To keep their tax bills down, self-employed builders and tradespeople can offset business expenses against their trading profit. From specialist equipment to business travel, here’s a summary of what you can claim – and what you definitely can’t.
There’s a really basic principle behind what counts as an allowable expense: is it “wholly and exclusively” for business?
In other words, if you bought something and used it partly for business, partly outside work, it doesn’t count.
Well, actually, it’s a bit more complicated than that – I’ll explain more about that later.
But, for now, the point is that you shouldn’t buy, say, a new SLR camera and claim that it’s a business expense because you once used it to take pictures of some dodgy plumbing on site, when really you wanted it to go bird-watching at the weekend.
Another example would be claiming a weekend away in a five-star country spa hotel, with your partner, on the grounds that while you were there you spent an hour speccing and quoting for a construction job.
Televisions, exercise bikes, limited edition Swiss watches, dogs… People have tried to claim all kinds of things over the years and HMRC is wise to most of the yarns that go with them.
In fact, I’ve got a rule of thumb: if your excuse starts with “I can just tell them that…” then it’s probably not going to wash.
What can you claim, then?
A big one for self-employed construction workers and tradesmen is the cost of protective equipment.
If you wear steel-capped boots, a hard hat, gloves, ear protectors, knee-pads, hi-vis jackets and so on – that’s all deductible.
But your basic clothing, like jeans, isn’t: “You cannot claim for everyday clothing (even if you wear it for work)” says HMRC in pretty plain English.
There’s a twist, though.
Have you ever wondered why you see so many people walking about in polo shirts and fleeces with their business’s logo on? It’s not just that it’s good for promotional purposes. It also counts as ‘uniform’, which is an allowable expense.
You can also claim for small tools and equipment, like paintbrushes or screwdrivers, that you’ll use for less than a couple of years.
Bigger, more durable items might also be allowable if you use ‘cash-basis accounting’; if you’re not sure about this, give me a shout.
Probably the most common expense claimed by construction sole traders is fuel. My clients tend to scan their fuel receipts the minute they get back to the van, straight into Xero or QuickBooks, which keeps things nice and simple for everyone concerned.
You’ve got to be a bit careful, though – you’re not allowed to claim for the cost of your journey to and from “your usual place of work”, so we’ll have to do some calculations to make sure your claim is reasonable.
Motor insurance and the cost of repairs and servicing can also be claimed as business expenses, as long as the vehicle is a dedicated work car or van.
Telephone costs are another big one, especially as most people in the trade do so much business on their mobiles these days. To keep things simple, it’s best to have a work phone and a personal one – here’s why.
Right at the start, I mentioned a few things you couldn’t or shouldn’t claim but said it was complicated.
That’s because (bear with me) you can claim for part of something you use partially for work, such as work calls on your personal telephone. You just have to make sure you’re making a reasonable claim, with records to back it up.
Another good example of this is if you use part of your home as an office. You obviously can’t claim all your utility bills, but we can help you work out a sensible percentage.
Every case is different
We’ve just scratched the surface here and, to be honest, even though I’ve tried to keep it simple, you can see that it quickly gets fiddly.
The best way to make sure you’re claiming everything you could be is for us to have a conversation about your expenses and dig around a bit.
You’d be amazed how all those little things can add up to a tax saving worth having.