Maintaining a record of costs is essential to keeping track of the health of your business’ finances. Here’s the lowdown on the expenses you can claim to help your business save money.
Spanning stationery and phone bills to uniforms and staff costs, some small business expenses are tax deductible. But do you know which ones are relevant to your business?
Knowing what you can and can’t claim as an allowable expense will give you a clearer understanding of the ins and outs of your tax bill and could leave you with a healthier take-home pay.
What are allowable expenses?
Claiming allowable expenses isn’t about avoiding paying tax, it’s about making sure you’re paying what’s fair. When it comes to claiming business expenses for your business, there are a number of rules you should follow:
- You can only claim for the expenses you incur wholly and exclusively during the everyday running of your business.
- You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can only claim for the business days, not the additional leisure days.
- Business expenses can be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.
- Try to maintain an accurate record of pre-formation and running costs, including VAT receipts, so you can justify your actions if you’re queried about your business expenses claims in the future.
What allowable expenses can I claim as a tradesman?
There's a lot that can be claimed as an allowable expense and you'll find complete guidance on the HMRC website. However, we wanted to give some examples of the things that you can claim as an allowable expense. While this list is not comprehensive, it'll give you an idea of what's considered tax deductible for UK small businesses.
Travel
This can include business travel and mileage, parking fees, fuel, repairs and maintenance as long as all of those costs are incurred for the purpose of doing business such as transport to and from client’s homes for sessions. If you get any fines or tickets while driving, be aware that you will not be able to claim any allowable expenses on these.
If you use your personal car for business, then you’ll need to calculate what portion of costs are used for business and will only be able to claim allowable expenses on that portion.
To make your book keeping easier, you may be able to calculate your vehicle expenses using a flat rate (known as simplified expenses) for mileage instead of the actual costs of buying and running your vehicle. This won’t be as precise and you may miss out on some savings, but the process is a lot more streamlined.
Insurance
All of your business insurance policies can be covered as an allowable expense.
As a tradesman, you'll likely want to have public liability insurance. Public liability insurance will help protect your business against damage and the cost of legal claims people make against you, if you’ve done something that’s resulted in injury to a member of the public or damage to their property. While it's not a requirement, public liability insurance it’s a demonstrable sign of the legitimacy of your business, can help your offering appear more respectable and may even help you secure new business in future.
When travelling from client to client, you may spend a lot of time on the road, moving your tools between each person's premises. It's important that your van is covered so that business can continue to run smoothly, so you should have van insurance as well. Van insurance can cover damage to your van and damage to others as the result of an accident, as well as broken windows and windscreens, personal belongings, mis-fuelling and medical expenses.
You may also want to consider employer's liability, tools and equipment cover, or another type of cover. You can find out more about the different types of cover available to you on our tradesman insurance page.
Marketing
In order to be successful a business will have to spend some money on promoting their business. Any time that promotion costs you money, you can claim it as an allowable expense. For example, flyers to hang in local shops or cafes and websites detailing the services that you offer could be deducted from your taxes.
Professional Membership
Joining a professional body can add a certain level of credibility to your business as well as provide you with training and networking opportunities. As long as these organisations are approved by HMRC , then the membership fees can be included in your expenses. Any trade magazines, subscriptions and licences can also be included.
Finances
In order to keep you finances neat and tidy, you may decide to open a business bank account so that it’s easy to track expenses. If opening and maintaining a business bank account comes with any associated fees, you’ll be able to claim that. You can also claim back the interest on any loans or hire purchase agreements and the costs of any accounting or legal fees that mount up as you run your business.
Equipment
Every type of tradesman has different tools that are needed to get the job done. Luckily, all of your tools and the maintenance for them counts as an allowable expense. Here’s a few examples of tools that you might be able to write off against tax:
Painter and decorator allowable expenses: Brushes, rollers, dust sheets/drop cloth, painters tape/masking tape, stir sticks, paint can openers, paint trays and liners, putty knife, edging tools, work lights and more.
Carpenter and joiner allowable expenses: Power tools (circular saws, hand saws, drills, jigsaws, etc), sanders, tape measures, chisels, screwdrivers, levels, hammers, screws and nails, squares (layout, framing, etc) and more.
Electrician allowable expenses: Voltage detectors, wire strippers, outlet testers, side cutters and pliers, fishtape, drills, hardhat and safety goggles and more.
Plumber allowable expenses: Pipe cutters, pliers, spanners, towels, buckets, drain rods, headtorch, pipe wrench, allen keys, levels, kneepads, and more.
Bricklayer allowable expenses: Trowels, hammer, shovel, spade, chisel, wheelbarrow, hawk, line pins, cement mixing tools, work gloves, steel toe boots, safety goggles, and more.
Plasterer allowable expenses: Mortar stand, mixing bucket, hawk, utility knife and filling knife, trowels (bucket, corner, window, etc), scrapers/scarifier, sandpaper, sponges, dust sheets, plaster’s float and more.
What are disallowable expenses that tradesmen can't claim?
While a lot of your expenses can be covered under allowable expenses, unfortunately there are some things that definitely can’t be claimed. While this list isn’t exhaustive, here’s a few things you won’t be able to list as an allowable expense and will still have to pay the taxes on:
- Parking fines and penalties
- Tax penalties and late payment interest
- Lunch, unless in special circumstances
- Client entertainment
- Everyday clothing or business suits
- Your pension costs
- Your salary
How do I claim allowable expenses?
The trick to keeping on top of all the allowable expenses leaving your business is to record everything. When you add up all of your allowable expenses for the tax year, you put the total amount on your Self-Assessment tax return. At this stage, you don’t need to include receipts, but it’s still important to keep accurate records for a period of up to six years. HMRC can ask you to produce those receipts at any time during that period and you’ll want to have them to avoid being fined for proving inaccurate information.
To stay organised, set aside a specific time each week to make a note of the business expenses that you're liable to receive tax relief on so you don't lose out on any money. Note it all down in a spreadsheet that you continuously update. If you’ve tried that and you’re struggling to stay on top of things, consider investing in accounting software to help you track your finances – there are plenty of inexpensive and free options to choose from.
Keeping accurate records is vital as you could be fined by HMRC for submitting incorrect information. You don’t need to include proof at this stage, but you need to keep the correct records and produce them if asked by the HMRC. HMRC dictates that receipts must be kept for six years after you've filed your tax return and can ask to see them at any point within these six years.
You may want to take a look at simplified expenses which give flat rates you can calculate business expenses on rather than trying to track it precisely. While you may get back a little less money this way, you might also save a lot of time that you would otherwise spend tracking and calculating your actual business costs.
Simplified expenses flat rates are available for calculating vehicle costs. To find out about how to use the simplified expenses process, read more on the HMRC website.
Maximise your savings
Nobody wants to pay more tax than they have to, which is why keeping your business as tax efficient as possible could help you save a pretty penny. Remember, the golden rule when it comes to working out what allowable expenses you can claim for your business: they must be incurred wholly, exclusively and be necessary for the running of your business.
If you're finding the process of working out what allowable expenses your business can and can't claim, get in touch with an accountant for advice to make sure everything is above board.
All links are checked and valid at time of publishing, 29 November 2022.
