A limited company can claim a cost when the company incurred it wholly and exclusively for business purposes. A claim reduces the profit on which the company pays Corporation Tax. Equipment, software, business insurance, accountancy fees, training that builds on your existing skills and travel to a client's site usually qualify. Ordinary commuting, everyday clothing, fines and anything with a private element do not.
This guide works through the main categories, in the order contractors usually meet them. Where the rule depends on your facts, it says so, because that is where claims go wrong.
The test every expense must pass
Limited company expenses must be incurred wholly and exclusively for business purposes to be deductible against Corporation Tax. Accounting Wise phrases the general rule as "wholly, exclusively and necessary" for the business, and warns that HMRC's rules often turn on fairness and reasonableness.
An allowable expense reduces the company's taxable profit. Being allowable does not make a cost free. The saving is the tax on the expense, not the expense itself.
The test works in two parts:
- Whose cost is it? The company must be the one that incurs the cost, for the company's work.
- Is there a private element? A cost with a private element fails the "exclusively" part, so you either claim only the business share, where the rules allow that, or you do not claim it. Expenses with an element of personal use are not considered wholly business expenses.
Personal expenses, such as dry cleaning and grocery shopping, should not be included in your expense report. Doing so has exposed businesses to HMRC investigation and penalties.
Paying directly or reimbursing yourself
There are two ways to handle a cost:
- Pay it from the company bank account, using the company's card or a transfer. This is the cleanest route.
- Pay it personally and reimburse yourself. Keep a record of every reimbursement, with the receipt attached.
The company bank account should carry as many of these costs as possible. It leaves the clearest trail.
Does your IR35 status change the list?
Yes. The tax treatment of an expense does not depend on whether you work through a limited company or an umbrella company. The list of expenses you can claim depends to a large extent on your IR35 status, and it is longer for contracts outside IR35.
For contracts caught by IR35, Contractor Calculator lists the allowable items as:
- gross salary calculated under the IR35 rules
- direct expenses incurred specifically for the contract
- travel, depending on circumstances
- administration expenses, limited to 5% of gross fees receivable
If you are unsure which side of IR35 a contract falls, settle that first, because it decides how much of what follows you can use.
Equipment and software
Business equipment such as computers, furniture, tools and machinery qualifies for the Annual Investment Allowance (AIA). It lets the full cost be deducted from profits in the year of purchase, up to £1 million. Larger or longer-lasting items such as laptops, monitors, printers, chairs, desks and perpetual software licences are treated as capital assets under AIA or Full Expensing rather than as everyday expenses.
Two conditions matter:
- Assets must be used wholly for business. Where personal use is involved, only the business proportion may be claimed.
- If personal use is insignificant, it is not treated as a benefit in kind, so you do not pay personal tax on it. A benefit in kind is a non-cash benefit given to an individual that is taxable on them personally.
Full Expensing is available for new and unused main rate assets. Writing Down Allowances apply where AIA or full expensing is not claimed.
Cars are different. They do not qualify for AIA. Electric cars attract a 100% first-year allowance, and other cars are written down annually at a rate based on CO₂ emissions.
Software subscriptions such as Microsoft 365 and Xero are everyday costs, deductible in full. A mobile phone contract in the company's name and used for business is fully deductible, with no benefit in kind even where personal use is incidental. If the contract is in your name, the company can reimburse only the business share of itemised bills without tax.
If your company is on the Flat Rate VAT scheme, you can only reclaim VAT on purchases that total over £2,000 on a single receipt. Check this before assuming you can reclaim VAT on a laptop.
Travel and the commuting line
This category produces the most disputed claims.
Ordinary commuting is the journey between home and a permanent workplace, which is how HMRC defines a commute. It is never allowable, however far the workplace is. Goforma gives an example of an office 50 miles away: the distance does not change the nature of ordinary commuting. A daily drive, a season ticket, parking at the permanent workplace and a bicycle bought for commuting are all excluded.
Travel that qualifies includes:
- travel between two workplaces for the same job
- travel from home to a client or temporary workplace
- travel generally where the company or director pays, the travel is necessary for work and it is not ordinary commuting
Contractors working at a client's site are often asked about the 24-month rule. It is aimed at stopping main-site travel and subsistence claims once you have been at a working site, or intended to work there, for 24 months or more. Whether a site counts as a temporary workplace is a matter of facts, and HMRC's guide 490 on employee travel covers when travel qualifies for relief. Check how it applies to your contract before you claim, particularly on a long engagement.
Mileage
The approved mileage rate is 55p per mile for the first 10,000 miles from 6 April 2026 (45p before that date) and 25p thereafter. Keep a mileage log with journey dates, locations, purpose and distance. Without a breakdown, HMRC can refuse the claim.
If the company owns the vehicle, you cannot claim mileage. You claim actual fuel and running costs, and private use may create a benefit in kind.
Subsistence and accommodation
Meals on an overnight business trip are allowable. Meals or accommodation with no overnight stay involved are generally not allowable, so ask your accountant before claiming day-trip meals. Accommodation near a temporary workplace is claimable if reasonable and not excessive. HMRC may query expensive hotels or multi-bedroom apartments.
Working from home
The rules here are narrower for a limited company than for a sole trader. Council tax and mortgage interest are only claimable if you are self-employed, not through a limited company. In general, a company can cover only extra costs caused by working from home, such as additional gas and electricity, and not fixed costs.
Two workable approaches:
- Apportion actual costs. Count the rooms, identify the business-use rooms, estimate the time used, and apply the percentage. One business-use room in a five-room home, used 50% of the time, gives 10% of eligible household bills such as utilities and broadband.
