Accommodation expenses as a limited company contractor

Accommodation costs are a common expense for limited companies, particularly for contractors and consultants who frequently travel for work.

However, the rules surrounding what can be claimed against Corporation Tax – and how IR35 affects this – are specific and often misunderstood.

In this guide, Michael McCullion, founder of Bright Ideas Accountancy, explains what accommodation costs are allowable for limited company contractors and how your IR35 status can affect the picture.

Allowable accommodation expenses

HMRC allows accommodation expenses to be claimed as a business cost if they are “wholly, exclusively and necessarily” incurred for the purpose of the trade.

1. Temporary accommodation while travelling for work

If you travel beyond your usual work location while on contract duty, your limited company can claim costs for:

• Hotels
• Short-term rentals (e.g. serviced apartments, Airbnb)
• Subsistence during overnight stays

However, these costs are allowable only if:

• The stay is temporary
• The purpose is directly related to business
• The location is not your regular place of work

2. Contractor travel to a temporary workplace

Contractors who are based at a location for under 24 months may treat it as a temporary workplace. In this case, travel and accommodation costs are generally allowable. This applies where:

• Your contract work falls outside IR35
• You maintain a residential address elsewhere
• The contract is not expected to exceed 24 months
• You haven’t spent, or are unlikely to spend, 40% or more of your working time at that particular workplace over a period that lasts, or is likely to last, more than 24 months.

For more details, read our guide to contractor travel expenses and see HMRC’s guidance on temporary workplaces: EIM32075

Non-allowable accommodation expenses

Some accommodation expenses are not permitted as tax-deductible according to HMRC, including:

• Rent or mortgage payments for your permanent home
• Accommodation for your family or dependents
• Long-term or luxury accommodation that is not reasonable
• Mixed-use accommodation (business and personal)

Expenses which benefit you personally or have a dual purpose will typically be disallowed.

IR35 and accommodation costs

The IR35 (off-payroll working rules) determine whether you are considered to be a genuine contractor (in business on your own account) or a disguised employee.

If your contract work is determined to be inside IR35, you are treated as an employee for tax purposes.

This affects which expenses you can claim via your limited company.

If you are inside IR35

• You cannot claim accommodation, travel, or subsistence expenses from your home to the client site.
• All of your income is taxed under PAYE.
• Any accommodation costs must be paid personally, not through your company

If you are outside IR35

• You can claim accommodation costs related to travel to a temporary workplace.
• The cost must be reasonable, necessary, and directly related to your contracting business.
• Records, such as invoices and travel logs, should be kept in a secure location. Most contractor specialist accountants use FreeAgent, which is an ideal platform for storing electronic copies.

Some practical examples

Example 1: Outside IR35

Jane runs a limited company and secures a 6-month contract in Manchester, away from her home in Bristol. She rents a serviced apartment three nights a week.

Result: This is allowable. The workplace is temporary, and she is outside IR35.

Example 2: Inside IR35

Mike is inside IR35 for a 12-month NHS contract in London. He lives in Brighton and rents a studio in London for the duration of the contract.

Result: Not allowable. HMRC sees this as a personal commuting expense under IR35.

Make sure you stay on the right side of HMRC

• Keep receipts and proof of travel just in case you need to justify anything in the future.
• Use your business bank account for payments where possible.
• Have your contracts professionally reviewed by an IR35 specialist.