUK10 to receive a great 10% contractor discount. The articles 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 will include:

• Relevant Life Insurance (RLI). Can I claim life insurance as a business expense (UK)? When you take out a Relevant Life Insurance policy through your company this is much cheaper than paying privately. 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 will save tax on the policy costs. Basically, if you are considering life insurance, or currently pay for this personally and are looking to save on the policy costs, please read our guide. In addition, please consider completing the form at the bottom of the article 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.

• Critical illness insurance -this will protect you if you fall terminally in the future.

Accountancy and legal costs 

While you run your own business, you will 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 they 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 expenses are allowable for tax? Basically, your company may incur many other costs and expenses. Therefore, as part of your contractor deductions, which ones are allowable as a company expense? Any that are, will be limited company business expenses for contractors. Therefore, such costs which you make a contractor claim for may consist of:

• Entertaining costs -these can be for the entertaining of past, present, or potential future clients. Basically, client entertaining costs are not allowable for tax. However, you can claim for entertaining employees. Indeed, this falls under the annual event allowance (see below). Furthermore, although client entertaining expenses are not tax-deductible, it is better if your business pays for them rather than paying for them yourself.

• Bank charges and interest which 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 that you incur when you make certain changes. Basically. most changes with Companies House do not 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 items of expenditure on your company expenses (UK) could include:

• Trivial Benefits -these 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 cannot claim these. Basically, the Trivial Benefit cannot 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 will 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 is covered. Furthermore, you are 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 are further potential costs. Indeed, these may also form part of your contractor expenses list and could include:

• 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 due to 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 in tax allowable expenses. However, these costs are subject to certain conditions.

• Any company formation costs.

• Charitable company donations, however these too 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 in to what expenses can a contractor claim, there are a couple more areas.

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 is 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 cannot claim for 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 is not tax-deductible. However, when you buy coffee or tea for your home office, you can claim for these. As a result, these will be a business expense and receive tax relief.

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

There are two other allowable business expenses (UK) which are not 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 will be fully allowable 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 does not include issues arises for the use of alcohol or drugs and other self-inflicted issues.

Other considerations

Contractor expenses guide -simplified expenses

HMRC have some Simplified expenses that 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, there is more information on the HMRC website regarding this.

Tax savings

The expenses that you pay for personally, as well as the expenses that your company pays directly, will reduce the taxable profit of your company or self-employed business. Therefore, it is key to claim all of your genuine business expenditures. In turn, 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 would have otherwise been.

Final thoughts 

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

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

As we mention earlier in this business expenses guide, you should record each and every contractor expense you incur when operating your business. In addition, you should also obtain contractor receipts or invoices each time you incur a business expense. To sum up, your contractor accountant can guide you if you are ever unsure.

As a final word, besides this contractor expenses guide, we have written many articles on this website. This includes on 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 more detailed rules around these. If you are looking for contractor tax help and how to work tax efficiently, our articles also cover many of the areas to consider when you are UK contracting.

Link to Contractor Advice UK group on

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