Archive for July, 2016

Business expenses you can claim

Monday, July 4th, 2016

Basically, you can claim for most expenses that are incurred wholly and exclusively for the purposes of a trade. Unfortunately, most of the decision making by HMRC on this topic is guided by tax law, which has been inconsistent.

That aside, the following will provide you with guidance in areas where the outcome is reasonably predictable:

  1. Professional fees, your accountant for example: allowable in most cases unless the fees relate to:
  • The purchase of a property or other business asset (in which case they can be used to reduce any Capital Gains Tax liability when the asset is sold).
  • The costs of settling tax disputes.
  • Fines for breaking the law, for example, parking or speeding fines.
  1. Entertaining: even though entertaining produces new business, all expenditure under this category is deemed a non-allowable expense for tax purposes.
  2. Motoring costs: the costs of running a business car for business related journeys are allowable. The costs of private motoring with a business vehicle are not. Home to work journeys are generally considered private.
  3. Travel expenses: All business related travel costs are allowable. Home to work travel costs are not tax allowable.
  4. Bank and credit card charges: bank charges and bank interest charges on loans or overdrafts taken out for purely business purposes are tax allowable. The capital repayment of these loans is not.
  5. Cost of goods: goods bought for resale by your business, or that are consumed during the day-to-day business activities are tax deductible, goods taken for private use are not.
  6. Cost of assets: the cost of plant, vehicles and equipment purchased for business use is held on your balance sheet as assets. The cost is gradually written off against your profits by making a depreciation charge – this writes off the asset cost over the useful life of the asset. Even though this depreciation charge is a reduction in profits it is not allowed as a tax deduction. Instead, HMRC grant a capital allowance, which can vary from 8% to 100% of the allowable asset cost, or its written down value for tax purposes (if you acquired the asset in previous years).
  7. Bad debts: if a customer fails to pay an invoice and the debt is considered irrecoverable the sales value can be written off for tax purposes. Debts relating to assets or general provisions for bad debts are not allowable.

Obviously, this is only a sample of the range of costs and expenditure you may need to layout when running your business. If you are unsure if a future cost will qualify for tax relief, please call to discuss the matter.

Sooner or later

Monday, July 4th, 2016

Is it better to file your Self Assessment tax return as soon as possible after the end of the tax year?

You are not obliged to file your tax return for 2015-16, online, before the 31 January 2017. However, if you leave the process of completing your return until close to this date, it will not give you much time to calculate and fund the amount of tax you may owe on the same date, 31 January 2017.

 When we prepare a Self Assessment tax return for clients there are four distinct phases:

  1. Gathering the information from clients to complete the return.
  2. Completing the return and considering any explanatory narrative.
  3. Agreeing the submission with our clients, and
  4. Filing the return.

It makes good sense to move through the first three phases as quickly as possible after the end of the tax year. For the 2015-16 year, it should be possible to collect and process the relevant data by midsummer, say 31 July 2016. Clients who facilitate this sort of timetable should then be in a position to know what their balance of tax owing (or tax overpaid) is several months before the 31 January 2017 filing and payment deadline.

It is possible to delay the actual filing of the return to any date up to and including 31 January 2017. There may be good reasons for doing this. For example:

Higher rate tax payers have an opportunity to carry back gift aid donations to the previous tax year. In order to do this, they must pay the donations and include the appropriate election before they file the tax return for the tax year they are carrying back to. I.e. in order to secure extra tax relief for 2015-16, the gift aid donations made after 5 April 2016 must be completed before the 2015-16 tax return is filed.

On the other hand, self-employed business owners whose profits have been falling during 2015-16 (compared to 2014-15) may find that the actual tax and NIC that is due is less than the payments on account being made 31 January 2016 and 31 July 2016. If this is highlighted by completing the return early in the tax year, an application can be made to reduce the second payment on account due 31 July 2016.

Readers should also note that HMRC have 12 months from the date they receive your return to raise enquiries regarding the return. Early filing starts the enquiry “clock” ticking sooner.