Understanding Expenses and Allowable Deductions for UK Contractors

🔹 Introduction

Are you claiming everything you’re entitled to? Many UK contractors miss out on thousands in tax savings simply because they don’t fully understand what counts as an allowable business expense. This guide covers the most common—and most overlooked—deductible expenses in the construction industry, from tools to travel, helping you pay less tax and keep more of your hard-earned money.

---

🔹 What Are Allowable Business Expenses?

Allowable expenses are the costs of running your business that HMRC lets you deduct from your income when calculating your taxable profit. 💡 Less taxable profit = less tax paid.

---

🔹 Top Contractor Expenses You Can Claim

Category	Examples
Tools & Equipment	Drills, saws, ladders, PPE, safety gear
Workwear	High-vis vests, steel-toe boots, branded uniforms
Van & Vehicle Costs	Fuel, MOT, repairs, insurance, lease costs
Travel	Public transport, mileage (45p/mile up to 10k miles)
Materials & Supplies	Bricks, timber, cement, fasteners, fixings
Mobile & Internet	Business portion of phone bills or data usage
Office/Storage Costs	Home office percentage, site storage rental
Accountancy Fees	Bookkeeping, payroll, end-of-year returns
Software & Apps	Xero, Tradify, QuickBooks, project tracking tools
Training & Certification	CSCS card renewals, H&S training, construction NVQs
Marketing	Website costs, logo design, business cards, local ads
Insurance	Public liability, tool insurance, van cover

---

🔹 Special Considerations for CIS Workers

If you’re a CIS subcontractor:

• You may be overtaxed at 20–30%
• Claiming expenses helps you get a bigger tax rebate at year-end

Make sure to keep receipts for:

• Tools
• Travel to different sites
• Materials (if you’re supplying your own)
• Accountancy support

💡 Use cloud apps like Dext or AutoEntry to scan receipts and log them instantly.

---

🔹 Sole Trader vs Ltd Company: Expense Differences

Type of Contractor	Difference in Claiming Expenses
Sole Trader	Deduct expenses on your Self Assessment return
Ltd Company	Expenses go through the company books (reduced Corp Tax)
	Some costs (e.g. personal use) may be taxed as benefits-in-kind

Always speak to your accountant about director’s expenses (e.g., travel, meals, home office).

---

🔹 Recording Expenses Properly

• Keep digital copies of receipts for 6 years
• Match expenses to invoices or jobs where possible
• Reconcile accounts monthly
• Use tools like Xero, QuickBooks, or FreeAgent

---

🔹 Expenses You Cannot Claim

• Everyday clothes (even if worn on site)
• Commuting from home to a regular site
• Fines or penalties
• Personal meals (unless travelling overnight)

---

🔹 FAQs

What is the £1,000 trading allowance? If you’re self-employed and earn under £1,000/year, you don’t need to register or pay tax. Can I claim for my phone and internet? Yes, but only the business portion—e.g., 50% if used half the time for work. Can I backdate expenses? Yes—you can claim pre-trading expenses up to 7 years before your business officially started.

---

🔚 Final Thoughts

Understanding what counts as an allowable expense is one of the simplest ways to increase your take-home pay legally. With good bookkeeping, proper record-keeping, and expert advice, UK contractors can reduce their tax bills without raising any HMRC red flags. Want help identifying every allowable deduction for your construction business? Speak with our contractor tax team today and stop overpaying HMRC.