From cars and clothing to laptops and ladders, if you’re using them for work, there’s a good chance you can recoup costs (or part of them) through a business expense claim.
While nothing should replace a good accountant’s solid advice, it pays to understand how business expense claims work and what spending you can get your tax back on. That way, you’re not paying more tax than you should be, and you’re ready to get claiming come tax time.
Short on time? Skip ahead:
- 1. How business expense claims work
- 2. What can I claim as a business expense?
- 3. Common trade business expenses you can claim
- 4. How to keep a handle on your expenses
- 5. Get organised and get more tax back
1. How business expense claims work
Business expense claims help you get your tax back (or pay less of it).
At the end of the financial year (EOFY), you’ll be required to pay tax on your net taxable income. This figure is worked out based on your business’s total profit, minus what you claim as business-related expenses. The more business expenses you claim, the lower your net taxable income and the less tax you pay.
While plenty of tradies will tell you it’s not worth the effort, claiming business expenses can lower your yearly tax bill and boost your bottom line. It might only feel like a few dollars here and there and a lot of admin to get your head around (especially when you’re just starting), but it all adds up and is worth doing.
2. How do I know what I can claim as a business expense?
Business expenses are the costs you’re stumping up day-to-day to keep your business running. Sometimes, figuring out which costs are business expenses and which are personal can be tricky, and while there’s no substitute for your accountant’s advice, it’s helpful to ask yourself the following:
- Does this expense directly help my business make money? If the answer is yes, it’s likely a business expense, including tools, machinery, workwear and insurance directly related to your trade.
- Do I get personal benefit out of this expense? If the answer is yes, it’s worth looking at some more. Some costs can be partially claimed only. For example, if your company vehicle is also your off-duty transport, it’s not purely a business expense.
- Is it more of a personal benefit than a business one? Some expenses might feel necessary to run your business successfully (like that essential day spent with your mates to de-stress) but can’t be directly connected to the day-to-day running of your business.
3. Common trade business expenses you can claim
Now you’ve got a handle on which types of expenses fall under the business expense category, it’s time to get into specifics. Here are the six most common trade business expenses you can claim in New Zealand:
While it might seem the most obvious expense, plenty of tradies don’t bother claiming on the tools they use. You can also claim insurance, repairs, rental, and maintenance of your tools.
Remember, only tools you use specifically for work can be 100% claimed, not ones you’ve grabbed for a DIY project at home.
Necessary equipment 🧰
This covers everything from high-vis jackets and steel cap boots to branded company clothing, laptops, and job management software like Tradify. Try to think of every piece of essential equipment you have purchased to carry out the day-to-day running of your business.
Vehicle expenses 🚚
You can claim the cost of your work vehicle, maintaining it, and running it, as long as it’s used 100% for business purposes. If it doubles as cricket transport for the kids or nips off for a weekly grocery run, you’ll need to figure out your personal-versus-work use.
There are a couple of different ways of doing this: keeping a logbook, adding up the actual costs, or just claiming 25% of the running costs.
Admin expenses 💻
It might be an area of the business you’d prefer to gloss over, but plenty of admin-related expenses come with running your trade business, including work phones (and bills) and, importantly, any home office space you might use to get the admin done.
Home office claims are based on calculating the percentage of your home you’re using and applying this to a portion of expenses like rates, power, mortgage payments or rent and even house and contents insurance. This can be a little complicated and best discussed with your accountant.
Training and development 💡
Keeping on top of your game is essential for a successful business, so it’s possible to claim things like training (provided it’s 100% related to your job). Professional development covers certifications and licensing, industry magazine subscriptions, and memberships to professional groups.
The costs of managing your tax 💰
That’s right, the expenses related to getting your tax sorted are also deductible, including your accountant’s fees and the software you’re using to keep your accounting in shape
This list is a guide only, and there are plenty of other business expenses that you can partly claim on (like team-building afternoons or the lunch you shouted your supplier). Your accountant will be able to tell you more.
4. How to keep a handle on your expenses
Keeping a good digital ‘paper trail’ is the best way to get a handle on your expenses. That way, you’re not scrambling to piece things together and retrace your year’s steps at the end of the financial year. If you don’t have solid records to support your expense claims, IRD might not accept them.
Here’s how to handle your expenses like a pro:
- Pay for all business-related expenses through your business bank account. It sounds obvious, but keeping personal and business expenses separate is essential, making it much easier to track your cash flow and reconcile costs.
- Store receipts digitally. A wad of receipts in your wallet isn’t going to cut it. Ask for a digital receipt where possible, and if not, take a quick photo of it and attach it to the relevant job in Tradify.
- Use software to streamline. Ditch the paper altogether and embrace technology to keep track of jobs as you go. Accounting software like Xero, MYOB, or QuickBooks seamlessly integrates with Tradify, making it easy to stay on top of your expenses.
5. Get organised and get more tax back
Getting the most out of business expense claims comes down to understanding how they work, being organised, and identifying and tracking what’s relevant to your trade business.
Tradify syncs up with your accounting software and helps you get organised with minimal effort. Sign up for a 14-day free trial or pop over to one of our live walkthrough webinars to see it in action.