Umbrella vs Limited Company Expenses: What UK Contractors Can (and Can’t) Claim in 2025/26

Working out which business costs you can legitimately reclaim is a quick way to protect your take-home pay — but the rules shift depending on whether you’re paid through an umbrella provider or run your own limited company. Below is a contractor-friendly explainer that untangles the differences, highlights the latest HMRC mileage rates, and points out some easy-to-miss pitfalls.

Snapshot Overview how the two routes compare

✔️ Can usually claim	Umbrella contractor	Limited-company contractor
Travel to a temporary site	Sometimes – only if your engagement is not under supervision, direction or control (SDC) and the journey meets HMRC’s temporary-workplace tests	Yes – provided the 24-month / 40 % rule is met and the contract is outside IR35
Subsistence & overnight stays	As above—allowed only for qualifying temporary trips	Yes—subject to the same temporary-workplace tests
Mileage (own vehicle)	45p per mile up to 10 000 miles, then 25p (cars/vans); 24p (motorcycles); 20p (bicycles)	Same HMRC rates; paid either as mileage reimbursement or through the company accounts
Training & CPD	Only if wholly, exclusively and necessarily required for the current contract	Broad range—job-related courses, professional exams, CPD
Home-office costs	Not usually—umbrella workers are employees	Flat-rate (£6/week) or proportion of actual bills
Equipment & software	Yes, if the cost is recharged to the client or demonstrably necessary	Yes—plus laptops, phones, licences, insurance, marketing, pensions, trivial benefits, and more

Please note that ''limited company contractor'' assumes the contractor is working outside IR35. Inside-IR35 limited-company roles follow broadly the same restrictions as umbrella workers.

Umbrella-company expenses in detail

The SDC and 24-month hurdles

Since April 2016, umbrella employees cannot claim tax-free travel or subsistence if their engagement is subject to, or has the right of, supervision, direction or control. In practice most agency assignments are caught, so ordinary commuting is off-limits.

If the contract is SDC-exempt, you must still meet HMRC’s temporary-workplace tests: the site must last under 24 months and account for < 40 % of your working time.

Allowable Categories for Umbrella Contractors (Subject to SDC and Temporary Workplace Rules)

Although umbrella contractors face stricter rules than limited company contractors, there are still a few categories of expenses that may be allowable—but only if the engagement qualifies (i.e. it’s free from Supervision, Direction or Control and meets HMRC’s temporary workplace criteria).

Here's what you might be able to claim:

🚆 Travel and mileage

If you’re required to travel to a temporary workplace that is not your usual place of work, and the assignment meets HMRC’s temporary workplace rules, you can claim for:

• Public transport fares: train, bus, tram, underground, coach

• Taxi fares (if necessary for the contract)

• Flights for travel to a temporary site (e.g. offshore platform or international client office)

• Mileage if using your own vehicle:

  • 45p per mile for the first 10,000 miles per year (cars and vans)

  • 25p per mile after that

  • 24p per mile for motorbikes

  • 20p per mile for bicycles

  • 
    

Example: You live in Manchester, but your agency sends you to work at a client site in Birmingham for 3 months. If the contract is outside SDC, and the Birmingham site qualifies as a temporary workplace, your train fares and hotel accommodation can be claimed as tax-deductible.

🏨 Accommodation and meals

If your assignment requires you to stay overnight away from home—due to distance, early starts, or late finishes—you may be able to claim:

• Hotel or serviced apartment costs

• Reasonable evening meal and breakfast costs while away

  
  

Example: You work on a short-term contract in London for a week and live in Liverpool. If you're staying overnight in a hotel because commuting isn't practical, the hotel and meal costs may be claimable.

🎓 Training

Only training that is specifically required by the client for you to complete the assignment is allowable. It must be wholly, exclusively and necessarily incurred in performing your current duties.

This does not include training to advance your career or prepare for future roles—it must directly relate to the job you’re doing right now.

Example: The client requires you to complete a specific health and safety certification before starting on-site. That training is a necessary part of your current role, so the cost may be claimable.

🧰 Essential equipment or PPE (Personal Protective Equipment)

If your client or agency does not provide specific tools, safety equipment or materials that are absolutely essential to perform the role, and you must buy them yourself, you may be able to claim the cost—but only if they are used exclusively for the contract.

This includes:

• Safety boots, hi-vis clothing, hard hats (if not provided by the client)

• Specialist tools required to complete contract work (e.g., electrical testing kits, hand tools)

• Software or temporary software licences used solely for the assignment

• Laptops or tablets only if the client requires you to bring your own and won’t supply one

  
  

Example: You’re hired as a contractor on a construction site and are told you need to provide your own safety boots and high-vis jacket because the site does not supply them. You may be able to claim those costs. However, if you buy a general-use laptop for yourself and use it across multiple clients, it probably wouldn’t qualify as an expense under umbrella rules.

