How to claim expenses for your trade business

Working out your expenses is probably a main contender for the least favourite work task. But having an efficient small business tracking process ensures you deduct the right expenses from your taxable profit.

Keeping on top of limited company expenses reduces taxable profit and helps businesses to run better.

How does small business tracking work?

It might sound unhelpful to say that it’s not rocket science. But it really isn’t. And once you get going on small business expense tracking it should get easier.

Of course, your small business tracker could be a carrier bag into which you stick receipts and invoices. But for more accurate small business expense tracking you could graduate to a simple spreadsheet on Excel. Or just a list in a Word document might be sufficient.

The next step is to think about using a software package to do all the hard work. Any trade business that has computerised accountants will probably have business expense-tracking capabilities.

There’s a wide choice of small business tracking and reporting software available, including:

PoweredNow

We always recommend the 1Trade app as it is designed for tradespeople. Checkatrade members get 1 year’s free access as part of their membership.

Quickbooks

Quickbooks estimates it can save businesses up to eight hours a month managing their accounts, including business expense tracking.

Xero

Xero has over 3.7 million subscribers and offers a 30-day free trial.

Spendesk

Spendesk offers businesses an electronic ‘wallet’ system to manage and control business expenses.

What is a small business expense report?

Every business, whatever its size, needs to get regular updates on money in and money out. Otherwise, running your business day-to-day is severely hampered and long-term planning is pretty much impossible.

A simple small business expense report is literally a list of all your business spending. This could be done:

• By time period, such as daily, weekly, monthly or quarterly
• By customer
• By job
• By employee

What are small business expense categories?

There are lots of business expense categories. Tracking them all will help to improve profitability by pricing up jobs correctly. Our handy guide to business expenses has more information.

Here are some of the main business expenses that you might need to track and report on:

• Office running costs – Electricity, gas, water, rent
• Travel expenses – Petrol/diesel, parking, van leasing
• Business assets – Vans, cars, plant, machinery, tools and equipment, computers and laptops
• Financial costs – Loans, hire purchase contracts, asset leases, bank overdrafts
• Workwear – Clothing such as uniforms, overalls and Personal Protective Equipment (PPE)
• Office costs – Landlines, mobile phones, and computer maintenance costs
• Employee costs – Training, learning and development courses, apprenticeships
• Professional costs – Accountants, financial and business advisers

There are many different types of business expense, but being able to claim money back from a business means meeting certain criteria. By and large this will be money that you have paid personally for something on behalf of the business.

What are limited company business expenses?

Limited company business expenses cover all the above small business expenses categories. There are also costs linked specifically to limited companies:

• Setting up a limited company
• Paying to make a company’s annual return to Companies House
• Financial expenses related to preparing and submitting annual accounts to HMRC for paying corporation tax

Claiming business expenses

The whole purpose of small business and limited company expense tracking is to deduct them from your taxable profits.

To do this, you need to understand the HMRC’s rules on claiming business expenses. In short, business expenses must be ‘wholly and exclusively’ for business purposes.

That means they must relate only to work. Any expenses that are for personal use should be excluded from your business expenses calculations.

For example:

• If you have a mobile phone and some of the calls are for personal use
• If you use a laptop 90% for business and 10% for personal use
• If you have a van that you use for personal trips.

How you claim will depend on the type of trade business you have. Limited company business expenses are handled differently from sole trader or partnership businesses.

Claiming limited company business expenses

Limited companies produce a profit and loss account and a balance sheet. Business expenses reduce profits. Limited companies pay corporation tax on their taxable business profits.

Claiming sole trader and partnership business expenses

Sole traders and partnerships use business expenses to reduce their taxable income in their self-assessment returns.

Key takeaways

• Limited company business expenses appear in its profit and loss account to reduce its taxable profits
• Small business expense tracking involves recording and monitoring all the costs you incur in the course of running your business
• A small business expense report is a way of recording and presenting important financial information to help you operate more profitable
• Small business expense categories vary according to the type of trade business
• Small business expenses must be exclusively for business rather than personal purposes to be tax deductible from income or profits