Allowable Expenses for Contractors – Full List for 2026

“The difference between paying too much tax and paying the right amount is rarely about income. It’s almost always about understanding expenses.”

That sentence comes from a conversation I had with a contractor client late one Friday afternoon. He had just realised he’d overpaid tax for two consecutive years. Not because he earned too much. But because he didn’t claim what he was entitled to.

And he’s not alone.

Every year, UK contractors leave thousands of pounds on the table simply because allowable expenses feel confusing, risky, or poorly explained. Some are too cautious. Others are overly aggressive. Both approaches can cost you money.

This guide is designed to fix that.

In this article, I’ll walk you through the full list of allowable expenses for contractors in 2026, explain what HMRC actually allows (not rumours, not forum advice), and share practical examples from real contractor situations we see every week at Zeus Accountants.

No fluff.

No jargon-heavy waffle.

Just clear, actionable guidance you can trust.

What expenses can contractors legitimately claim?

Let’s start with the big picture.

As a contractor operating through a limited company, you can claim expenses that are incurred wholly and exclusively for the purpose of your business. These expenses reduce your company’s taxable profit and, in turn, reduce your corporation tax bill.

Simple in theory. Messy in practice.

Typical allowable expenses include:

• Travel and mileage

• Home office costs

• Phone and broadband

• Professional fees

• Training

• Pension contributions

• Certain equipment and software

But context matters.

Timing matters.

And how you claim matters just as much as what you claim.

I once worked with an IT contractor who claimed almost nothing because he was “playing it safe.” His corporation tax bill was eye-watering. After a proper review, we reduced it by over £6,000 — legally — simply by claiming expenses he was already paying for.

Being cautious is good. Being uninformed is expensive.

What expenses can a limited company director claim?

Most contractors are also directors of their limited company, which opens up additional expense planning opportunities.

As a director, you can claim:

• Salary paid through PAYE

• Employer pension contributions

• Business travel and subsistence

• Professional indemnity insurance

• Accountancy and legal fees

• Mobile phone costs

• Training related to your role

One director I worked with assumed pension contributions were “personal.” They’re not. Employer pension contributions are usually one of the most tax-efficient ways to extract money from your company.

That single misunderstanding was costing him £3,000 a year.

What is classed as a “wholly and exclusively” business expense?

This phrase is the cornerstone of contractor tax deductions.

HMRC allows expenses that are:

• Incurred only for business purposes

• Necessary to perform your work

If there’s a dual purpose, HMRC usually says no.

For example:

• A laptop used 90% for work? Usually fine.

• A suit worn to meetings and social events? Not allowable.

• Broadband used partly for Netflix? Needs apportionment.

One contractor once asked me if he could claim his entire rent because he “thinks about work all the time.” We laughed. Then we talked about realistic apportionment.

HMRC cares about use, not intention.

Can contractors claim home office expenses?

Yes. But this is one of the most misunderstood areas.

You can usually claim:

• A portion of rent or mortgage interest

• Council tax

• Utilities

• Home insurance

• Broadband and phone (business portion)

You can also use HMRC’s simplified flat rate, but for many contractors, it’s not the most tax-efficient option.

I had a client working from a spare bedroom who didn’t claim anything for three years because he was worried HMRC would “inspect his house.” That’s not how it works.

Home office claims are allowed.

They just need to be reasonable and justifiable.

Can I claim rent or mortgage costs through my limited company?

This depends entirely on how your home is used.

If part of your home is used exclusively for business:

• You can claim a proportion of rent or mortgage interest

• You must avoid creating capital gains tax issues later

This is an area where bad advice causes long-term problems.

I’ve seen contractors accidentally expose themselves to CGT simply because someone told them to “charge rent to the company.” That advice was incomplete.

Always get this reviewed properly.

Can contractors claim mobile phone and broadband costs?

Yes. And this one is relatively straightforward.

You can claim:

• One mobile phone contract in the company name

• Business calls

• Business broadband (or a reasonable portion)

If the contract is in your personal name, you can usually only claim the business-use portion.

A simple rule:

Company contract = simpler tax treatment.

Can I claim training and course costs as a contractor?

Yes, if the training:

• Maintains or improves existing skills

• Is relevant to your current role

You generally cannot claim training that:

• Helps you enter a new profession

• Is unrelated to your current work

For example:

• Advanced cloud certification for an IT contractor? Allowed.

• Yoga teacher training for “stress management”? Not allowed.

I’ve seen HMRC challenge training claims more frequently in recent years. Documentation matters.

Are professional subscriptions tax deductible?

Often, yes.

Subscriptions to HMRC-approved professional bodies are usually allowable. Think:

• Engineering institutions

• IT professional organisations

• Finance and compliance bodies

Netflix is not a professional subscription.

Yes, I’ve been asked.

Can contractors claim meals and subsistence?

Sometimes.

You can usually claim meals when:

• You’re travelling to a temporary workplace

• You’re staying overnight for work

You generally cannot claim:

• Everyday lunches

• Meals at your usual place of work

A contractor once tried to claim Pret every day because “I don’t cook.” HMRC would not agree.

