If you work as a CIS subcontractor, keeping track of your business expenses is an important part of preparing your tax return. Tools, protective clothing, travel, insurance and other business costs can add up during the year.
However, not every cost you pay is automatically an allowable expense. You need to understand which costs can be deducted when calculating your taxable profit and keep suitable evidence to support your figures.
It is also important to understand that CIS deductions and allowable business expenses are not the same thing. CIS deductions are advance payments towards your tax and National Insurance. Your allowable expenses are used separately to work out your taxable business profit.
What is an allowable business expense?
If you are a self employed sole trader or partner, you can generally deduct genuine business costs when calculating your taxable profit, provided they meet HMRC’s rules.
The expense should relate to your business rather than your personal spending. If a cost has both business and private use, normally only the business element can be claimed.
For a CIS subcontractor, this could include costs you incur while carrying out construction work, provided the relevant tax rules are met.
Do not confuse CIS deductions with expenses
This distinction is particularly important for CIS subcontractors.
When a contractor pays you under CIS, they may deduct 20% from your payment if you are registered and successfully verified. A 30% deduction can apply in other circumstances. These amounts are advance payments towards your tax and National Insurance.
When you complete your Self Assessment tax return as a sole trader, you normally report your full CIS income before deductions and then report the CIS deductions separately. HMRC uses the CIS deductions as credit against your tax liability.
Your business expenses are then considered when calculating your taxable profit.
Tools and equipment
Tools are a common cost for construction subcontractors.
Where tools and equipment are genuine business purchases, they may qualify for tax relief. The treatment can depend on your accounting method and the type of item.
For example, HMRC states that equipment such as computers and printers is normally treated as an allowable expense under cash basis accounting, while capital allowances may apply under traditional accounting.
Keep invoices and receipts for tools and equipment, particularly for larger purchases.
Protective clothing and safety equipment
Construction work often requires specialist protective equipment.
HMRC allows qualifying costs for protective clothing needed for work, such as safety boots and hard hats. Clothing that protects your everyday clothes can also qualify where it is only used for work.
Ordinary everyday clothing cannot normally be claimed simply because you wear it while working.
This means a standard pair of trousers or everyday shoes would not automatically become an allowable expense because you wear them on a construction site.
Travel and vehicle costs
Travel can be a significant expense for CIS subcontractors, especially when working at different sites.
Depending on your circumstances, allowable business travel costs can include:
- Fuel
- Vehicle insurance
- Repairs and servicing
- Parking
- Vehicle hire
- Breakdown cover
- Train and bus fares
- Taxi fares
- Qualifying hotel costs
- Meals on qualifying overnight business trips
HMRC does not generally allow private travel costs, fines or ordinary travel between home and work. You may also be able to use simplified expenses for certain vehicle costs instead of calculating actual running costs.
Keep a clear mileage or travel record so you can demonstrate how the business proportion was calculated.
Materials and supplies
Construction subcontractors may buy materials or other goods needed to carry out their work.
HMRC allows qualifying business costs such as goods for resale, raw materials and direct production costs for self employed businesses. Private purchases do not qualify.
There is also an important CIS point here. Contractors do not normally deduct CIS tax from certain amounts charged for materials you have paid for directly, provided the relevant conditions are met. The same applies to certain plant hire and other specified amounts. Contractors may ask for evidence of material costs.
Keep your material invoices and receipts so that both your CIS records and your tax return can be prepared correctly.
Insurance and professional fees
Insurance is another cost that CIS subcontractors should review.
Qualifying business insurance, such as public liability or professional indemnity insurance, can generally be an allowable business expense. Business related accountancy, legal and professional fees can also qualify.
However, HMRC does not allow fines for breaking the law, and the cost of preparing and submitting your Self Assessment tax return is not normally an allowable business expense.
Phone and internet costs
If you use your phone or internet connection for business, you may be able to claim the business proportion of the cost.
