Allowable Expenses for Contractors

Start with your business structure

This guide is aimed mainly at self-employed sole traders and individual partners. A limited company follows corporation tax and company accounting rules, so the treatment and claiming route can differ even when the underlying cost looks similar.

For a self-employed person, an expense must relate to the business. Where a cost has both business and private use, only the identifiable business share is normally claimed. Personal spending and drawings are not business expenses.

Common construction-business expenses

Travel, vehicles and subsistence

Business travel can include journeys between jobs, to suppliers or to temporary workplaces. Ordinary private travel and commuting to a permanent workplace are not automatically allowable. Construction workers moving between changing sites should record the facts rather than assuming every journey qualifies.

Vehicle costs may be calculated using an eligible simplified-mileage method or by claiming the business share of actual running costs, depending on the circumstances. Do not claim the same vehicle cost twice, and keep a contemporaneous mileage log showing date, destination, purpose and distance.

Tools, plant and equipment

Small consumable tools may be dealt with as day-to-day business costs. Longer-life equipment, machinery and vehicles may need different treatment under cash-basis rules or capital allowances. The price alone does not create a universal cut-off, so record what was bought, how it is used and which accounting method applies.

Hire charges for plant or equipment used in the trade are generally considered separately from buying an asset. Keep the hire agreement, invoices and job allocation so the business purpose is clear.

Subcontractors and CIS deductions

A contractor paying subcontractors must apply the CIS rules where the work is within the scheme. The gross subcontractor cost and the amount withheld need to be recorded correctly. For a subcontractor who has tax deducted from incoming payments, the deduction is normally tax paid on account rather than an extra business expense.

Keep verification details, invoices, payment records, deduction statements and monthly return information together. This helps reconcile the bookkeeping, CIS records and year-end tax position.

Home working, phone and training

Home-working costs can be based on an eligible simplified method or a reasonable share of actual household costs. Phone and internet claims should exclude private use where the contract is mixed. Training is more likely to qualify when it updates or maintains skills used in the existing business rather than preparing you for a new trade.

Costs commonly restricted or disallowed

• Personal purchases and the private share of mixed-use costs.
• Ordinary clothing that could be worn outside work, even when it is bought for site visits.
• Client entertaining and hospitality, subject to limited exceptions that need separate advice.
• Fines, penalties and the personal element of legal or professional fees.
• Travel that is private or ordinary commuting rather than qualifying business travel.

Records to keep

• Supplier invoices, receipts and proof of payment.
• Mileage logs and the business purpose of each journey.
• Calculations for business and private use.
• Asset details, hire agreements and disposal records.
• CIS deduction statements, verification records and subcontractor payment details.

Good records do more than support a claim: they let the accountant distinguish expenses, assets, private use, VAT and CIS correctly. Retention periods vary by business and tax type, so follow the current HMRC guidance that applies to your structure.

Frequently asked questions

Can I claim every tool I buy?

Only the business element is considered, and the accounting treatment depends on the item and the accounting method. A day-to-day consumable may be treated differently from plant, machinery or a vehicle.

Can I claim travel to construction sites?

It depends on whether the journey is business travel, travel to a temporary workplace or ordinary commuting. Keep a mileage log and review recurring or long-term site arrangements carefully.

Are CIS deductions an expense?

For a subcontractor, CIS deducted from income is generally tax paid on account and should be reconciled against the tax position. It is not normally added as a second expense on top of the underlying business costs.

Should I use simplified expenses or actual costs?

The available methods and the better outcome depend on eligibility, records and the type of cost. Compare the permitted methods before filing rather than switching informally or claiming both.