“ALLOWABLE BUSINESS” EXPENSES, WHEN COMPLETING YOUR SELF ASSESSMENT

The Self-Assessment deadline is just a few weeks away and you need to know what expenses are allowable so that you can deduct them from your turnover to calculate out your taxable profit.

HMRC have guidelines and rules about what an “allowable” expense is as you cannot deduct all your self-employed expenses.  The latter must relate strictly to your business so you can calculate your profit accurately and thereby pay the correct tax.  You should retain any receipts or other proof of purchase in case you are subject to a tax investigation.

What are “allowable” expenses?

Office expenses – Business stationery, printing costs (including printer ink) and postage.  Business equipment e.g. computer, printers and computer software may be allowable if using cash basis accounting.

Business premises – rent, maintenance & repair, utility bills, property maintenance and security are an expense but buying or building your business premises is not.  If you run your business from home, you need to calculate the proportion of the bills that are related to your business.  If you work at least 25 hours a month you can use simplified expenses which is based on a flat monthly rate which the government calculate.

Travel – business related car or van costs, including insurance, fuel, hire charges, repairs, servicing and breakdown cover are included.  You can use a flat monthly rate given by the government to make things easier through simplified vehicle expenses.  Business travel by train, bus, plane or taxi and hotel rooms and meals for an overnight stay are allowable expenses.  You cannot claim for commuting from home to your business premises. If a journey is for both personal & business reasons you must separate out the business costs. You cannot claim for entertaining clients, suppliers and customers or event hospitality.

Stock and materials – Cost of stocks, raw materials and any direct costs that come from producing the goods.

Legal and Financial costs – if you have an accountant, solicitor or other professional for business reasons you can include the cost in your calculations. Bank, overdraft and credit card charges, interest on any bank and business loans, hire purchase interest and leasing payments can also be included. If you use cash basis accounting, then the maximum you can claim is £500 in interest and bank charges.

Business insurance – The cost of business insurance e.g. public liability insurance and professional indemnity insurance.

Marketing – newspaper advertising, directory listings, mailshots, free samples and website costs

Clothing – cost of uniform, protective clothing etc but not everyday clothing for work.

Staff costs – employee and staff salaries, bonuses, pension contributions, benefits, agency fees and employer National Insurance contributions.

Subscriptions – cost of membership to trade bodies or professional membership organisations if relevant to your business.  Subscriptions to trade or professional journals.

There is further information on the Simply Business website if you require more detail and links to HMRC.

If you need help then call us now on 0113 2864486.

Source: Simply Business

Are you a landlord?  If so then you are self-employed or a small business owner in the eyes of HMRC as you are making money from renting a property.  Therefore, you need to complete a Self-Assessment tax return.

Legislation around this area and what tax needs to be paid is forever changing but the main ones are:

• Income Tax
• National Insurance Contributions (NICs)
• Stamp Duty Land Tax
• Capital Gains Tax (CGT)

Stamp Duty Land Tax and CGT only need be of concern if a property has been bought and sold.

Income Tax and NICs are paid annually and based on the income from renting out any properties.  To pay these you need to complete a Self-Assessment tax return.  This is broadly speaking the same if you are a landlord, small business owner or sole trader.

The first thing you need to do is register for Self-Assessment and once done you can file your tax return.

If you have started a limited company for the purposes of your rental properties, then you will need to register for Corporation Tax and follow the process for this type of taxation.

To complete your Self-Assessment, you need to keep records of all your income and expenses.  As a landlord the following can be deducted from your rental income:

• Property repair and maintenance costs
• Replacement of domestic items (from April 2016)
• Accounting fees
• Insurance
• Running costs

Depending on the cost the tenants pay themselves you can also claim for:

• Letting agent fees
• Light and heating costs
• Service charges
• Ground rent
• Cleaning costs
• Advertising costs

Taxation around rental properties does change often so you do need to be aware of any changes, plus your own personal circumstances will depend on what you will need to pay.  To read further about this then Simply Business have further links that are useful to read around this area.

If you need our assistance around this area, then please call us on 0113 2864486.

