Contractor Expenses You Can Claim in 2026/27

Why Expenses Matter for Contractors

Getting your expense claims right is one of the most effective ways to reduce your tax bill as a limited company contractor. While your salary and dividends determine your personal tax, company expenses reduce your corporation tax liability at 19–25%. Every £1,000 of legitimate expenses saves your company £190–£250 in corporation tax.

For the 2026/27 tax year, the rules remain broadly unchanged from previous years, but HMRC continues to scrutinise certain areas — particularly travel and subsistence claims for contractors deemed inside IR35. Getting it right means keeping impeccable records and understanding the distinction between what's allowable for a limited company contractor versus what's deductible for an umbrella company employee.

Travel and Mileage

Travel expenses are among the biggest deductions for contractors. If you work through your own limited company and are genuinely self-employed (outside IR35), you can claim:

• Approved Mileage Allowance Payments (AMAP): 45p per mile for the first 10,000 miles per tax year, then 25p per mile thereafter for cars and vans.
• Motorcycles: 24p per mile.
• Bicycles: 20p per mile.
• Train, tube, bus, and air fares: The full cost of public transport between home and a temporary workplace.
• Tolls and congestion charge: Fully deductible if incurred on business journeys.
• Parking: Business parking costs are fully deductible.

Key rule: Your regular office (your home or a dedicated business premises) must be your base. Travel from home to a client site counts as business travel — but only if that client site is a temporary workplace (lasting less than 24 months).

Home Office Expenses

Most contractors work from home at least part of the time. You have two options for claiming home office costs:

Simplified Expenses

HMRC allows a flat rate of £6 per week (£312 per year) with no questions asked. This is the simplest option and requires no apportionment calculations. However, it often undervalues the actual cost of a dedicated home office.

Actual Cost Method

Claim a proportion of your household bills based on the number of rooms used for business or the floor area of your home office. Typical claims cover:

• Council tax (business-use proportion)
• Mortgage interest or rent (not capital repayment)
• Utilities — gas, electricity, water (usage proportion)
• Home insurance
• Broadband and phone line rental (but not personal calls)

For example, if you use one room out of five exclusively for business and work from home three days a week, you might claim 60% of one-fifth of your total household bills — roughly £60–£120 per month depending on your property.

Equipment and Technology

The Annual Investment Allowance (AIA) lets you claim 100% of the cost of most business equipment against your company's profits in the year of purchase, up to £1 million. This is effectively an instant write-off. Common contractor claims include:

• Laptop or desktop computer — £800–£3,000
• Monitors, keyboards, mice, docking stations — £200–£1,000
• Ergonomic office chair — £200–£1,200
• Desk (standing or fixed) — £200–£800
• Printer, scanner, shredder
• Phone (if predominantly business use)
• Software licences — Microsoft 365, Adobe, Slack, Notion, JetBrains
• Cloud storage — Dropbox, Google Drive, iCloud for business

Warning: If you use equipment for personal as well as business use, you must declare the private use proportion as a benefit-in-kind on form P11D. Most contractors keep business-only equipment to avoid this complication.

Professional Subscriptions and Insurance

These are fully allowable business expenses:

• Professional memberships: BCS, IET, BIMA, APM, CIMA, or any body relevant to your profession.
• Professional indemnity insurance: Essential for most contractors and fully deductible.
• Public liability insurance: Often required by clients or contracts.
• Employer's liability insurance: A legal requirement if you have employees.
• Accountancy fees: Including your accountant's monthly fee and any additional year-end work.
• Legal fees: For contract reviews (though not for disputes over your own conduct).

Subsistence and Entertaining

You can claim the cost of meals and refreshments when travelling for business — but there are strict rules:

• Subsistence: Reasonable meal costs while away from your home office on business. HMRC doesn't set a fixed rate for limited companies, but £5–£10 breakfast, £10–£15 lunch, and £15–£25 dinner are generally accepted. Overnight accommodation is also deductible.
• Staff entertaining: Client entertaining is NOT deductible for corporation tax (disallowable). However, entertaining employees (including yourself as a director) IS deductible. You can hold an annual Christmas party or summer event at up to £150 per head tax-free.

What Inside IR35 Contractors Can Claim

If you're working inside IR35 through an umbrella company, your expense options are severely limited. HMRC treats you as a deemed employee, meaning:

• No travel and subsistence deductions (since the Agency Workers Regulations 2010 + IR35 legislation removed these for umbrella company workers supervised by the client).
• No home office claims — your umbrella company is your employer, not you.
• No equipment claims through the umbrella — you can claim capital allowances personally but the benefit is limited.
• Keeping your limited company open while working inside IR35 has been targeted by HMRC — seek specialist advice before maintaining dual structures.

If you're outside IR35, you keep full access to all the deductions above. This is one of the biggest financial differences between the two statuses — see our IR35 rate uplift calculator for the numbers.

Record Keeping Best Practices

HMRC can ask to see expense records up to six years after the tax year. Digital records are strongly preferred:

• Use software like Dext (formerly Receipt Bank), AutoEntry, or Hubdoc to scan receipts.
• Keep mileage logs with dates, destinations, mileage, and purpose for each journey.
• Maintain a home office usage log or floor plan to support your apportionment method.
• Record equipment purchases with invoice dates, amounts, and proof of business use.
• Your accountant (see our best contractor accountants guide) should review your claims annually before filing the company return.

Comparison: Expenses by Working Arrangement

Frequently Asked Questions

Disclaimer: This guide is for informational purposes and does not constitute financial or tax advice. Tax rules can change and individual circumstances vary. Always consult a qualified accountant or tax adviser before making expense decisions.