As a plumber you will have certain expenses that you can deduct. The issue for tradespeople, though, is knowing which ones you can claim, which ones you can’t, and having a reliable and easy way to keep on top of your expenses.
Claiming expenses can be a slightly different process depending on whether you’re acting as a sole trader or a limited company, but HMRC applies the same test on whether an expense can be claimed or not in either case.
So, what expenses can you claim for as a plumber, and how do you go about keeping on top of them all?
The rule of thumb is that you can only claim expenses which are ‘wholly and exclusively’ incurred in the performance of your duties. If you can prove that your purchase was made solely for business use, you should be able to claim it as an expense.
Do check out our resource on other tax topics for more information at https://libabunaccountancy.com/blog/
EXPENSES YOU CAN CLAIM AS TAX RELIEF
It is important that you are aware of what allowable expenses you can claim against your business income. From our experience, there are a number of people that end up paying more tax than necessary, either because they haven’t recorded evidence of their costs or they don’t realise what expenses and allowances they can claim. Basically any expenses that you have incurred which are wholly and exclusively for your work are tax deductable.
A lot of your equipment and tools, such as hammers, wrenches, drain cameras, pipe-benders, office supplies, and more are all claimable as business expenses, so long as you can prove that they are solely for business use.
That also means that workwear, such as company-branded t-shirts, uniforms, tool belts, goggles, and boots can all be claimed as well.
And if your office is located at your home, other miscellaneous expenses like face masks, coffee, coffee maker, other pantry supplies used in the office should be charged as business expense as long as you can prove that your purchase was made solely for business use.
Here are some more expenses you can claim as tax relief.
For SELF EMPLOYED PLUMBERS
1) Accommodation costs and expenses whilst on business travel
You can claim expenses for accommodation costs when you travel to a temporary workspace or location for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question any excessive claims for expensive hotels or apartments with more than one bedroom.
2) Bad debts
You can claim for amounts of money you include in your turnover but will not ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they will not be recovered from your customer in the future.
And if you are VAT registered, this will also decrease your VAT payable as you paid VAT for these previous Sales. This will be included in your VAT filing on the period when you recorded your Bad debts.
Bad debts cannot be claimed if you use cash basis accounting because you’ve not received the money from your debtors. With cash basis, you only record income on your return that you’ve actually received.
3) Bank, credit card and other financial charges
Many types of bank charges can be claimed as an allowable business expense, though they must be for accounts or cards in the name of the business. You can claim business costs for:
- Bank, overdraft and credit card charges
- the interest on business and bank loans (but not repayments of the capital or loan amount )
- hire purchase interest
- leasing payments
- alternative finance payments, for example, Islamic finance.
You cannot claim for repayments of personal loans, overdrafts or finance arrangements.
4) Business insurance
You can claim insurance policy costs, as long as you can prove that the policy is taken up strictly for business purposes.
Common types of business insurance include professional indemnity insurance, public liability insurance, employer’s liability insurance and business contents insurance.
5) Business mileage
If you use your personal vehicle for business travel to a temporary work location you can claim the following rates
You can claim the following rates:
| Vehicle | Rate Per Mile (On first 10,000 miles in tax year) | Rate Per Mile (On each mile over 10,000 miles) |
| Cars and vans | 45p | 25p |
| Motorbikes | 24p | 24p |
*electric car owners currently get the same mileage rates
Ensure that you keep receipts of everything and a mileage log. Also, be aware that HMRC may query any excessive use of taxis.
HMRC do not allow business mileage to be claimed by sole traders using a bicycle, which is rather unfortunate for those green-minded among you, or even cycle couriers. However, you may be able to claim the costs of buying a bicycle for work and consumables such as tyres or maintenance. Any personal use of the bicycle is likely to reduce the amount you can claim. It’s best to speak to an accountant or your local tax office to confirm what you can claim.
6) Business travel and Subsistence expenses
You can claim for travel expenses as long as that travel is wholly and exclusively for business purposes and isn’t a regular commute to a base of operations. However, occasional trips to the same place are still claimable. This specifically works in favour of ‘itinerant’ workers. Itinerant workers are sole traders who have no specific base of operations and have work locations that vary from job to job.
Expenses relating to airfares, train tickets and ferries can also be covered under business travel, provided the above points are applied and the travel is for business purposes.