Source: Simply Business

Photo: Photo by Toa Heftiba on Unsplash

The Advisory Fuel Rates (AFR) as of 1 December,

Engine size                                         Petrol – amount per mile                             LPG – amount per mile

1400cc or less                                    12 pence                                                               8 pence

1401cc to 2000cc                               14 pence                                                               9 pence

Over 2000cc                                       21 pence                                                             14 pence

Engine size                                         Diesel – amount per mile

1600cc or less                                     9 pence

1601cc to 2000cc                              11 pence

Over 2000cc                                      14 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

The Advisory Electric Rate (AER) which was introduced in September for 100% electric cars will remain the same at 4p per mile.  Electricity is not a fuel for car fuel benefit purposes.

The AFR and AER are deemed to be tax and National Insurance free.

Both rates can be applied for fuel per mile,

• to reimburse employees for business travel in their company cars.
• when you require employees to repay the cost of fuel used for private travel.

If your employee does not repay the private fuel used during the tax year then you will need to,

• report on their P11D
• pay Class 1A National Insurance on the value of the fuel benefit

If you travel as a result of running your business (other than home to work) and

• are unsure on what you can claim
• are considering your options regarding the company purchasing a vehicle
• want to understand the rules around company car benefits in kind
• or anything else associated with business travel

Please contact us so that we can ensure the advice you are given is specific to your circumstances on 0113 2864486

Source: HMRC

Photo: Photo by chuttersnap on Unsplash

HMRC are warning millions of customers about potential fraudsters.  Last year, out of nearly 900,000 reports of suspicious HMRC contact more than 100,000 were phone scams and over 260,000 were about bogus tax rebates.

The most common techniques are phoning regarding fake tax refunds or sending a link via text or e-mail to a false page where bank details and money will be stolen.  Some customers have also been threatened with arrest or imprisonment if a bogus tax bill is not paid.

These are the things HMRC will never ask for.

E-mail – Notification of a tax rebate or refund via e-mail from HMRC.  Fraudsters can spoof a genuine e-mail address or change the “display name” so it looks genuine.

Text messages – HMRC will never request personal or financial information via a text message.

Tax rebate scams containing PDF attachments – they will never send you a PDF attachment to download!

Bogus phone calls – HMRC will never call you saying you owe money and that they are taking you to court.  Neither will they offer a tax refund and request your bank or credit card information.

If you are unsure if genuine verify the identity of the caller e.g. ask them what your UTR is or ask them for their number and name to call them back.  If at all unsure do not speak to them.

There are various numbers that fraudsters use and to help HMRC it is useful to let them know the details of the scam,

• Date of the call
• Phone number used
• Content of the call

WhatsApp & Social media scams – HMRC will never send details of a tax refund or request personal or financial information via WhatsApp message or direct message you through social media.

Refund companies – these companies are not connected to HMRC and you should read the small print/disclaimer before using such a service or providing them personal or business information.

Export clearance process (delivery stop order) e-mails – they will never send e-mails claiming that goods are been withheld by customs and payment required before their release.  The “419 scams.”

In all the above cases

• Organisations such as HMRC and banks will never ask for PIN, password or bank details
• Never reply to any communications or open any links or attachments
• Never provide personal & financial information
• Forward the scam information to phishing@hmrc.gov.uk or text messages can be sent to 60599 (network charges apply).
• Delete the communication or end the call.

To read further and see examples of what such communications look like go to GOV.UK if at all unsure about any communications then give us a call on 0113 286 4486

Source: GOV.UK

Photo: Photo by Hal Gatewood on Unsplash

In the Budget of 2018, the government planned to cap R&D tax credits.  There were fears that this would prevent legitimate start-ups and small businesses from receiving such benefits.  However, a recent consultation may have put forward a possible solution.

The R&D tax credit is very popular, providing £3.5bn of relief in 2016/17 increasing from £350m in 2010.  However, HMRC stated that this increase had also led to an increase in fraudulent claims to the tune of £300m by “artificial corporate structures.”  The government solution to this was announcing that a cap would be introduced in April 2020.

