Personal vs Business Expenses. What’s the Difference and Why It Matters

Mixing Personal and Business Expenses? For Construction Firms, That’s Dangerous Ground

In construction, it's easy for lines to blur. One minute you’re grabbing materials for site, the next you’re picking up lightbulbs for home. You buy a round of bacon rolls for the crew, is that claimable? You use your van for both work and dropping the kids off, how much fuel can you expense?

This stuff matters. Because mixing personal and business spending is one of the most common and costly accounting mistakes in the construction industry.

Whether you’re a sole trader, limited company, or run a team of subcontractors, this guide will help you:

• Understand the difference between personal and business expenses

• Avoid HMRC red flags and potential penalties

• Clean up your books to reflect the real performance of your business

• Get more strategic with your tax planning, without stepping into risky territory

What’s a Business Expense in Construction?

HMRC is clear: a valid business expense must be “wholly and exclusively” for the purpose of running your business.

In construction, these typically include:

Legitimate Business Expenses:

• Fuel or mileage to and from construction sites

• Materials, tools, PPE (hard hats, boots, high-vis)

• Subcontractor payments (must be CIS-compliant)

• Site-related travel (including parking, tolls)

• Plant or vehicle hire for business use

• Accounting, payroll, and business insurance

• Office supplies, estimating software, and job costing tools

• Advertising, van signage, website design

• Mobile phone, if used predominantly for work

  
  

  Example: You rent a cement mixer for two days on a private job, that's claimable. You rent it for a family DIY project? That's not.

  
  

  Example: You buy work trousers and branded hoodies for the crew = business. You buy a smart shirt for your cousin’s wedding = personal.

What Counts as a Personal Expense?

This is where most construction business owners trip up, not because they’re trying to cheat the system, but because they don’t understand what’s claimable.

Here’s what you should not be claiming as a business expense:

Non-Claimable Personal Expenses:

• Meals not tied to business travel or meetings

• Daily coffee runs (unless you're travelling for work)

• Fuel for personal use without a mileage log

• Home improvement materials (even from trade stores!)

• Family holidays disguised as “construction conferences”

• Netflix, Spotify, or other non-business entertainment

• Personal clothing, unless it’s safety gear or branded workwear

  
  

  Example: Buying timber for your home renovation, even from Travis Perkins on your trade account, does not make it a business expense.

  
  

  Example: Filling up the van and then using it to visit your nan = personal mileage. You must split the claim or log it correctly.

Why It Matters — The Risk Is Bigger Than You Think

HMRC Is Watching

Construction businesses are heavily monitored, especially for CIS compliance and VAT integrity. If you’re found claiming personal expenses:

• You’ll have to repay any tax “saved”

• You’ll face interest charges

• You could be fined

• You may trigger an HMRC investigation that spans years of trading

You Lose Clarity Over Your Business Performance

If your personal purchases are mixed in with legitimate costs:

• Your profit margin looks artificially low

• Your tax planning becomes unreliable

• You can’t see what’s actually driving profit, or loss

• When it’s time to raise finance or sell the business, your books will work against you

Sole Trader vs Limited Company, Does It Make a Difference?

Yes, and here’s how:

🔹 Sole Traders:

• You’re taxed on profits, not on what you withdraw

• Personal and business finances often mix (but shouldn’t)

• You must keep detailed records of what’s for business vs personal

  
  

  Tip: Use a second bank account for your sole trader activity, even if it’s not a limited company.

  
  

🔹 Limited Companies:

• The business is a separate legal entity

• Using the business for personal expenses can trigger “benefit in kind” tax

• Any director’s personal spending must be logged via the Director’s Loan Account (DLA)

  
  

  If the DLA goes over £10,000, you could be liable for Class 1A NIC and personal tax charges.

How to Keep Personal and Business Finances Clean

This isn’t just about avoiding penalties, it’s about having a business that’s financially clear, compliant, and able to scale confidently.

JFA’s Rules for Construction Clients:

✅ One business account, no grey areas

✅ Keep mileage logs and fuel receipts

✅ Track every purchase (yes, even small ones)

✅ Use tools like Sage, Dext, or QuickBooks

✅ Avoid paying for personal items on the company card

✅ Speak to us before making a large or unclear purchase

How JFA Helps Construction Firms Stay Clean, Clear & Compliant

At Jones Financial Accounts, we specialise in helping builders, contractors and construction leaders get their books straight, and keep them that way.

We offer:

Full expense reviews, we’ll tell you what’s claimable and what’s not

Setup of cloud-based expense and receipt software

Director’s Loan Account monitoring for limited companies

Monthly management reports with personal vs business separation

Proactive advice so you never need to guess again

Want a second opinion on what you’re claiming through the business? Book your free finance health check at today

Wrapping up today’s insights, tomorrow we simplify another accounting challenge.