Contractor expenses and deductions

Contractor expenses are one of the most misunderstood areas of PSC tax, and the most costly when claimed incorrectly. This guide covers the four rules that determine whether a cost is genuinely deductible, the 24-month workplace trap that catches contractors every year, and why pensions outperform most day-to-day expenses as a tax lever.

Running a PSC from home creates real allowable expenses, but the rules are stricter than most contractors assume. This guide covers the wholly-and-exclusively test, the two main methods for calculating the deductible amount, what documentation HMRC expects, and the boundaries that separate a clean claim from a risky one.

From 6 April 2026 the approved mileage rate for the first 10,000 business miles rose to 55p per mile, up from 45p. For limited-company contractors the change means meaningfully larger tax-free reimbursements and a corresponding reduction in taxable profit, provided the journey qualifies as business mileage rather than ordinary commuting. This page explains the rules in full, including the permanent-workplace trap and the separate restriction that applies to inside-IR35 engagements.

Three expense categories that confuse even experienced contractors: training costs, professional body subscriptions, and equipment purchases through a PSC. The rules are more nuanced than a simple yes/no, and getting them wrong risks a disallowed deduction or a personal-benefit charge. This guide sets out the wholly-and-exclusively test, the training distinction HMRC draws, the subscription rules, and how capital allowances apply to equipment in 2026/27.

Inside-IR35 engagements treat the client site as a permanent workplace, so home-to-client travel is generally not deductible. This is one of the most costly differences between inside and outside status. Outside-IR35 contractors can claim travel under the temporary workplace rules and the 24-month/40% test; inside-IR35 workers keep far fewer options.