Where a service has both business and private use, you should not simply claim the entire bill. HMRC’s guidance confirms that only the business element of a mixed cost can be claimed.
Keeping a reasonable record of your business use can help support the amount claimed.
Training and professional development
Some training costs can be allowable where they maintain or improve skills and knowledge connected with your existing business.
For example, HMRC allows qualifying training that helps a self employed person update existing skills, keep up with technology or respond to developments within their current industry.
Training that allows you to start a completely new business or move into an unrelated trade is generally not treated in the same way.
Business premises and working from home
If you operate your business from premises, qualifying costs such as rent, business rates, utilities, insurance and repairs may be relevant.
If you work from home, you may be able to claim a reasonable business proportion of certain household costs, or use simplified expenses where eligible.
You should not claim the private element of household costs.
Costs you should be careful about
Some expenses are commonly claimed incorrectly.
You generally cannot claim:
- Personal or private spending
- Ordinary everyday clothing
- Fines and penalties
- Private travel
- Travel between home and work
- Personal use of business equipment
- Capital repayments on loans
- The cost of preparing and submitting your Self Assessment tax return
HMRC also provides different rules for assets, vehicles and certain finance costs, so larger purchases should be reviewed before they are entered into your accounts.
Keep evidence for your expenses
Good records are essential when claiming subcontractor expenses.
Keep documents such as:
- Receipts
- Supplier invoices
- Bank statements
- Vehicle and mileage records
- Insurance documents
- Tool and equipment invoices
- Training records
- CIS payment and deduction statements
HMRC requires self employed people to keep records of their income and business expenses and to keep evidence such as receipts, bank statements and invoices. Records generally need to be retained for at least five years after the 31 January submission deadline for the relevant tax year.
Your CIS Payment and Deduction Statements should also be kept because HMRC may ask for evidence of the CIS deductions claimed on your tax return.
Check your expenses before filing
Before submitting your CIS tax return, review your records carefully.
Check that:
- Every CIS Payment and Deduction Statement has been included
- Your CIS income agrees with your contractor records
- Allowable business expenses have been recorded
- Personal expenses have been removed
- Mixed business and private costs have been split correctly
- Larger purchases have been treated correctly
- Receipts and invoices are available
- Your bank records agree with your bookkeeping
This final review can help prevent both missed expenses and incorrect claims.
Remember the trading allowance
The £1,000 trading allowance is important to check before claiming individual expenses.
If you use the trading allowance for your self employment income, you generally cannot also deduct individual business expenses for the same trade. It is therefore worth comparing the available options rather than automatically claiming the allowance.
For CIS subcontractors with significant expenses, calculating the actual allowable costs may produce a different result from using the trading allowance.
Prepare your CIS records early
Waiting until the tax return deadline can make it difficult to find missing receipts, contractor statements and expense records.
Preparing throughout the year gives you more time to:
- Request missing CIS statements
- Check contractor payments
- Organise receipts
- Review business expenses
- Reconcile your bank account
- Understand your expected tax position
Good bookkeeping also makes it easier to identify the difference between your CIS deductions and your actual business expenses.
How Tax2u can help
CIS tax can become complicated when you have several contractors, many work related expenses and different types of costs.
Tax2u can help CIS subcontractors with:
- CIS tax return preparation
- CIS deduction checks
- Allowable expense reviews
- Bookkeeping
- Self Assessment
- CIS refund calculations
- HMRC compliance
We can review your CIS statements and business expenses, check that your records are complete and help ensure your tax return reflects your actual business position.
Final thoughts
Knowing which CIS expenses UK subcontractors can claim can make a significant difference when preparing your tax return. The key is to claim genuine business costs, keep good evidence and understand how each expense should be treated.
Remember that CIS deductions are advance payments towards your tax and National Insurance, while allowable expenses are used to calculate your taxable business profit. Keeping these two areas separate can help you avoid confusion and prepare a more accurate Self Assessment return.