The expensive assumption most new contractors make about their expenses

Six months into running my own limited company, I made that assumption too. And while it is partly true, it turns out there is a whole category of things that are much harder to fix retrospectively, and a surprising amount that requires you to have set things up correctly from the start rather than tidying them up later.

I also discovered, when I actually sat down and went through it properly, that I had been leaving money on the table. Just by being busy, assuming I had it roughly covered, and not asking enough questions early enough.

Why 2026/27 matters

This is the first new tax year where any of this mattered to me. And 2026/27 has brought enough changes to make it worth paying attention even if you think you already know the drill.

Dividend tax is up two percentage points from this tax year. Corporation tax late filing penalties have roughly doubled from 1 April. And from 6 April, employees lost the right to claim flat-rate homeworking tax relief, the £6 a week allowance that around 300,000 people had been using, gone. Limited company contractors can still claim home office costs, just not in the same way. It goes through the company as a business expense rather than personal tax relief.

With expenses doing heavier lifting than they used to, this is not the year to leave things to January.

What you are probably not claiming

I asked Julia Y Zhu, Chartered Certified Accountant at JYC Bookkeeping and Accounting, where the gaps tend to be. "There are several expenses I see contractors consistently leave on the table. The cumulative cost is higher than most people realise, easily £1,000 to £3,000 or more per year depending on your circumstances."

The first thing she flagged was trivial benefits. Directors can receive qualifying non-cash perks of up to £50 per occasion, capped at £300 per year. A small gift to yourself at Christmas, on your birthday, or to mark a business milestone. No benefit-in-kind charge, no reporting required, and the cost is corporation tax deductible. I had not thought about this once.

Business mileage was next. At HMRC's approved rate of 45p per mile for the first 10,000 business miles, even 1,000 miles a year is £450 sitting unclaimed. The 10,000-mile threshold resets on 6 April, so it is worth keeping a running log rather than trying to reconstruct it later. And if you have been at the same client site for nearly two years, or expect to be there for more than two years, the 24-month rule means travel expenses to that site stop being claimable from the moment you know the arrangement will exceed that threshold.

On equipment: "If you are using your own laptop, monitor, or office furniture partly for business purposes, a proportion of the cost may qualify for tax relief. The claimable amount depends on the extent of business use, and the mechanism differs between sole traders and limited company directors, so it is worth discussing with your accountant."

"If your mobile phone contract is in your personal name rather than the company's name, it is worth making the switch. A single company-provided mobile per director is exempt from benefit-in-kind tax, including private use, provided the conditions are met, and the full cost is corporation tax deductible. It is a straightforward and often overlooked saving that requires nothing more than setting the contract up correctly."

What else is easy to miss

Beyond what Julia flagged, a few other categories come up consistently among contractors.

Training is claimable if it builds on existing skills rather than teaches you something entirely new. With AI tools now part of most contractor workflows, courses and certifications that sharpen skills you are already using professionally are fair game. Whether a specific AI course qualifies depends on whether it genuinely relates to what you are doing for clients. The line is blurrier than HMRC's guidance makes it sound, so ask your accountant before you claim rather than after.

Subscriptions are another area where habits get expensive. Most contractors claim accountancy software. Far fewer claim professional body memberships, industry publications, document signing tools, security software, or password managers. All of it is allowable if it is genuinely business-related. I found several subscriptions I had been paying personally without thinking to run them through the company.

On home office costs: as a limited company contractor you claim through your company rather than as personal tax relief. Many contractors use £6 per week as a ballpark for the company allowance, though there is no fixed HMRC rate. Alternatively you can claim a proportional amount of actual household costs based on your business use, or set up a formal Director's Use of Home Agreement. Which method suits you depends on your setup. Worth a conversation with your accountant rather than defaulting to whatever you landed on first.

What to get right from the start

Individual expenses are one thing. What Julia really wanted to talk about was structure. "A lot of contractors assume their accountant will sort everything out at year end. For many expenses, that is true. But there is a category of things that are far harder to fix retrospectively, and this is what contractors who are six months in most commonly do not realise."

The most basic one: a dedicated business bank account. "Mixing business and personal transactions creates unnecessary complications at year end, makes record-keeping significantly harder, and can make it very difficult to identify what is legitimately claimable. It sounds basic, but it is surprising how many contractors are still running everything through one personal account months into their first year."

On profit extraction, the risk is more specific than most people realise. "One of the most common issues I see is directors drawing money from their company on an ad hoc basis throughout the year without realising that unplanned withdrawals can create a director's loan account. If that loan is not repaid within nine months of the company's year end, the company faces a significant tax charge on the outstanding balance."

Pension contributions are also worth addressing earlier rather than later. Employer contributions made directly from your limited company reduce your corporation tax bill and don't attract National Insurance. The annual allowance is £60,000 and most people are nowhere near it, which means there is usually room to do more here than you are currently doing.

"Good tax outcomes are rarely the result of a last-minute scramble," Julia says. "They are the result of small, consistent habits throughout the year."

The takeaway

Six months in, I can see exactly how the assumption forms. You are focused on clients, on delivery, on keeping things moving, and the financial admin becomes background noise. But expenses are the one area where being diligent pays back directly and in proportion to the effort. This is the year where that proportion matters more than usual. If you have not had a proper conversation with your accountant since the new tax year started, that is probably the most useful place to start.