Proof of Receipts

In all cases, you must keep receipts and proof that the cost was necessary for the contract and not for general personal or business use. And even then, the final say rests with whether the expense is allowable under HMRC guidance—and whether your umbrella company accepts it under their internal policy.

Let me know if you'd like this turned into a downloadable guide or formatted for a webpage.

How relief is given

Qualifying expenses are deducted from your gross umbrella earnings before PAYE is run, shrinking both income-tax and NIC liabilities. Your umbrella will normally ask you to upload receipts alongside each weekly timesheet and will reimburse only up to the amount paid by the end client, so the cash-flow advantage can be limited.

Limited-company expenses in detail

Limited companies enjoy far wider scope because the business reimburses you (the director) and then deducts the costs against its profits, saving corporation tax (currently 19 % on profits ≤ £50k and 25 % above that, with marginal relief in between).

Commonly claimed costs

• Business travel, mileage and subsistence (temporary-workplace rules apply)

• Computer hardware, software licences and mobile phones

• Accountancy fees, IR35 contract reviews, professional indemnity insurance

• Home-office running costs (flat-rate or proportional)

• Pension contributions paid by the company

• Training, professional subscriptions and exam fees

• Marketing, website costs, stationery, postage, banking charges

• Staff entertainment (e.g., an annual £150-per-head party) and trivial benefits (£50 each, £300 annual cap for directors)

• Charitable donations to UK-registered charities (reduce corporation tax, not trading profit)

  
  

Capital allowances vs day-to-day expenses

Assets such as laptops and office furniture may qualify for 100 % Annual Investment Allowance, giving the same year-one tax relief as an expense but via capital-allowance rules.

Start Now

Key differences contractors notice day-to-day

Area	Umbrella	Limited company
Breadth of claimable costs	Narrow	Wide
Tax saved	Low – expenses reduce PAYE pay	Up to 25 % corp tax; can also extract cash tax-free
Admin burden	Minimal (umbrella does it)	You (or your accountant) must keep bookkeeping, receipts, directors’ loan account
Cash-flow timing	Reimbursed only when client pays umbrella	Immediate if the company has funds
IR35/SDC constraints	Always applies	Applies only if contract is inside IR35

Worked examples

Here are some of the examples of expanses and how these can be claimed by an umbrella worker or a limited company contractor.

1. Same site for 18 months, no SDC

   Umbrella: can claim mileage + lunch until month 18; must stop if extension means > 24 months.

   Ltd company (outside IR35): same 24-month cut-off, but can also claim home-office flat rate on non-client days.

2. Online training course to upskill for future projects

   Umbrella: unlikely allowed; not “necessary” for current assignment.

   Ltd company: allowable if it helps the business earn future income.

3. £800 laptop

   Umbrella: only if client specifically requires you to buy it (rare).

   Ltd company: normally capital-allowance eligible; corporation-tax relief worth up to £200.

Record-keeping tips that HMRC loves

Keeping clear, accurate records isn’t just good practice—it’s essential if you want to stay compliant and avoid issues with HMRC. Whether you work through an umbrella company or run your own limited company, maintaining proper documentation is key to proving your expenses are legitimate. Here are some record-keeping habits HMRC will thank you for.

• Keep digital copies of every receipt for six years—umbrella or limited.

• Log mileage with date, client name, purpose, start/finish locations and miles.

• For home-office claims, record floor-area calculations or use HMRC’s flat-rate tables.

• Directors: reimburse personally-paid costs promptly to avoid building up an overdrawn loan account.

  
  

Choosing the right structure—expense rules are only one piece

Whilst umbrella solutions win on simplicity and can be ideal for short gigs inside IR35 or where you value payroll-style benefits and minimum paperwork, limited companies shine when contracts are outside IR35, you expect steady revenue, and you want maximum flexibility on expenses, pensions and profit extraction.

If you’re unsure, speak to an accountant who understands contractor tax, or run the numbers using both sets of rules. Getting the structure right at the outset is usually worth far more than squeezing an extra receipt through later.

Bottom line

Both models let you offset genuine business costs, but a limited company offers the richest menu—if you’re outside IR35 and happy to handle the admin. Umbrella contractors must live with tighter HMRC rules, especially since the 2016 SDC clamp-down, but can still trim their tax bill on the occasional qualifying journey or overnight stay. Whichever route you pick, meticulous records remain your best defence and your biggest money-saver.

Which industry are you contracting in?

• IT & Tech
• Finance
• Medical
• Other