What Makes an Expense "Allowable"?

The golden rule from HMRC is that expenses must be "wholly and exclusively" for business purposes. If an expense has a dual private and business purpose, you can only claim the business portion.

Common Allowable Expenses for Contractors:

• Office Costs & Workspace:
  • Use of home as office: A flat rate allowance (e.g., £6 per week set by HMRC) or a proportion of actual household bills (rent, mortgage interest, council tax, utilities) if you have a dedicated workspace.
  • External office rent and rates if you use a commercial office space.
  • Stationery, postage, and small office supplies.
• Travel & Subsistence:
  • Travel to temporary workplaces (e.g., client sites). This includes mileage for using your own vehicle (HMRC approved rates), train fares, flights.
  • Accommodation and subsistence (food & drink) costs when working away from your normal place of business overnight.
  • Note: Travel to a permanent workplace or ordinary commuting is generally not allowable.
• Equipment & Software:
  • Computer hardware (laptops, monitors) and software essential for your business.
  • Mobile phone bills (the business portion).
  • Specialist equipment required for your services.
• Training & Professional Development:
  • Courses and training that enhance or maintain your existing skills relevant to your contract work.
  • Subscriptions to professional bodies and trade journals.
• Insurance:
  • Professional Indemnity insurance (often a contractual requirement).
  • Public Liability insurance.
  • Employers' Liability insurance (even if you're the only employee).
  • IR35 insurance / tax investigation insurance.
• Accountancy & Legal Fees:
  • Fees for your company's accountant.
  • Legal fees related to your business (e.g., contract reviews).
• Bank Charges & Interest:
  • Business bank account fees and charges.
  • Interest on business loans.
• Staff Costs (if applicable):
  • Salaries paid to employees (including yourself as director).
  • Employer pension contributions.
• Marketing & Advertising:
  • Website hosting and development.
  • Business cards.

Key Considerations:

• Keep Records: Meticulous record-keeping is vital. Keep all invoices, receipts, and bank statements.
• Benefit in Kind: If the company pays for something that has a significant personal benefit, it might be treated as a 'benefit in kind', which could have personal tax implications for you as a director.
• Inside IR35 Differences: If your contract is Inside IR35, the range of allowable expenses is severely restricted, often limited to a small percentage or specific umbrella company dispensations.
• Accountant's Advice: Always consult your accountant for specific advice on what you can and cannot claim, as rules can be nuanced.