- A rental agreement between you and the company. The rent should reflect market value. Without a formal agreement, payments may be treated as a benefit in kind. The rent counts as your personal rental income, offset by the related costs.
Whatever method you choose, agree it with your accountant and write down how you calculated the figure. If the company pays you more than the actual costs, the excess has to go through payroll with PAYE and National Insurance.
Training, fees and subscriptions
Training is allowable if it updates or enhances an existing skill. Training in a totally new skill is not. A programmer's update course qualifies, for example, while training as a driving coach does not. Books, subscriptions and courses related to your business and contract work are generally allowed.
Accountancy fees are fully relievable if the accountant's time is spent wholly on company affairs. Work on your personal affairs, such as your personal tax return, is a benefit in kind to you. Our guide to contractor accountant fees shows what is normally covered.
Insurance and pensions
Business insurance is allowable: professional indemnity, public liability, employers' liability and business contents. Employers must carry employers' liability insurance, and many agencies also demand professional indemnity cover. A Relevant Life Plan, a form of life insurance paid by the company, is also listed among the valid expenses for contracts outside IR35.
Employer pension payments to an HMRC approved scheme are allowable and reduce Corporation Tax. Once the company has a contract with a pension provider, its payments into the pension receive 100% tax relief as an allowable business expense. Annual limits apply to contributions. Take advice on the limit for your situation before making a large payment. It also bears on how you split your income, which we cover in salary and dividends for contractors in 2026-27.
Small benefits and staff events
A trivial benefit needs no tax or National Insurance if it costs less than £50 to provide, is not cash or a cash voucher, is not a reward for work and is not in the contract.
For staff events, you must not exceed £150 per head including VAT, and the event should be mostly for staff. Go over the limit and you risk losing the whole claim.
What the company cannot claim
| Cost | Why |
|---|---|
| Ordinary commuting | Journey between home and a permanent workplace |
| Everyday clothing, suits | Fails the wholly and exclusively test. Branded uniforms are different |
| Fines and penalties | Parking fines, speeding tickets, late filing penalties, HMRC penalties and court fines never attract relief |
| Council tax and mortgage interest | Only claimable if self-employed, not through a limited company |
| Dividends | Not an expense, so they do not reduce the company's taxable profit |
| Mixed personal and business costs | Fails the exclusively test unless you can separate the business share |
Two categories need care because they are paid by the company but behave differently.
Client entertainment. Your company can pay for it, but you will not get Corporation Tax relief. The cost comes out of profit after tax.
Private medical insurance for a director. This is a benefit in kind. The company pays Class 1A National Insurance, you pay income tax on the benefit value, and there is no Corporation Tax relief.
If the company pays a personal cost by mistake, tell your accountant straight away rather than leaving it in the books. How it is corrected depends on what was paid and how it is recorded.
A worked example
A contractor buys a £1,000 laptop through the company, which is used for client work only. It qualifies for AIA, so the full £1,000 is deducted from company profit in the year of purchase. The company pays Corporation Tax on £1,000 less profit.
If the same laptop were also used by the family at home, only the business proportion could be claimed, and the personal use must not be more than insignificant, or a benefit in kind arises.
Now take a day at a client's site that is a temporary workplace. The company can claim the mileage at the approved rate with a log, or the train fare against a receipt. The same journey to an office you attend permanently, however far, is ordinary commuting, and nothing is claimable.
Records you must keep
Keep receipts, invoices, mileage logs and a note of how you calculated each apportionment. Records must be retained for at least six years from the end of the accounting period. An individual cannot claim for an un-receipted business expense that they did not genuinely incur and cannot evidence. If you cannot prove a cost, HMRC can treat the claim as unproven.
A simple routine works: photograph the receipt the same day, name it with the date and purpose, and record whether the company or you paid.
Frequently Asked Questions
Can a limited company claim expenses without receipts?
Not safely. You must be able to evidence that the cost was genuinely incurred, and records need to be kept for six years.
Can I claim for travel to my client's site?
Often yes, if the site is a temporary workplace rather than a permanent one. Ordinary commuting is never claimable. The 24-month rule limits main-site claims on long engagements.
Are expenses different if I use an umbrella company?
The tax allowability of an expense does not depend on whether you use a limited company or an umbrella company. What you can claim depends heavily on your IR35 status.
Can the company pay for my training?
Yes, if the training updates or enhances a skill you already use in your contracting work. A course in a totally new skill is not allowable.
Does paying myself a dividend reduce the company's tax?
No. Dividends do not reduce the company's taxable profit.
If you would rather not track this yourself, Deplexify's accounting for UK contractors covers the accounts and tax returns for contractor companies.
Sources
- Allowances, expenses and reliefs when you run a business - GOV.UK — gov.uk, read 2026-10-18
- Tax and National Insurance contributions for employee travel: 490 - GOV.UK — gov.uk, read 2026-10-18
- What expenses can you claim as a contractor? – IR35 Tax tips — contractorcalculator.co.uk, read 2026-10-18
- Maximise Tax Savings with Claimable Contractor Expenses — biaccountancy.com, read 2026-10-18
- Limited Company Expenses, What Can Be Claimed? | Accounting Wise — a-wise.co.uk, read 2026-10-18
- Can home expenses still be claimed as a limited company? — contractoruk.com, read 2026-10-18
- Comprehensive guide to contractors’ expenses — dnsassociates.co.uk, read 2026-10-18
- Allowable Limited Company Expenses 2026/27: Full UK List — goforma.com, read 2026-10-18
- Would commuting cost me less as a limited company? — contractoruk.com, read 2026-10-18
- Contractor Expense: 10 Key Costs You Should Be Claiming — chacc.co.uk, read 2026-10-18