What Are Allowable Expenses?
For an expense to be ‘allowable’, it must follow HMRC’s core formula: wholly and exclusively for your work and necessary for the role.
Of course, not all claims will be straightforward, especially for expenses that have a dual purpose. There will be many items that will fall under this category, such as mobile phones or laptops, in which case you might only be able to claim a percentage, or nothing at all.
It’s important to consider whether HMRC will see an expense as a personal benefit.
What Expenses can IT Contractors Claim?
| Expense category | Examples |
|---|---|
| IT Equipment | Laptop/desktop computer; monitor; keyboard and mouse; storage devices; other specialist equipment |
| Software and Subscriptions | Development software; cloud services; security software; professional subscriptions |
| Working from Home | Certain household costs; broadband/telephone where appropriate; home-office costs |
| Travel | Business journeys; public transport; mileage; parking |
| Professional Development | Training; relevant courses; certain certifications |
| Business Services | Accountant; business insurance; legal/professional advice; bank charges |
| Communications | Business mobile phone; business broadband; other relevant communications costs |
IT Contractors and Home-Working Expenses
There will be a lot of IT contractors who work partly or entirely from home – this will create additional costs to a household when you consider things like electricity, heating and water consumption.
It’s possible to claim a percentage of household costs on things like your mortgage interest or rent, council tax, heating, electricity and internet. However, the amount you can claim depends on the circumstances and the method used to calculate the business proportion of the cost.
Our Working From Home Expenses page explains how this works, looking at the ‘simplified expenses’ and ‘actual cost’ methods.
Can IT Contractors Claim Travel Expenses?
There’s a big difference between business travel and ordinary commuting, and it’s important to understand the distinction when it comes to claiming expenses.
You should never assume that travelling to a client’s office is automatically an allowable business expense.
There will be certain factors that could determine whether or not travel is deemed as an allowable expense, such as:
- The nature of the appointment/meeting
- The workplace
- Contract length
- Whether the contractor works through a limited company
- Whether the contractor is caught by IR35
Can IT Contractors Claim Training and Professional Development Costs?
Yes, but it’s important to understand the difference between updating or maintaining existing skills and training for a completely different profession.
HMRC has specific rules around training expenses for the self-employed; for example, you can claim for:
- Courses that improve or update expertise you already use in your business.
- Training required to keep you up to date with new technology, regulations or practices.
- Skills to help with general administration or digital courses, like bookkeeping.
You cannot claim for:
- Training to learn a completely new trade or start a different business.
- Training to help your business expand into an unrelated industry.
Can IT Contractors Claim for Business Insurance?
Yes, if the insurance is needed for your business, it’s likely you can claim for it.
The type of business insurance an IT contractor could need includes:
- Professional indemnity
- Public liability
- Cyber liability
- Employers’ liability
To find out more about this, visit our IT Contractor Insurance: What Cover Do I Need? page.
Can IT Contractors Claim Accountancy Fees?
Yes!
Not only can an accountant help you with keeping records, preparing accounts, self-assessment and more, but their fees are also an allowable expense.
What Expenses Can’t IT Contractors Claim?
| Expense type | Why it usually can’t be claimed |
|---|---|
| Personal expenses | You cannot put personal spending through your business. |
| Ordinary clothing | Everyday work clothing generally isn’t an allowable expense – you can only claim for specific clothes that are necessary for a role, such as protective wear or uniforms. |
| Everyday commuting | Travel to a permanent workplace is not treated the same way as qualifying business travel. |
| Entertainment | Business journeys; public transport; mileage; parking |
| Professional Development | Business entertainment has specific tax rules and isn’t automatically deductible when entertaining a client. |
| Fines and penalties | Any fines or penalties are not treated as ordinary business expenses. |
How do I Claim Expenses?
How you claim expenses will depend on how you operate.
Here’s a breakdown of how it works for each route.
Limited Company
- Pay for business expenses
- Keep receipt/record
- Record expense in accounting system
- Company reimburses contractor where appropriate
- Expense is reflected in company accounts/tax calculation
Sole Trader
- Pay for business expenses
- Keep receipt/record
- Record and deduct business expenses when calculating taxable profit for self-assessment.
Umbrella Company
Generally, umbrella company contractors cannot claim expenses as they do not have the same benefits as limited company contractors or sole traders.
In some cases, umbrella company contractors can claim travel expenses, which is explained on our Can Umbrella Company Contractors Claim Travel Expenses? page.
Any allowable expense would usually be submitted to your umbrella company in accordance with its expenses policy.
What Records do I Need to Keep for Expenses?
- Receipts
- Invoices
- Bank statements
- Mileage records
- Travel details
- VAT receipts where relevant
How Can an Accountant Help with Expenses?
As you will have learned from reading this article, there are nuances when it comes to business expenses.
This is why, instead of focusing on individual items, it is best to consider the factors that HMRC applies when testing a claim.
This is where an accountant can help, providing you with up-to-date help and advice on expenses and anything else tax-related.
Take a look at what we can offer you and sign up to become a client by clicking here.
We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100, or email jaime.thorpe@dolanaccountancy.com. Alternatively, contact us via live chat.
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