Accounting for Cleaning Businesses

Running a cleaning business in the UK – whether domestic, commercial or specialist – involves straightforward accounting once you set up the right systems. The challenge is that cleaning businesses often grow quickly from a one-person operation to employing a team, and the accounting needs change at each stage.

Choosing Your Business Structure

Most cleaning businesses start as a sole trader and consider incorporating as they grow:

As a sole trader, your profits are subject to Income Tax and Class 2/4 National Insurance. As a limited company, profits are subject to Corporation Tax and you extract money through salary and dividends.

The crossover point where a limited company becomes more tax-efficient is typically around £30,000-£35,000 of profit, though this depends on your personal circumstances.

Allowable Expenses

Cleaning businesses can deduct a wide range of costs from taxable profits:

Vehicle Expenses

Most cleaning businesses use vehicles to travel between jobs. You can claim either:

• Actual costs – fuel, insurance, road tax, servicing, depreciation (apportioned for business use)
• Mileage allowance – 45p per mile for the first 10,000 miles, 25p thereafter

Keep a mileage log for every journey, recording the date, start and end points, purpose and distance. If you use the mileage allowance method, you cannot claim any other vehicle costs.

Home Office

If you run the business from home, you can claim a proportion of household costs:

• Simplified method: £6 per week (£26 per month) flat rate, no records needed
• Actual costs method: calculate the proportion of rent/mortgage interest, utilities, council tax and insurance used for business

VAT for Cleaning Businesses

The VAT registration threshold is £90,000 of taxable turnover. Once your cleaning business reaches this level, you must register.

Domestic vs Commercial Cleaning

For domestic cleaning, VAT registration effectively raises your prices by 20% because residential customers cannot reclaim it. If most of your work is domestic and you are near the threshold, consider whether the additional revenue is worth the VAT cost.

For commercial cleaning, VAT registration is less of an issue because your business clients reclaim the VAT. It may even be an advantage, as some commercial clients prefer VAT-registered suppliers.

Flat Rate Scheme

Cleaning businesses can benefit from the Flat Rate Scheme if their costs are high enough. The flat rate for cleaning services is 12% of gross turnover (including VAT). If your input VAT on purchases would be less than the 8% difference (between the 20% you charge and the 12% you pay), the scheme saves money.

However, if you are a limited cost trader (goods cost less than 2% of turnover), the flat rate rises to 16.5%, which usually eliminates the benefit.

Managing Staff Payroll

As your cleaning business grows, you will likely take on employees. This triggers several obligations:

Employment vs Self-Employment

HMRC closely scrutinises the cleaning industry for incorrect self-employment classifications. A cleaner is likely an employee if:

• You decide which clients they clean for
• You set the hours and schedule
• You provide the equipment and supplies
• They cannot send a substitute
• You are responsible for putting right any unsatisfactory work

Misclassifying employees as self-employed can result in backdated PAYE, NIC, holiday pay and pension contributions.

Payroll Basics

Once you employ cleaners, you must:

• Register as an employer with HMRC
• Run payroll and deduct PAYE and NIC
• Report to HMRC in real time through RTI
• Provide payslips to employees
• Set up auto-enrolment pension for eligible staff
• Pay at least the National Minimum Wage or National Living Wage

Holiday Pay

All employees (including part-time and zero-hours workers) are entitled to 5.6 weeks of paid annual leave. For cleaners paid hourly, calculate holiday pay based on an average of the previous 52 weeks of pay (excluding weeks with no earnings).

Many cleaning businesses include holiday pay within the hourly rate (rolled-up holiday pay). While HMRC tolerates this in practice, the legal position is that holiday should be taken and paid separately.

Quoting and Pricing

Your pricing needs to cover:

A common mistake is pricing based on the cleaner’s hourly wage without factoring in employer NIC, pension, holiday pay and travel between jobs.

Record-Keeping

Good records make accounting simple:

• Sales invoices for every job (commercial) or a record of income received (domestic)
• Purchase receipts for all supplies and equipment
• Mileage log for vehicle expenses
• Payroll records for each employee
• Bank statements reconciled monthly
• Client contracts specifying scope, frequency and price

Keep records for at least 6 years from the end of the tax year.

Insurance Requirements

All insurance premiums are allowable expenses for tax purposes.