Tolls, congestion charges, and parking fees are all allowable expenses, where the travel is for business. However, you can’t claim a parking fine as a business expense.
You can claim for the cost of hotel rooms and meals on overnight business trips.
HMRC accept that extra allowable costs for food and drink may be incurred where the nature of your business is ‘itinerant’ (for example if you work in a different location every week).
The cost of domestic living accommodation is not allowable, notwithstanding that the expenditure allows the taxpayer to do more work.
For example, Andrew is a self employed CIS contractor living in Coventry. He claims the costs of weekly travelling to and from, and living during the week in Kent (200 miles away) where he has been working on a contract for at seven years. All deductions are likely to be denied. The choice of where you live is a personal choice.
7) Costs of forming your company
The costs that you incur for setting up your company can be claimed as allowable expenses. These costs can range from fees for professional services, to printing costs, equipment purchases and software expenses
8) Equipment and Office Furnishings
The cost of anything that is necessary and essential for your business will receive tax relief. Although these aren’t expenses that reduce profits, you receive capital allowances that decrease the amount of income tax paid.
This covers computers, printers, machineries, and software. You may also claim reasonable relief towards the cost of equipping/furnishing a business office, e.g. chairs, bookcase. This may appear to hold a dual purpose, but it is allowed because the assets are used in a room that is used for business purposes.
9) Eye tests and glasses or spectacles
You can claim for vision tests providing it is necessary for the initial or continued use of visual display equipment in your duties. However, you’re unable to claim for glasses as they offer a dual purpose and are not exclusively related to business use, unless they are prescribed only for use during your time at work for visual display.
10) General office costs and purchases
Minor purchases with receipts that are used wholly and exclusively and necessarily in the performance of your duties are claimable. This includes postage, computer consumables, and office stationery.
11) Marketing
The cost of marketing including newspaper advertising, directory listings, mailshots, free samples and website costs can be claimed.
12) Professional fees
The costs incurred for engaging professional services—such as hiring an accountant, lawyer or architect—can be claimed as an allowable expense, as long as these services are carried out solely for business purposes.
13) Professional subscriptions
Professional subscriptions such as membership of a trade body, or registrations needed in order to enable you to trade are allowable, provided they are HMRC approved professional bodies which are relevant to your employment. If it is not directly relevant, then it’s not allowed. Membership of your local golf club is not going to be allowed no matter how much you think it may help your business
14) Wages, salaries and other staff costs
Includes salaries, bonuses, pensions, benefits for staff or employees; agency fees, subcontract labour costs;employers’ NICs etc.
You can’t claim for your own wages and drawings, pension payments or NICs
15) Repairs and renewals of property and equipment
Repairs and maintenance of business premises and equipment; renewals of small tools and items of equipment. You cannot claim of repairs of non business parts of premises or equipment.
16) Telephone and broadband expenses
If you’re using a home or mobile phone line for both business and personal calls you can’t claim for line rental, because there is a dual purpose, i.e. the expenses aren’t exclusively for business purposes.
However, you may claim expenses for the business phone calls used on that line, provided they can be identified on the phone bill. Alternatively, you could set up a separate phone line or mobile contract in the business name which is used 100% for business.
The same approach is taken when determining the allowable expenses associated with Broadband.
17) Training expenses
The cost of work-related training courses is allowable if it relates to the trade being carried out by the business. So a course to enhance your existing knowledge which relates to your trading activity will be allowable. However, a course to retrain you with a new skill to enable you to branch out into new sectors or offer a new service will not be allowable.
It’s therefore important to be able to demonstrate that the training is directly related to the income which is currently being generated by your business.
18) Use of your home as an office
There are many self-assessment expenses you can claim if you work from home, including:
- Mortgage interest (not the capital repayment aspect of your mortgage)
- Rent
- Council Tax
- Water
- Electricity
- Heating
- Property repairs
- Cleaning costs
In order to work out the proportion of household expenses you can claim for each of the above costs, you will need to determine how many rooms at home you use for work purposes and how long you spend using it for work.
Let’s say for example your property has five rooms and you use one of them Monday to Friday for business and it has private use at the weekends. You would start by calculating a fifth of your mortgage interest, rent, Council Tax, utilities bills and so forth, then you would divide by seven days a week and times by five working days. This adjusts your claim to only reflect the business use of this room.
