Running a limited company is often the most tax-efficient way for IT contractors to work, but it also means you are responsible for keeping track of expenses and ensuring your company claims everything it is entitled to.
Most contractors know about the obvious deductions such as laptops, monitors or software licences. However, a surprising number overlook smaller or less obvious costs that can still be legitimately offset against Corporation Tax.
Over time those missed deductions can add up.
Below are some of the expenses many contractor-run limited companies forget to claim.
Make sure you speak to your accountant if you have any questions about expenses in general.
Professional training and technical certifications
Technology moves quickly, and most programmers regularly invest in new skills.
Training courses, exams and technical certifications are normally allowable expenses where they relate to your existing trade. In other words, if you are already working as a developer, training that improves or updates those skills is usually considered a legitimate business cost.
Examples might include:
- cloud certifications such as AWS or Azure
- advanced programming courses
- DevOps or security training
- industry conferences or workshops
Provided the training maintains or enhances the services your company already provides, the cost can normally be treated as a business expense.
Professional memberships and subscriptions
Many developers pay for professional memberships or industry organisations but forget these can usually be claimed by the company.
Typical examples include:
- professional computing bodies
- software development associations
- industry publications
- technical learning platforms
Subscriptions to development tools, code repositories or online learning sites are also normally allowable, provided they are genuinely used for business.
Insurance for contractor businesses
Insurance is another area contractors sometimes overlook.
Certain policies are widely regarded as essential for limited company contractors. Professional indemnity insurance, for example, protects against claims arising from mistakes in your work.
Some contractors also arrange personal cover through their company where it is tax-efficient to do so. For example, a director may choose to arrange a policy such as relevant life cover through their limited company, which can in many cases be paid for by the business rather than from personal income. A good explanation of how this works can be found here:
Similarly, some contractors also consider income protection insurance, which provides a replacement income if illness or injury prevents them from working.
As always, the exact tax treatment depends on the policy and the circumstances, so it is worth discussing the options with an accountant.
Equipment and home office costs
IT contractors usually work partly or entirely from home. While most remember to claim laptops or monitors, smaller items are often missed.
Allowable expenses may include things like:
- keyboards, webcams and headsets
- office chairs or desks
- external hard drives or backup devices
- networking equipment such as routers
Where you work from home regularly, your company may also be able to claim a modest use of home as office allowance, or reimburse certain household costs where they relate to business use.
Software licences and developer tools
Most developers rely on multiple paid tools to do their job. These costs are usually fully deductible where they are required for business activities.
Common examples include:
- IDE licences
- cloud hosting services
- collaboration tools
- project management platforms
- testing or monitoring software
Because these services are often billed monthly, contractors sometimes forget to record them properly in their accounts. Over a year, however, those subscriptions can easily run into hundreds or even thousands of pounds.
Pension contributions
Many contractor directors also overlook the tax advantages of pension contributions made directly from the company.
Instead of paying money out as salary or dividends and then contributing personally, the company can normally pay pension contributions on the director’s behalf.
These contributions are usually treated as an allowable business expense, meaning they reduce the company’s taxable profits while also building the director’s retirement savings.
This is one reason contractor accountants often recommend reviewing pension contributions as part of annual tax planning.
Accountancy and professional advice
Finally, don’t forget that professional services themselves are normally allowable expenses.
Typical examples include:
- accountant or bookkeeping fees
- company formation costs
- legal advice relating to contracts
- tax investigation insurance
These are ordinary costs of running a business and are usually deductible for Corporation Tax purposes.
For contractors who want specialist help, many firms provide dedicated services for limited company IT contractors. An overview of one such firm can be found here:
https://www.biaccountancy.com/
Keeping proper records
Claiming legitimate expenses is perfectly acceptable, but the key requirement is that costs must be wholly and exclusively for business purposes.
That means keeping good records, retaining invoices and ensuring each expense genuinely relates to your company’s activities.
Most contractors now use accounting software to track expenses throughout the year, which makes the process significantly easier when it comes to preparing annual accounts and Corporation Tax returns.
A small habit that saves tax
None of these expenses are particularly unusual. The real issue is that many contractors simply forget to record them.
Getting into the habit of logging costs as they arise makes a big difference. Even small items such as software subscriptions or technical training can reduce your company’s taxable profits over time.
For contractor-run limited companies, the difference between claiming everything correctly and missing a handful of expenses each year can easily run into hundreds of pounds in additional tax.
