What can you claim in 2026/27 tax year? See our guide to claiming all allowable expenses, reducing your tax bill and avoiding HMRC corrections.
This guide provides general information for UK limited-company contractors. Tax treatment depends on your circumstances, so if you're unsure whether an expense is allowable, get advice before claiming it.
As a contractor or a consultant providing services through a limited company, there are potentially a broad range of business expenses that can be claimed to reduce corporation tax. Broadly, expenses that are wholly and exclusively for business purposes are allowable. Where there is both business and private use, the tax treatment depends on the nature of the expense and the relevant rules. In some cases an appropriate business proportion can be claimed; in others, the expense may not be allowable.
However, context matters. Timing matters. How you claim can matter just as much as what you claim for. Understanding which expenses are legally allowable and claiming them properly can improve tax efficiency significantly.
| Expense | Generally allowable? | Key consideration |
|---|---|---|
| Travel and mileage | Yes (if temporary) | Highest-value deduction. Must be to temporary client sites, not regular commuting. |
| Home office | Yes | Sometimes overlooked. Use actual costs method for established contractors, this often saves more than flat rate. |
| Business equipment and other capital items | Generally yes, subject to the rules | Capital items are normally claimed differently — via capital allowances, not as regular expenses. |
| Professional fees & training | Yes, if business-related. | Genuine training fees are allowable, as well as membership to professional bodies. |
| Meals and accommodation | It depends | Only if working away from normal base. Narrowly defined—keep receipts. |
| Ordinary commuting | No | You can't claim travel to a permanent workplace. A temporary workplace can become permanent when you expect the engagement to exceed 24 months. |
| IR35 status impact | Depends on status | Inside IR35 can restrict the expenses available, particularly travel and subsistence. |
An allowable expense doesn't save you the full cost. If your company spends £1,000 on a genuine allowable business expense, that doesn't mean you've saved £1,000 in tax. The expense reduces your company's taxable profit, so the actual tax saving is normally a proportion of the £1,000.
For example, at a 19% Corporation Tax rate, a £1,000 allowable expense could reduce Corporation Tax by £190. The expense still cost the company £1,000 — you've simply reduced the tax that would otherwise have been payable. This is why expenses should be claimed when they're genuinely incurred for business purposes, rather than because they're tax-efficient.
Many contractors work from home. This is one of the most misunderstood deduction areas because contractors either claim incorrectly or claim too much.
Simplified flat rate: Your limited company can pay you up to £6 per week (£26 per month) towards additional household costs if you regularly work from home under qualifying homeworking arrangements. Simple, no receipts needed, but often not the most tax-efficient option for established contractors. Phone and internet are not included in flat rate. They must be claimed separately.
Actual costs: Your limited company can reimburse you for the additional household costs you incur as a result of working from home. Work out a reasonable amount based on the additional costs attributable to your homeworking and keep a record of how you calculated it.
For example, where appropriate, you may calculate the business proportion of a household cost by reference to the part of the home used for work and the amount of time it is used for work. Costs that would be incurred whether or not you worked from home are not additional household costs and cannot simply be included in the calculation.
Travel is one of the highest-value deductions for contractors, but the rules vary depending on where you're working and your IR35 status.
Differentiating a temporary place of work from permanent can often be open to interpretation and requires careful consideration. The 24-month rule is about expectation, not simply time served. If, at any point, you expect your engagement at the same workplace to last for more than 24 months, that workplace can become a permanent workplace for tax purposes from that point. This means the tax treatment of travel and subsistence can change before you actually reach 24 months.
For example, if a 12-month contract is extended and the new expected end date takes your total time at the workplace beyond 24 months, you should review your travel expenses from the date that expectation changes.
Contractor-specific expenses often get overlooked here.
Keep invoices, receipts and contracts. Be ready to explain how each one helped your business generate income.
It's important to use the correct allowance and rate.
Capital vs revenue: Generally, items that can be used over more than one year or accounting period and provide an economic benefit to the business over this time are considered capital in nature. There are most often tax deductions for both capital items and revenue expenses, they just have to be claimed in different ways. Allowable revenue expenses can be claimed in the period incurred but capital costs require further consideration with reference to capital allowances.
Capital allowances are generally available tax relief on many items purchased for the business that will provide a benefit to the business over more than one year. Unlike revenue expenses, where the benefit is typically used immediately or over a shorter time frame.
Many contractors miss these distinctions which can result in over or under claiming allowable tax relief.
HMRC has strict rules here—always keep receipts. You can only claim if you're working away from your normal base.
It is important to retain receipts, as these may be requested by HMRC.
Your limited company can provide tax-efficient benefits to you as a director and employee. Some benefits can be provided tax-efficiently, but the tax treatment depends on the particular benefit and whether the relevant exemption applies.
Your IR35 status affects how your company can treat certain expenses. If your contract is outside IR35, your company can generally claim allowable business expenses under the normal rules. Inside IR35 you're taxed like an employee and lose most of those deductions.
The distinction matters particularly for travel and subsistence, where the rules can differ depending on your IR35 position and assignment.
Your company is treated as an independent contractor and is allowed the usual tax deductions for business expenses.
HMRC says you're effectively an employee. When the contract is inside IR35, income is subject to PAYE and National Insurance. You generally cannot treat the costs of that assignment as business expenses of your own limited company.
Your IR35 classification dramatically affects which expenses you can claim. This is critical, often overlooked, and worth getting professional advice on upfront.
Use a dedicated business bank account for your company. It simplifies record-keeping, reduces year-end fees, and keeps documentation tidy. Mixing personal and business transactions makes record keeping more time consuming and unnecessarily complicated.
Many contractors don't realise they can claim travel, home office, training, and professional fees. Read the guide above to see what applies to you.
Keep evidence for every expense claim. HMRC may ask for proof years later. Digitise receipts as you go. Use apps like Dext, HubDoc or similar to capture expenses in real time.
Many contractors don't realise that being inside IR35 means you lose most business deductions and have PAYE and National Insurance deducted, typically from your day rate. This can significantly reduce your take-home pay.
Equipment and other capital purchases need to be claimed as capital allowances, not as regular business expenses. Getting this wrong overstates taxable profits.
Home office, training, professional fees—many contractors leave money on the table because they assume these aren't claimable. Many may be, when documented properly.
HMRC requires you to keep records for at least six years. This isn't just for audits—it's the basis for tax deductions.
| Record type | Details |
|---|---|
| Receipts and invoices | Digital copies are acceptable. Capture them immediately using a receipt app. |
| Mileage logs | Date, origin/destination, purpose, mileage. A simple spreadsheet works. |
| Bank records | Show what was paid and to whom. Reconcile at least monthly. |
| Home office calculations | Document what you claimed and how you split any costs between business and personal use. |
| Contracts | Keep copies of your engagement contracts for reference. |
Claiming allowable expenses is just the first part of tax efficiency. For limited companies, the mix of salary, dividends, and pension contributions matters significantly.
Maximising allowable expenses reduces taxable profit, but an efficiently structured balance between salary and dividends can increase tax efficiency even further.
It is perfectly possible to file your own tax returns, although an accountant with specific contractor experience can usually add significant value beyond the fees charged by:
See our contractor accountant service to learn more about what we offer.
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