Guide
Contractor expenses: what you can and can't claim
The wholly and exclusively rule, common allowable costs, what's not allowed, the 24-month travel rule, and what an expense actually saves you.
Claiming business expenses through your limited company reduces its corporation tax, and indirectly the dividend tax you pay when you take the profit out. But the rules are strict, and getting them wrong can cost more than it saves. This guide covers what contractors can and can’t claim in 2026/27, and what an expense really saves you.
The basic rule
A company can deduct costs incurred wholly and exclusively for the purposes of its business. For costs your company pays for you as an employee (you’re both director and employee), the test is stricter: the cost generally has to be necessary for doing the job, not just helpful. Anything with a meaningful personal element is either not allowed or becomes a taxable benefit.
What you can usually claim
| Expense | Notes |
|---|---|
| Accountancy and bookkeeping | Including software such as accounting apps |
| Business insurance | Professional indemnity, public liability, IR35 insurance |
| Equipment | Laptops and phones used for work, usually through the annual investment allowance |
| Mobile phone | One phone contract in the company's name, even with some personal use |
| Travel to temporary workplaces | Train fares, parking, hotels and meals; see the 24-month rule below |
| Mileage | 45p a mile for the first 10,000 business miles a year, then 25p, in your own car |
| Working from home | A flat £6 a week without receipts, or a fair share of actual extra costs |
| Training | To update existing skills, not to retrain into a new field |
| Professional fees | Subscriptions to relevant professional bodies on HMRC's approved list |
| Pension contributions | Employer contributions paid by the company |
| Bank charges | On the business bank account |
What you can’t claim
- Commuting to a permanent workplace.
- Everyday clothing, even if you only wear it for work. Protective clothing and uniforms are different.
- Client entertaining. It can be paid by the company but isn’t deductible for corporation tax.
- Fines and penalties, including parking tickets.
- Personal costs such as gym memberships, household bills or a family holiday, even if partly work-related.
Travel and the 24-month rule
Travel to a temporary workplace is allowable; travel to a permanent one isn’t. A client site stops being temporary once you expect to spend 40% or more of your working time there for more than 24 months. The clock starts from when you expect it to pass 24 months, so if a contract is extended and that becomes the expectation, travel stops being claimable from that point, not at month 24.
If you’re inside IR35
Inside IR35, the fee-payer deducts tax as if you were an employee, and most of these reliefs fall away. In particular, travel to the client’s site is generally treated as ordinary commuting, and the 5% expenses allowance isn’t available when the client decides your status. The IR35 guide explains how inside status works.
Small extras directors often miss
- Annual party: up to £150 a head per year for an annual event open to all staff (including a partner as guest).
- Trivial benefits: gifts up to £50 each that aren’t cash or a reward for work, capped at £300 a year for directors of close companies.
- Eye tests and glasses where you use a screen for work.
What an expense really saves
On £100,000 of profit, a £1,000 expense lowers corporation tax by £265, so there’s less profit to pay as dividends, and less dividend tax on it. Overall your take-home falls by £472 rather than £1,000: the expense effectively costs you 47% of its price. That’s a discount, not free money. (Assumes a £12,570 salary and all profit paid as dividends.)
Keep good records
Keep receipts and invoices for six years, record the business reason for anything that isn’t obvious, and pay for business costs from the business account where you can. If you pay personally, claim it back through an expense claim rather than taking cash out informally.
This guide is general information, not financial or tax advice. Figures are estimates for England, Wales and Northern Ireland; speak to an accountant before making decisions.