So you’re a tradesman and want to grow your business! It’s tough enough running your business, so why are things like business expenses so complicated? After reading this blog, you’ll know the easiest way to do things properly and understand why.
As a self-employed tradesman, operating your business involves many running costs, also known as business expenses. You are responsible for managing your business expenses to comply with HMRC rules, pay taxes and claim tax relief where possible.
Keep reading to learn what counts as a legitimate business expense and the different rules surrounding them. Or contact us today, and we can help you get on top of your tax and accounting.
Are you a plumber, electrician or builder and don’t know what expenses you can claim?
We know that business expenses aren’t always easy to understand, and with the masses of information from HMRC, it can be overwhelming.
If you are a plumber, electrician or builder, then we’re here to help. When filing your tax return at the end of the tax year, you can claim certain business costs incurred throughout the year, also known as allowable expenses.
Read on to understand business expenses and what you can claim in a more simple way.
What can tradespeople claim as an expense?
Obviously, you’ll want to claim as many business expenses as you’re legally allowed because they reduce your taxable profit, meaning you’ll pay less tax.
Essentially, an allowable expense is any business cost that is used solely for business purposes. The reason it gets complicated is that when talking about “business purposes,” it can be a bit of a grey area. Also, there are things which you may think you could claim but you can’t (like mileage from home to the office).
On the flip side, there are many costs classified as allowable expenses that you probably wouldn’t expect (like a home gym!). Here is a video on 13 of the best allowable expenses you can claim that you may not have heard of:
As a self-employed tradesman, you can claim various allowable expenses, including:
- Sales costs – which can include raw materials you use on a job and even subcontractors.
- Office costs – such as rent, interest on your loans, phones, broadband, staff, marketing and accountant fees.
- Capital – this can include your tools, vans, office refurbishments, computers and so on.
- Travel – which includes travel and subsistence expenses, so all your travel costs and food when you or your staff are out on jobs or travelling to jobs.
- Home costs – expenses like your home broadband, telephone, utilities and rent can be claimed, so long as they are for business purposes. You can portion these out because you’ll be using your home part of the time for the business.
You can make greater tax savings when having a business vs. being fully employed. This is because employed people cannot claim certain expenses that are considered allowable to business owners.
For example, if you have a limited company that employs just you and your spouse (for tax saving reasons), you could claim expenses for a home gym, a portion of your food costs (even if they’re available at home), and a large portion of your home costs because technically these things will be available to all the employees (i.e. you and your spouse).
Who can claim allowable expenses?
Whether you have a limited company or operate as a sole trader, you can claim allowable expenses on certain costs that are used ‘wholly and exclusively’ for business purposes. This is also known as claiming tax relief.
Ultimately, you work for your business, so you can claim these allowable expenses as well as your staff. If any of your family members are on the payroll, you have the option to claim their allowable expenses as well. This can include their phone bill and health insurance.
Another great tip is if your kids are on the payroll working for you, then you could claim tax relief on their university fees, as long as the degree is related to your business (for example, business studies or marketing).
Can I claim back a company van or car?
There are two things to consider here. Are you using the vehicle for work travel? Or buying it as part of the business?
If it’s a van, you should definitely consider buying it in the business. You can then claim VAT on purchasing the van (this could be huge). You can also benefit from corporation tax relief or income tax relief depending on if you’re a Ltd company or sole trader. You’ll also be able to claim expenses on the fuel.
Company cars are an absolute minefield, but it would rarely make “tax-sense” to buy the car through the business unless the car has a large amount of electric-only miles capability.
You can, however, claim the travel costs when using the car for business use. You can claim 45p per mile for the first 10k miles and then 25p per mile afterwards. The idea is that it’s paying you for the car’s fuel and wear and tear. You can also claim VAT on this.
For more information, read our blog on purchasing a car through your company.
What are capital allowances?
Capital allowances is the term HMRC uses for claiming tax back on capital equipment. You don’t put capital items on the profit and loss, so the way you claim tax back on the equipment you buy (things like your tools, vans, office refurbishments and computers) is called capital allowances.
How do capital allowances work for tradespeople?
As a tradesperson, capital allowances reduce your overall tax bill and can be claimed on your tax return. So, if you’re a sole trader, this can be done through your Self-Assessment tax return, and if you’re a limited company, then this can be done on your Corporation Tax Return.
Some assets (like cars, for example) have special rules for capital allowances, meaning you can’t claim the entire amount of tax in one year but have to spread the tax savings over a few years. HMRC also limit the amount of tax you can save on assets in one year.
How to track your business expenses
Tracking business expenses can be pretty straightforward if you use the right tools and software. If you’re sticking everything in your van’s glove compartment, then it’s going to be hard!
At Archimedia Accounts, we have an app that makes keeping on top of business expenses easy. With the handy app, you can take a picture of any business expense, and it comes straight to us – you also have an email to forward invoices to.
What happens if I lose an expense receipt?
It’s not the end of the world if you lose an expense receipt. If it’s a significant expense like materials for a job, chances are you can call the supplier for another copy. If it’s small, then your accountant can probably still claim the tax relief by using the bank statement as proof you’ve made the expense.
At Archimedia Accounts, we use online accounting software and reconcile your bank – we’re always on top of your taxes. So, we’ll be able to notify you of any potential expense you might miss before it even happens.
How can Archimedia Accounts help?
At Archimedia Accounts, we provide top-rated accounting services to tradesmen, so you no longer have to hold onto endless piles of receipts and paperwork. We’ll set up your trade business with online accounting software and an easy way to send invoices throughout the day.
Ultimately, we can help by simplifying tax and accounting and save you as much tax as legally possible. We offer regular tax meetings with you every few months to ensure you make the most efficient tax savings. Barbara, our Head of Tax, has over 30 years of tax experience. She will work with you in these meetings to make sure you are staying efficient and provide advice for future financial security.
Contact us today for a FREE consultation.
While it may not be fun, we must pay tax. However, as a self-employed tradesman, you have the benefit of making significant tax savings when you claim tax relief on qualifying business expenses. Ultimately, a business expense is a particular cost associated with running your business. Business expenses can include,
- Protective clothing
- Raw materials
- Company vehicles
- Phone bills
- Marketing and advertising materials
Keeping an accurate and up-to-date record of all business costs can help you when it comes to claiming tax relief and staying compliant.