It probably won’t surprise you to learn that expenses are a popular topic for limited company contractors.
When your limited company spends money on something for the business, that cost reduces your company’s profit. Less profit means less Corporation Tax. That’s why claiming legitimate expenses is one of the most straightforward ways to keep more of what you earn.
There are two types of spending to understand; both are legitimate, and both reduce your company’s taxable profit.
The Golden Rule
HMRC requires that a business expense must be "wholly and exclusively" for business purposes. If something has a personal element as well as a business one, you can usually only claim the business proportion.
A few examples of what this means in practice:
- A laptop used only for work: 100% claimable.
- A laptop used for work and personal browsing: you can claim a reasonable business proportion, but not all of it.
- A holiday where you visit a client for one day: the client lunch might be claimable, but your flights and hotel almost certainly aren’t.
- A suit bought for a client meeting: not claimable it doubles as regular clothing.
If you’re ever unsure, ask yourself: “Would I have spent this money if I wasn’t running this business?” If the honest answer is yes, it probably has a personal element.
Record Keeping
HMRC requires you to keep records of your business income and expenses for at least six years from the end of the accounting period they relate to.
Good records protect you in the event of an enquiry and make your annual accounts and tax returns much quicker to prepare.
What to keep
For every expense, you need a receipt or invoice showing the date, supplier, amount, and a description of what was purchased. You’ll also need evidence of the business purpose for any large or less obvious costs.
HMRC accepts digital records. Scanning receipts or photographing them is perfectly acceptable; you don’t need to keep paper copies as long as the digital versions are legible. Store them somewhere backed up (not just on your phone).
Also, keep your business bank statements, and never mix personal and business finances; always use a separate business bank account for your limited company – it’s the law!
For travel and subsistence:
- Receipts for each journey, meal, or hotel stay
- A record of the business purpose of each trip
For mileage:
- Date of journey
- Start and end points (or route)
- Business purpose
- Number of miles
For home office costs (if calculating actual costs):
- Utility bills
- Broadband bills
- Mortgage statements or tenancy agreement
- Your calculation of the business proportion
What happens if you don’t have a receipt?
HMRC expects you to have supporting records. In practice, for very small amounts like a car park, a stamp, or a tube journey paid in cash, inspectors are generally reasonable. But for anything significant, always get a receipt.
If you lose a receipt, try to get a duplicate from the supplier. If that’s not possible, note down what it was for, when, and how much and explain in your records why the receipt is missing.
Does IR35 status make a difference?
Understanding IR35 is important for expenses, because whether your contract is inside or outside IR35 changes what you can claim.
If your contract is outside IR35, all the expenses covered in this guide can be claimed against your company’s income, reducing your Corporation Tax liability.
If your contract falls inside IR35, expenses can still go through the company’s books, but they won’t necessarily reduce your tax bill in the same way. That’s because HMRC treats you as a “deemed employee” of your client. Your income through that contract is subject to a deemed salary calculation, and most business expenses cannot be offset against it.
Expenses: A Quick Reference
- Working from Home Yes
£6 /week flat rate or calculated actual costs.
- Business Travel (temporary workplace) Yes
Not if its a permanent workplace.
- Commuting No
Personal cost.
- Mileage (personal car) Yes
45p /mile (first 10k), 25p /mile thereafter.
- Hotels (business trips) Yes
Must be for genuine business travel.
- Meals (while travelling) Yes
Away from normal place of work; keep receipts.
- Laptop / Computer Yes
Full cost via Annual Investment Allowance (AIA).
- Mobile Phone (company contract) Yes
One phone per employee; no benefit-in-kind.
- Office Furniture Yes
Business proportion, if used personally too.
- Software Subscriptions Yes
Must be for business use.
- Accountancy Fees Yes
Fully claimable.
- Legal Fees (business) Yes
For business purposes, not personal legal matters.
- Professional Subscriptions Yes
Relevant to your work.
- Professional Indemnity Insurance Yes
Fully claimable.
- Training (existing profession) Yes
Must relate to current trade.
- Training (new profession) No
Not a business expense.
- Books and trade publications Yes
Must be relevant to your work.
- Website & Domain Yes
Marketing / business development cost.
- Client Entertainment No Tax Relief
Goes through the company, but no Corporation Tax deduction.
- Staff Party (annual) Yes
Up to £150 /head per year across all qualifying events.
- Trivial Benefits (director) Yes
Up to £50 per gift; max £300 /year for directors.
- Employer Pension Contributions Yes
Very tax-efficient; no NI on contributions.
- Protective Clothing / Uniform Yes
Must not be suitable as everyday wear.
- Suits & Regular Clothing No
Personal clothing, regardless of use.
- Eye Tests (DSE users) Yes
Required for screen-based work.
- Glasses (general) No
Not unless exclusively for DSE use.
- Gym Membership No
Personal; not claimable.
- Private Health Insurance Benefit-in-Kind
Claimable company expense, but taxable to you.
Last reviewed: 2025. Tax rates, allowances, and rules may change. Always verify current figures with HMRC.