Allowable Expenses for Limited Company Contractors (2025/26)

Last updated June 2026

Claiming legitimate business expenses is one of the simplest ways to reduce your company’s corporation tax bill and keep more of what you earn. But “what can I claim?” is also where many contractors get into trouble. This guide covers the expenses a limited company contractor can usually claim, the rules that govern them, and the mistakes to avoid.

The golden rule

HMRC allows a cost to be claimed against company profits only if it is incurred “wholly and exclusively” for the purposes of the business. If a cost has a meaningful personal benefit, it is either disallowed or must be split. Keep that phrase in mind and most expense questions answer themselves.

Claiming an expense reduces your company’s taxable profit, which reduces corporation tax. It does not give you the money tax-free in your pocket — it simply means the company doesn’t pay tax on money it genuinely spent running the business.

Expenses you can usually claim

Salaries and pension contributions. Your director’s salary is a company expense, as are employer pension contributions — often a very tax-efficient way to extract money, since the company gets relief and the contribution isn’t taxed as income now.

Accountancy and professional fees. Your accountant’s fees, company formation costs, and certain legal and professional costs related to the business.

Business travel and subsistence. Travel to a temporary workplace (not your normal commute), mileage at HMRC’s approved rate (45p per mile for the first 10,000 miles, 25p after), public transport, and reasonable subsistence when working away. Note that IR35 status and “supervision, direction or control” rules can restrict travel claims, so check carefully.

Equipment. Computers, monitors, software, and tools used for work. These may be claimed as expenses or through capital allowances depending on the item.

Home office costs. A flat £6 per week with no records required, or a proportion of actual costs if you keep evidence.

Business insurance. Professional indemnity, public liability and employers’ liability insurance.

Phone and internet. A business mobile contract in the company’s name is fully claimable. Personal contracts are harder to claim cleanly.

Training. Courses that update or maintain skills used in your existing trade are generally allowable; training for an entirely new trade usually is not.

Subscriptions. Professional bodies on HMRC’s approved list, and relevant trade publications.

Expenses people get wrong

• Ordinary commuting. Travel from home to a workplace you attend regularly enough that it counts as permanent is not claimable, even if you feel like a visitor there.
• Everyday clothing. Suits and normal business wear are not claimable, even if you only wear them for work. Only genuine protective clothing or branded uniforms qualify.
• Client entertainment. Generally not deductible for corporation tax, even though it’s a real business cost.
• Mixed-use items. A phone, car or broadband used substantially for personal reasons must be apportioned, not claimed in full.

Keep the paperwork

Whatever you claim, keep the evidence: receipts, invoices, and a note of the business purpose. HMRC can ask you to justify expenses, and “I’m sure it was for work” is not a defence. Most contractor accountants provide an app or portal to log receipts as you go — use it.

A note on dividends and salary

Dividends are not an expense — they are a distribution of profit after corporation tax, so they don’t reduce your company’s tax bill. This is a common confusion. Salary and employer pension contributions reduce profit; dividends do not. Our take-home calculator lets you add an annual expenses figure to see how genuine business costs change your overall position.

The bottom line

Claim everything you are genuinely entitled to — it directly reduces your tax — but don’t invent or stretch claims. The savings from a dubious expense are small; the cost of an HMRC enquiry is not. When in doubt, ask your accountant before you claim.

General information for the 2025/26 tax year, not tax advice. Expense rules have exceptions and your circumstances matter — confirm with a qualified accountant.