Expenses every construction firm should be claiming

expenses construction firms should be claiming off their tax bill
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    If you’re a limited company in the construction industry, your day-to-day operations are no doubt hectic. It’s hard to keep on top of logging business expenses correctly, and all too easy to lose receipts.

    Unfortunately, mistakes and missed expenses compound over time and can have a disastrous effect when it comes to your tax return at year-end. Not only might you find yourself on the other end of a penalty, but you may also miss out on valuable tax relief.

    Construction firms can deduct business expenses from their taxable profits to reduce Corporation Tax. Keeping accurate business expense records is essential, and hiring an accountant is a wise investment. Allowable expenses include travel, rent, financial services, marketing, wages and contracting expenses.

    The Jameco Group team have put together a list of essential expenses that every construction firm should be claiming to maximise their tax deductions and retain more of their hard-earned cash! For more in-depth advice on accounting for the trades, please drop us a line.

    How do expenses work for construction firms?

    Construction firms deal with a vast array of costs, from materials and labour to traditional overheads and capital expenses. Solid digital records and bookkeeping are essential to keep track of these expenses, not only for the sake of HMRC compliance but also to ensure you can claim expenses to minimise your firm’s tax liability.

    Construction firms pay Corporation Tax on profits (between 19-25% as of 2023/24) and are able to claim legitimate business expenses to offset their tax bill. So it literally pays to keep meticulous records of every last tax-deductible business expense to keep your tax bill to a minimum.

    For example, let’s say your turnover is £100K, and you incur £20k of allowable expenses. You are liable to pay tax on £80k. However, your record keeping is sketchy, and you only have records of £15k of expenses. Instead of paying tax on £80k, you will pay tax on £85k – a loss of £1,250!

    How to keep records of expenses as a construction firm

    For construction firms, staying on top of business expenses is essential. An accountant can help you establish a streamlined financial system to capture and categorise all receipts and invoices promptly.

    First up, separate your personal and business bank accounts. If you’re operating as a limited company, this is mandatory, but it will also help track your business spending.

    Next, you’ll need some great expense-tracking software to ensure that all of your expenses are easy to upload, accessible and accurate. At Jameco Group, Xero and Hubdoc come as standard with all our packages – just snap pictures of your invoices and receipts in Hubdoc, and we’ll do the rest.

    If you’d like to go one step further, you can use construction-specific project accounting software such as Tradify or simPRO. If you’re looking to track and reimburse employee expenses and hand out company expense cards, then check out Pleo.

    What expenses are construction firms able to claim?

    We’ve put together our top 9 expenses that all construction firms should be claiming. This list is not exhaustive, so if you need in-depth advice, please get in touch.

    1. Travel and subsistence expenses 

    If you use your personal car for travelling to and from a temporary workplace, you should be claiming travel expenses. You can claim mileage allowances at the following rates:

    • Car and vans – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
    • Motorcyclists – 24p per mile
    • Bicycle – 20p per mile

    Motor vehicle costs such as road tax, car insurance, travel expenses, and leasing payments can all be claimed if it’s a commercial vehicle in question. Other travel costs, aside from business mileage allowance and motor expenses, include public transport, overnight stays, parking costs, toll fees and meals whilst working away from home.

    2. Insurance Costs

    Insurance cover such as public liability insurance, professional indemnity insurance, employers’ liability insurance, and contents insurance protect a business against various risks, including accidents, legal claims, and damage to property or assets. They are all tax-deductible expenses.

    3. Financial Costs

    You can also claim for various services necessary for the business’s financial management, such as accountancy fees, Companies House fees for statutory filings, bank charges on business accounts, and pension contributions. Legal fees associated with contracts, disputes, or other legal matters may also fall under this category.

    4. Business premises

    Rent or mortgage interest payments, property insurance, utilities (such as electricity, water, and heating), property maintenance and repairs, security measures, and property taxes are all classed as legitimate business expenditures for tax purposes.

    5. Capital expenses

    This includes the acquisition of essential assets like computer equipment, plant and machinery, as well as power tools – and that new truck you needed! These assets aren’t always expensed immediately but are capitalised and typically depreciated over the working lifetime.

    6. Staff salaries and wages

    In general, staff salaries and wages are tax-deductible expenses (calculated on gross salaries, i.e. before income tax and NI deductions). This includes the director’s salary and associated admin costs.

    7. Advertising and marketing expenses

    Advertising campaigns, online marketing, print materials, website development, search engine optimisation, and promotional events are also legitimate business expenses you can claim.

    8. Cost of sales

    These expenses typically include sub-contractor expenses, materials for ongoing projects, and plant hire costs, all of which are essential components of the construction process.

    9. General business expenses

     There are various other allowable expenses for construction companies, including protective clothing and safety equipment, subscription fees for industry publications or software, phone costs for communication, and postage costs for sending important documents and correspondence.

    Disallowable expenses you can’t claim

    HM Revenue states that you are only able to claim business expenses incurred “wholly and exclusively” for business purposes.

    If the cost is incurred solely for personal use, it’s strictly disallowable. If the expense in question has both business and personal use, you will only be able to claim tax relief on the proportion of the business element. Calculating the percentage of the cost that is for business use can be tricky, which is where a professional accountant can be of great value.

    Get a handle on construction business expenses with Jameco Group

    We are a helpful and highly qualified team of small business accountants dedicated to helping business owners in the construction industry. We can help you to stay compliant with CIS, streamline your expenses, maximise profitability, and achieve more financial success.

    Contact us today to elevate your construction business to new heights.

    Frequently asked questions about construction company expenses

    How are CIS expenses treated?

    Like any other form of labour, CIS (Construction Industry Scheme) expenses (i.e. wages paid to self-employed subcontractors within the CIS scheme) are considered a tax-deductible expense for a limited company.

    What happens if HMRC rejects a business expense?

    If HMRC rejects a business expense claimed by a construction firm, it can have major financial implications for the company. If a claimed expense is found to be disallowable, HMRC will adjust the company’s tax liability accordingly, i.e. their tax bill will increase, and there may be interest on the unpaid tax.

    If HMRC deems that the mistake was made through negligence or deliberately, they may impose penalties. You can appeal against this if your claim is legitimate, but you must include evidence. Keeping carefully documented records of your business expenses will provide the evidence you need if your tax affairs are subject to investigation. Hiring an accountant and using software like Xero is crucial to ensure you stay on the right side of HMRC.

    Can my accountant claim expenses on behalf of my construction company?

    Yes, your accountant can play a valuable role in managing and claiming business expenditures on behalf of your construction company. Accountants specialising in the construction industry have knowledge of industry-specific regulations and can help you identify legitimate expenses to avoid paying too much tax.

    Do back charges count as an expense?

    Back charges can be tax deductible, but it depends on the specific situation. It’s recommended to keep all documentation relating to back charges, along with seeking advice from a specialist construction accountant.

    James Wheeler, founder and managing directors of Jameco Group
    James Wheeler

    James has over 10 years of experience in accountancy and taxation. He has a real passion for business and truly believes SMEs are the heart of the UK economy. In 2017, he founded Jameco Group to provide first-class accountancy, taxation, and business advisory services to individuals and SMEs across the UK.

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