| Businesses whose turnover has exceeded 15,000 | | | | Travel and subsistence includes all travel costs |
| pounds are required to show greater analysis of | | | | excluding those included in motor expenses. |
| the income and expenditure. From a practical point | | | | Typically these items would be air and train fares, |
| of view even those businesses who expect the | | | | toll fees, hotel costs and subsistence costs |
| turnover to be less than 15,000 pounds should | | | | incurred on business journeys. Receipts should be |
| also maintain financial accounts which show the | | | | presented for all subsistence costs claimed where |
| increased analysis to both maintain financial control | | | | possible. |
| and be prepared to enter the increase3d analysis | | | | Advertising, promotion and entertainment |
| should turnover exceed the 15,000 turnover | | | | expenses include all types of expenditure related |
| threshold. | | | | to the promotion of the businesses products. |
| A self employed business enters the income and | | | | Entertainment of clients to obtain business is |
| expenses on page SE1 of the self assessment | | | | allowed while the entertainment of staff is not |
| tax return form if the total sales of the business | | | | and is a disallowed expense on the self |
| for the financial year were less than 15,000 | | | | assessment tax return. |
| pounds. Only the totals of turnover, expenses and | | | | Legal and professional costs include all professional |
| net profit are required. | | | | fees and bills. These would include accountants, |
| When turnover exceeds 15,000 pounds totals are | | | | solicitors, surveyors, architects and other |
| required of the sales and business income and | | | | professional bodies. Also included in this section |
| then deducted from that total the cost of sales | | | | would be indemnity insurance. |
| which is split into three categories of expense. | | | | Bad debts are sales made and included in turnover |
| Cost of sales is the direct costs of purchases | | | | where a decision has been taken that the |
| which are resold, these purchases usually being | | | | outstanding unpaid sales invoice will not be paid. A |
| physical materials but should also include any | | | | general percentage of sales is not acceptable and |
| services which are bought for resale. | | | | if included in the accounts is disallowed on the |
| In particular reference to taxi drivers and haulage | | | | inland revenue self assessment tax return. The |
| contractors the vehicle costs would be included in | | | | items entered being specific debts. Normally any |
| this cost of sales category as the items being | | | | debt that is 6 months overdue would reasonably |
| resold are transportation costs. Other types of | | | | be considered as a bad debt. |
| business who principal business is not the resale of | | | | Interest and finance payments includes bank |
| transport would enter vehicle running costs in the | | | | interest paid on loans and overdrafts, credit card |
| motor expenses expense category. Another | | | | interest and any payments made to raise finance |
| example would be an IT consultant who | | | | to fund the business operations. |
| purchased and installed software for clients and | | | | Other finance charges are entered in a separate |
| would enter his software costs as a cost of sale | | | | category. Other finance charges would include |
| as that is the service they are reselling while | | | | bank and credit card charges, hire purchase and |
| other businesses would enter software costs in | | | | lease charges other than property leases. |
| general administration charges. | | | | Depreciation charges include the cost of writing |
| Subcontractors costs is the second category | | | | down the value of the asset in the business |
| while other direct costs makes up the third area | | | | accounts. As depreciation of fixed assets is a |
| of the cost of sales. Other direct costs is a useful | | | | management decision and has no foundation in |
| category in which to include all costs of the | | | | tax law then the value of depreciation charged |
| business not analysed elsewhere which are | | | | against profits is disallowed for tax purposes and |
| basically the costs of operating the business other | | | | replaced in the calculation of tax payable by capital |
| than items being purchased for resale. The | | | | allowances. |
| difference between the turnover and the sum of | | | | The final expense category is other expenses. |
| the three costs of sales categories is the gross | | | | Enter in this category any other business |
| profit. | | | | expenses not entered in the other categories. As |
| Other income and profits is where the business | | | | the other categories are reasonably |
| would enter such items as rental income or for | | | | comprehensive and sufficiently general for the |
| start ups taxable new deal payments. Bank | | | | vast majority of expenditure to be entered it |
| interest would not go in this box as nit can be | | | | would be regarded as unusual if any significant |
| entered elsewhere on the tax return. Also | | | | sums of money were to be shown in this |
| business start up grants and enterprise allowances | | | | category. A significant level of expenditure unusual |
| would not be entered in this box as there is a | | | | for that category may give rise to an inland |
| separate box in which to enter these receipts. | | | | revenue enquiry into the self assessment tax |
| The remaining and main body of the inland | | | | return and this is particularly the case of significant |
| revenue self assessment tax return form | | | | expenditure being shown as other expense items. |
| concerns an analysis of the expenses. The | | | | Tax adjustments to the net profit and loss are |
| majority of the expense categories are self | | | | where disallowed expenses are entered. |
| explanatory in the title. Additional expense analysis | | | | Disallowed expenses being items such as the |
| other than the prescribed headings on the self | | | | business expenses already entered of which there |
| assessment tax return is unnecessary for the | | | | was personal use, and generally all expenses |
| vast majority of self employed business. | | | | which have been included that were not wholly |
| Employee costs include the wages, salary, pension | | | | business expenses. These would include for |
| and employers national insurance contributions for | | | | example meals paid by the business not classified |
| all employees. Also include in this section any costs | | | | as client entertainment except where incurred on |
| associated with employees such as recruitment | | | | overnight trips. |
| fees and staff benefits. Excluded are the self | | | | Also disallowed is the depreciation charge on fixed |
| employed own wages and taxes as these are not | | | | assets which as stated is replaced in the tax |
| included in the inland revenue self assessment tax | | | | calculation by capital allowances. Balancing charges |
| return form at all being a distribution of net profit | | | | being capital allowances on assets sold where the |
| after tax not a tax deductible expense. | | | | price obtained exceeded the written down value |
| Premises costs would include rent, rates, gas, | | | | of the asset and entered in the capital allowance |
| electricity, power costs and items associated with | | | | section of the self assessment tax return. |
| the business premises such as property insurance. | | | | Added back to net profit are capital allowances |
| Also included in this section would be the portion | | | | that are claimed by the business. The capital |
| of home costs being claimed as business | | | | allowances in effect being the tax allowance that |
| expenses. Household expenses can be claimed as | | | | replaces the depreciation charge. |
| business expenses to the extent that the costs | | | | A number of potential adjustments can also be |
| represent the proportion of the home that is | | | | entered in the next section which is the |
| used exclusively for business purposes. | | | | adjustments to arrive at the net taxable profit or |
| Repairs include the repair, maintenance and | | | | loss. These adjustments are variable in nature and |
| renewal of plant and machinery. Vehicle repairs | | | | very much dependent on the adjustments |
| would not be entered in this category but in the | | | | required when the basis year has been changed |
| motor vehicle category. | | | | or past losses are claimed to offset the net |
| General administrative costs telephone, postage, | | | | taxable profit. |
| stationery and general office expenses. Also in | | | | The final section of the self assessment tax |
| this section would be included all other general | | | | return is a list of the business assets and liabilities |
| operating costs of the business not entered | | | | at the end of the financial year. Completion of this |
| elsewhere. | | | | section is optional and should only be completed |
| Motor expenses include the running costs of the | | | | by those businesses that have produced a |
| vehicles being fuel and oil, repairs and | | | | balance sheet as part of the accounts. In effect |
| maintenance, tax and insurance, parking charges | | | | this section is the totals of assets and liabilities |
| and membership of breakdown services. Parking | | | | taken from the balance sheet and should |
| fines should not be included as these are legal | | | | represent the increase or decrease indicated by |
| fines and not deductible expenses. | | | | the net profit being declared by the business. |