The cap is stated “the amount that a loss-making company can receive in R&D tax credits will be capped at three times it’s total PAYE and National Insurance contribution liability.”  Many quickly stated that start-ups are lossmakers, having low or nil salary costs as they rely on subcontractors and/or many directors taking no remuneration when starting up a business.  The result of this would be that these new businesses could not claim R&D tax credit as “if you pay nil PAYE or NICs liability, then obviously three times nil is nil.”

Though HMRC need to reduce fraudulent claims, it needs to ensure that genuine research businesses are not penalised by the Finance Bill 2019-2020.

The consultation document states that it is aware of this situation and does wish “to keep any impact on SME’s to a minimum and committed to consult on the cap before it is implemented.”  HMRC have put forward a compromise in the consultation that there would be a minimum level they would pay up to before the cap applies.  Since publishing the initial blog, this has been set at £10,000.  There are fears that some businesses will still be unfairly caught out.

If you need help with any R&D claims, then please contact us on 0113 286 4486

Source: Accounting Web

Photo: Photo by timJ on Unsplash

IR35 has been in place since 2000 with the rules aimed at “disguised employment.”  (See previous blog).  Though the Government has sort to rectify this over the years it claims that too many limited company owners are still illegitimately working outside of the rules.

Therefore the “off-payroll” rules are to be applied to the private sector from April 2020, the only exception to this is “small businesses.”  The end-client must meet two or more to of the following criteria to be deemed a small business,

• Annual turnover is no more that £10.2 million
• Balance sheet total is no more than £5.1 million
• No more than 50 employees.

It is said that the implementation will net £1.3bn per year to the Treasury by 2023.

The Government published draft legislation in July 2019 with the following new points,

• A “Status Determination Statement” will be required. The end-client needs to confirm the IR35 status of a contract, which needs to be provided to the contractor and the party hiring the contractor (usually the agent).  Without this then the end-client will be liable for the collection of income tax and NICs
• If the above is not agreed, then you will need to go through the client-led disagreement process. The end-client needs to review a decision and provide a reasonable response within 45 days.  If this does not take place then the client, and not the agent, will be liable for IR35.

It is predicted that most private sector contractors will be impacted with this new legislation as most work for large clients rather than small businesses.

If you should need any help regarding IR35 then get in touch on 0113 286 4486

Sources: itcontracting &Crunch

Photo by Silvia Brazzoduro on Unsplash

The Advisory Fuel Rates (AFR) as of 1 September,

Engine size                                         Petrol – amount per mile                             LPG – amount per mile

1400cc or less                                      12 pence                                                         8 pence

1401cc to 2000cc                                 14 pence                                                        10 pence

Over 2000cc                                          21 pence                                                        14 pence

Engine size                                         Diesel – amount per mile

1600cc or less                                      10 pence

1601cc to 2000cc                                 11 pence

Over 2000cc                                         14 pence

Hybrid cars are treated as either petrol or diesel cars for this purpose.

The Advisory Electric Rate (AER) which was introduced in September for 100% electric cars will remain the same at 4p per mile.  Electricity is not a fuel for car fuel benefit purposes.

The AFR and AER are deemed to be tax and National Insurance free.

Both rates can be applied for fuel per mile,

• to reimburse employees for business travel in their company cars.
• when you require employees to repay the cost of fuel used for private travel.

If your employee does not repay the private fuel used during the tax year then you will need to,

• report on their P11D
• pay Class 1A National Insurance on the value of the fuel benefit

If you travel as a result of running your business (other than home to work) and

• are unsure on what you can claim
• are considering your options regarding the company purchasing a vehicle
• want to understand the rules around company car benefits in kind
• or anything else associated with business travel

Please contact us so that we can ensure the advice you are given is specific to your circumstances on 0113 2864486

Source: HMRC

There has been a 14% increase, year on year, of HMRC penalties for late self-assessment tax filing. 2015/16 291,000 taxpayers were penalised for late payments, increasing to 331,000 in the following year.  They have already issued 233,000 fines since the 31^st January 2019 deadline for the self-assessment tax year 2017/18.

