Tool Allowances

Tools used in the course of a business can be claimed as an expense in order to offset profit and associated tax.  Small tools or 'hand tools' of reasonably insignificant cost can be included as a 'revenue expense' along with other day to day expenses, however, power tools and those of significant cost are classified as 'plant and machinery' and are subject to capital allowances as a method of claim (see 'Capital Allowances').  For traders using the 'cash basis' method of accounting and where the classification of 'plant and machinery' applies, the cost of buying larger tools can be included as an expense.

Employees receiving tools for use in the course of their work are generally subject to an 'exemption' whereby an annual report on such items has to be submitted by the employer to HMRC, however, the item will not be treated as a benefit in kind (see 'Benefit in Kind') and associated tax.