Being a CIS subcontractor in the UK has its privileges, which enable you to claim a wide range of business expenses against your taxable income, hence bringing down your tax bill. HMRC has laid down clear rules on what is allowed and what is not; thus, being in the know will ensure that you comply with the rules and at the same time avoid paying more than you actually need to pay in tax.
Meet Mr. Paul-a CIS Subcontractor
In this post, we are tracing one routine day of a CIS subcontractor, Mr. Paul to show what he can claim as an expense and what he cannot.
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Travel to the Job Location
Within a year, Paul travels from one job to another, that is, from one location to another. Each morning, he travels in his van to a place where he would be working on a particular day.
Allowable Expense: Motor mileage or fuel expense going to a temporary site other than his usual workplace is deemed an allowable expense. The allowance that Paul can claim is 45p per mile for the first 10,000 miles and thereafter 25p per mile. Alternatively, he could claim a proportion of his actual costs in running the vehicle-for example, fuel, insurance and repairs-where the van is only partly used for business.
If Paul goes to the same place to work for longer period usually more than 24 months, the workplace now converts to his usual workplace and no travelling expenses will be claimed as HMRC consider .
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Equipment and Tools
The power tools, hand tools and the safety equipment like helmets and gloves are required by Paul.
Allowable Expense: Any time Paul buys any tools, equipment, protective clothing - for example a new drill, or steel-toe boots. That is an allowable expense, so long as the items are used only in his work.
Myth: Many people appear to be making this mistake when they claim for things considered regular clothes, such as a winter jacket. HMRC will only allow the claims for specialist clothes or gears you will be expected to do your job.
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Job Materials
Depending on what he is doing at the time, Paul at times buys materials such as bricks, cement, or timbers.
Allowable Expenses: Anything that Paul purchases to use on any one particular job he is working on can be counted as an allowable expense. For example, if he buys 100 bags of cement to lay a foundation, that would be an allowable business expense.
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Telephone and Internet
Paul uses a mobile phone through which he communicates with various clients and contractors. He also uses the internet; he sources some of the regulations involving construction on the internet as well as buying some of the materials online.
Expense Allowed If such facilities of the phone and the internet have been used for business-related matter, then Paul can claim a part of his phone and internet bills. If 50% of his phone usage is for business, he can claim 50% of the bill. Not Allowed He can't claim anything in respect of personal use at home; such as phoning the family or watching Netflix.
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Meals Whilst Working
Paul lunches every day on the premises of the business. Sometimes he takes a sandwich obtained from a café and at other times he brings a packed lunch prepared at and brought from home.
Not Allowed: Subsistence meals consumed daily are not claimable. HMRC regards meals as a private expense, even if you are working.
Probably Allowed -With Conditions: The only condition under which Paul can claim meal expenses as his subsistence costs is if he is out of town on work, say on an out-of-town job that requires overnight stay on work. This however cannot include his daily lunch.
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Overnight Stays and Accommodation
When the location where Paul performs his work is far enough away from home that he would usually need to stay in a hotel.
Eligible expense: every time Paul has to spend some time out of town for work, he is able to subtract the price of the accommodation used, such as hotel or B&B, plus meals associated with the above-mentioned trip.
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Training and Certifications
Health and safety standards, of course, come first; therefore, there is a need for Paul to refresh his health and safety knowledge sometimes taking courses.
Any training that Paul pays for which relates directly to his job, like health and safety courses for example, will be considered an amount deductible as a business expense.
Myth: The many subcontractors are of the view that anything, which one undergoes in the way of training and education taken fact remains only those courses that relate to ongoing skills will be allowed, in this case if Paul wanted to learn something new or unrelated thing he would not be in a position to make a claim for it.
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Accountancy Fees
Paul employs an accountant who can help him in filing his annual returns.
Tax deduction: The Accountant fees turn to be a business expense for Paul as the fee is wholly related to bringing his books of accounts in order.
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Workplace Rent or Office Costs
Paul does not have any office. He does all the paper works invoicing and calling his clients using his house.
Eligible Expense : Paul can claim part of his house expense--such as electricity, rent and heating-for that part of house, in case he uses part of his house exclusively for his business, such as home office.
Costs That Are Not Allowed
Commuting to the same site every day - means one does the regular travel to the same location, and it is termed personal commuting.
Casual clothes: Even though these are worn at work Paul is unable to claim back on casual clothes.
Personal items: Anything that does not relate to work cannot be claimed for instance, shopping for personal items, or holidays
Common Misconceptions
Personal cars: Some may believe they are entitled to the full amount of running their car. These are only claimable on business travel.
Lunch while working: Unfortunately the majority believe that they can claim a daily lunch allowance this is not correct unless away from normal work location and over night .
Missed Expenses
Washing and drying of protective clothing: If Paul has to wash his work outfit separately then he can claim a laundry expense of those clothes.
Business use of your car-mileage to run small errands: pick-up of material or meeting clients are all in the category of business travel hence Paul can claim the mileage.
Bank charges and interest: If Paul has a bank account only for business purposes then bank charges on that account are claimed.
Final Thoughts for Mr. Paul
It would give Mr. Paul the confidence to claim every last one that he is entitled to without making any of the mistakes that raise red flags at HMRC by allowing him to understand what actual expenses he is allowed to claim. He must always keep good records in the form of receipts, mileage logs, and invoices in case HMRC asks for proof of anything.
Above, if ambiguous at all, it would be prudent on the part of Paul to consult an accountant so as not to lose any of his potential tax savings.
Useful Links for CIS Subcontractor:
- HMRC's Official Guidance on CIS
[Construction Industry Scheme: CIS - GOV.UK](https://www.gov.uk/what-you-must-do-as-a-cis-subcontractor)
- Allowable Expenses if Self-Employed
[Expenses if you're self-employed - GOV.UK](https://www.gov.uk/expenses-if-youre-self-employed)
- HMRC Mileage Allowance Rates:
[Approved Mileage Rates - GOV.UK](https://www.gov.uk/expenses-and-benefits-business-travel-mileage/rules-for-tax)
- Self-Assessment Tax Returns:
[Self Assessment: tax returns - GOV.UK](https://www.gov.uk/self-assessment-tax-returns)
- See if you're entitled to claim for training courses:
[Tax relief for employees: training - GOV.UK](https://www.gov.uk/tax-relief-for-employees/training)