“The pool of people at risk of being fined for late payment is now bigger than ever as self-employment continues to grow,” said Tim Woodgates, associate and tax specialist at Moore Stephens. “UK taxpayers are feeling the pinch. As a result, some do not have the money to pay the tax bill on time, even though they want to.”

Late filing penalties can be a mixture of fixed rate and tax geared penalties with interest charged on both unpaid tax and unpaid penalties, if both apply.

Late filing

• Miss filing deadline – £100
• 3 months late – Daily charge of £10 per day up to max £900 + £100 per above
• 6 months late – 5% of tax outstanding at that date or £300, whichever greater + penalties above
• 12 months late – 5% of tax outstanding at that date or £300 if greater, unless the taxpayer is held to be deliberately withholding information that would enable HMRC to assess the tax due

Late Payment

• 30 days late – 5% of tax due
• 6 months late – a further 5% of tax outstanding at that date
• 12 months late – an additional 5% of tax outstanding at that date

HMRC may accept “reasonable excuses” to waive late filing penalties.  “Reasonable excuse” being defines at “normally something unexpected or outside your control that stopped you meeting a tax obligation” such as:

• The recent death of a partner
• An unexpected hospital stay
• Computer failures
• Service issues with the tax authority’s on- line services
• A fire which prevented the completing of a tax return or postal delays

Each case is assessed on an individual basis.

If you need help with your Self Assessment then please call us on 0113 2864486 so we can help.

Source: Accountancy Age & Which

One in five sole traders doesn’t make their first anniversary, and six in ten have failed by their 5^th year, according to a recent study by the Institute of Fiscal Studies (IFS) and funded by the Office for National Statistics.

Between 2014 and 2015 650,000 sole traders started up but 580,000 closed during that same period, giving a net gain of 70,000.

Jonathan Cribb, senior research economist at IFS said “The growth in self-employment is an important and substantial change in the labour market.  We show for the first time how misleading it is to discuss the self-employed as a fixed group – there is a huge churn in the self-employed population with hundreds and thousands of people trying a business venture and failing quickly each year.”

Between 2011 and 2015 2.4 million people were operating as sole traders each year, but 6 million tried self-employment over the same period. This indicates that, whilst the number of sole traders remains fairly consistent, the people within the group change each year.

Business owners have been the fastest growing sector of the UK workforce. A third of the growth has come from foreign-born sole traders since 2007.

Helen Miller, deputy director of the IFS, said sole-trader business owners are at a disadvantage when it comes to business tax “Behind the staggering growth in business ownership………..lies a hefty tax penalty on employment relative to self-employment.  Preferential tax rates for business owners is a “one size fits all” approach and that fails to provide the support that some need whilst giving unjustifiable tax breaks and incentives to others.  Low and falling incomes among the self-employed and low levels of investment among small business more broadly should lead us to question why we are incentivising people to quit employment and start their own business.”

Source : Accounting Age

SmartScan is a new and unique smart automation system to assist QuickBooks’ customers file their VAT return accurately.  It automatically checks your VAT figures and scans your return for common errors, duplicates and anomalies, thereby reducing the monotonous audit checks that are sometimes needed.  You can view the SmartScan dashboard before submitting your VAT return to be confident that it will catch any mistakes made.

It scans all transactions in the current VAT period for anything out of the ordinary.  It then provides a summary dashboard of items allowing you to:

• Make sure everything is accounted for
• Review any unexpected items
• Take a closer look at what is included in your return

You and/or your accountant can amend as necessary.

It is provided free within every QuickBooks Online UK subscription and runs automatically in the background with the dashboard accessed instantly.

SmartScan automates the most important checks that accountants and auditors check for at tax time.  The process will assist with potential errors that may go unchecked and allows you to fix them quickly, so you are confident that your return is correct.

SmartScane does run with the assumption that when inputting transactions, that the VAT codes are correct at the time of entry.

If you wish to know about QuickBooks and SmartScan and how it can help your business then give us a call on 0113 286 4486.

Source: QuickBooks