Aside from manually calculating the business use of your home, you can choose to claim simplified expenses for the self-employed if you work for 25hours or more a month from home.
PLUMBING BUSINESS REGISTERED AS LIMITED COMPANY
If your company is registered as a limited company, you can claim more expenses aside from the 1-18 tax relief for sole traders. Remember, the general rule is that expenses must be “wholly, exclusively and necessary” for business purposes
19) Business mileage
You can claim the following rates for bicycle if you are registered as a limited company
| Vehicle | Rate Per Mile (On first 10,000 miles in tax year) | Rate Per Mile (On each mile over 10,000 miles) |
| Cars and vans | 45p | 25p |
| Motorbikes | 24p | 24p |
| Bicycle | 20p | 20p |
*electric car owners currently get the same mileage rates
Note:
HMRC do not allow business mileage to be claimed by sole traders using a bicycle. They may able to claim the costs of buying a bicycle for work and consumables such as tyres or maintenance.
20) Childcare costs and expenses
HMRC does not allow childcare as a legitimate business expense, however, employees themselves (including limited company directors) can claim tax relief through their salary payments up to a certain amount each month with one of two approved schemes
Childcare Voucher scheme
As of 4th October 2018, the Childcare Voucher scheme has been phased out by the government, so new applicants are no longer accepted. If you’ve set up for this scheme, you can go on receiving and using the vouchers as long as the scheme continues to run.
Tax-Free Childcare scheme
Parents can now apply to the Tax-Free Childcare scheme. This initiative was rolled out in 2017, and was designed to replace employer-supported childcare gradually. Under the scheme, the government will contribute 20p for every 80p you pay, up to a threshold of £2000. The means that you’ll receive £2000 per year for each child, for childcare costs of up to £10,000. Further information is available on the Gov.uk website.
Please note that your limited company cannot provide an employee with childcare using both schemes at the same time, it’s one or the other.
21) Christmas party and staff event expenses
Your company can host an annual event – most commonly a Christmas party – as a tax-free benefit, providing you meet certain conditions.
Your employees may invite a partner but you must not exceed an expenditure of £150 per head (including VAT). The event must cater mostly for staff. For example, expenses for one director and a plus one would be acceptable and would give you a budget of £300.
However, if those attending are not mostly employees then it would be difficult to argue the event’s main purpose is to entertain staff. Note that the £150 amount is an annual limit and can cover multiple events for staff.
22) Donations
While donations aren’t considered allowable business expenses, they are deductible against your Corporation Tax bill.
This applies when you gift the following to a charity:
- Money
- equipment or trading stock (items that your business makes or sells)
- land, property or shares in another company (shares in your own company don’t qualify)
- employees (on secondment)
- sponsorship payments
23) Gifts and trivial benefits
You don’t have to pay tax on a gift or benefit for your employee if all of the following apply:
- it cost you £50 or less to provide
- is not cash or a cash voucher
- it isn’t a reward for their work or performance
- not in the terms of their contract.
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HMRC know. You have to pay tax on any gifts or benefits that don’t meet all these criteria.
24) Pension payments
Once your company has set up a contract with a pension provider it can make payments into your pension and receive 100% tax relief as an allowable business expense. In the 2020/21 and 2019/20 tax years there’s a limit of £40,000 on how much you can contribute free of tax to a pension scheme either through your company or personally.
A sole trader can make employer contributions in respect of any employees but not for themselves. If they make employer contributions in respect of their employees these are tax relievable as a business expense against the sole traders’ pre-tax profits subject to ‘wholly and exclusively’ rules.
25) Eye Tests
HMRC states limited company directors can claim employee expenses for:
– Eye tests that are required by health and safety legislation for employees who are required to use a computer screen.
– Glasses or contact lenses that you’re obliged to provide because an eye test required by health and safety legislation shows them to be necessary for VDU (visual display unit) work – as long as the glasses or lenses are only used for VDU work
26) Salaries
A salary paid to the director of a limited company is regarded as an allowable expense, as are any National Insurance Contributions (NICs).
You may pay a tax-efficient salary up to the relevant National Insurance threshold, i.e. before you become liable to start paying NICs. You’ll be more tax-efficient by paying a lower monthly salary, because after you cross the relevant NI threshold you’ll have to begin paying NICs.
If you need help in identifying expenses you can claim as a Sole Trader or as a limited Company , please give us a call on +44 07828 580251.
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