Can I claim business expenses if I work from home full time?

Yes, but travel rules become stricter.

If your home is your permanent workplace:

• Travel to client sites may be allowable

• Travel to the same site long-term may not be

This is where the 24-month rule becomes critical.

Are travel expenses still allowed under IR35?

This depends on whether you are inside or outside IR35.

• Outside IR35: Travel rules largely apply as normal

• Inside IR35: Travel is usually disallowed, with limited exceptions

IR35 doesn’t just affect tax rates.

It affects expense eligibility too.

Can I claim expenses if I’m inside IR35?

In most cases, no.

Travel and subsistence are usually disallowed if:

• You are under supervision, direction, or control

• The client site is treated as your permanent workplace

Some costs may still be allowable, but this area is narrow and risky.

What expenses are disallowed under IR35?

Typically:

• Travel to client sites

• Accommodation near client offices

• Subsistence

This often comes as a shock to contractors moving from outside to inside IR35. Take-home pay drops fast.

What counts as a temporary workplace for contractors?

A temporary workplace is one you attend for:

• A limited duration

• A specific task

HMRC looks at expectation, not just contract length.

When does a workplace become permanent for tax purposes?

When either:

• You expect to be there for 24 months or more

• You spend 40% or more of your working time there

Once that happens, travel expenses must stop. Immediately.

Can I claim mileage instead of fuel costs?

Yes. Most contractors use mileage allowances:

• 45p per mile (first 10,000 miles)

• 25p thereafter

This covers fuel, servicing, and wear and tear.

Simple. Clean. HMRC-approved.

What mileage rate can contractors claim in the UK?

For 2026, the standard rates remain:

• Cars: 45p / 25p

• Motorcycles: 24p

• Bicycles: 20p

Passenger allowance: 5p per mile.

Can I claim train and hotel costs for contract work?

Yes, if the workplace is temporary.

Keep receipts. Always.

Does the 24-month rule reset if a contract changes?

Usually, no.

HMRC looks at:

• The location

• The journey

Not the client name on the contract.

Changing agencies doesn’t reset the clock.

What happens if my contract is extended beyond two years?

The moment you expect to exceed 24 months:

• The workplace becomes permanent

• Travel expenses must stop

Not at 24 months.

At expectation.

Can I claim travel expenses when working remotely?

Possibly.

Hybrid working requires careful analysis. We review this case-by-case at Zeus Accountants because mistakes here are common.

What travel expenses are not allowed by HMRC?

• Fines

• Parking tickets

• Commuting to permanent workplaces

No exceptions.

Do I need receipts for all business expenses?

In almost all cases, yes.

Exceptions include:

• HMRC flat-rate allowances

• Incidental overnight expenses

If HMRC asks, you must prove the cost existed.

What happens if I lose a receipt?

Bank statements may help. But they’re not guaranteed.

Lost receipts increase risk. Simple as that.

How long must I keep expense records?

At least six years.

Digital copies are fine.

What proof does HMRC accept for expenses?

• Receipts

• Invoices

• Mileage logs

• Contracts

• Bank records

The clearer the trail, the safer the claim.

What expenses does HMRC scrutinise the most?

• Home office costs

• Travel and subsistence

• Training

• Entertainment

If it feels borderline, HMRC probably thinks so too.

What expenses reduce corporation tax the most?

High-impact deductions include:

• Pension contributions

• Travel (where allowed)

• Professional fees

• Capital allowances

How can contractors legally reduce their tax bill?

By:

• Claiming allowable expenses properly

• Using pensions strategically

• Planning dividends and salary

• Avoiding last-minute panic

Tax planning beats tax fixing. Every time.

Is it better to claim expenses or pay dividends?

Both serve different purposes.

Expenses reduce profits.

Dividends extract profits.

A good plan balances both.

Can pension contributions reduce corporation tax?

Yes. Dramatically.

This is one of the most underused tools we see.

Are electric cars tax efficient for contractors?

Often, yes.

Low Benefit-in-Kind rates make EVs attractive. But only when structured correctly.

What expenses commonly get rejected by HMRC?

• Clothing

• Gym memberships

• Excessive meals

• Personal travel

How can contractors reduce the risk of an HMRC audit?

Three things:

1. Be consistent

2. Keep records

3. Get advice early

That’s it.

Final thoughts

Allowable expenses are not a loophole. They’re a legitimate part of the tax system. But they reward knowledge, structure, and discipline.

If you’re unsure whether you’re claiming too little, or too much, that’s a conversation worth having. At Zeus Accountants, we work exclusively with contractors. We know the rules. And we know how HMRC applies them in the real world.

If this article raised questions, that’s a good sign. It means you’re paying attention. And that’s where better tax outcomes always start.

‍

Disclaimer:

The content of this blog is for general informational purposes only and should not be considered professional tax advice. The information is correct at the time of publishing but may change following future UK budget announcements or updates to HMRC guidance. Individual circumstances vary, and tax obligations can differ based on your personal situation. We strongly recommend consulting with us or a qualified tax professional to receive advice tailored to your specific needs.