| HMRC enquire into approximately 75,000 self | | | | An alternative to claiming vehicle running costs and |
| assessment tax returns each year which often | | | | vehicle capital allowances would be to claim |
| results in extra tax being payable because | | | | mileage allowances which at the time of writing |
| business turnover has been understated or non | | | | are 40p for the first 10,000 miles and 25p per |
| allowable business expenses have been claimed, | | | | mile thereafter a feature of which the DIY |
| resulting in interest and penalties on the extra tax | | | | Accounting small business software automates |
| for that year and sometimes previous years. | | | | Can Business trips be claimed? |
| What is Business turnover? | | | | Travelling expenses and modest lunch expenses |
| Sales turnover is the amount the business earns | | | | may be claimed. Hotel and reasonable costs of |
| before deducting business expenses including | | | | subsistence may also be claimed. A subsistence |
| receipts of any kind for goods sold or work done | | | | allowance can be claimed if staying with friends or |
| such as commission, tips, payments in kind, fees | | | | family as an alternative to an hotel. The cost of |
| and insurance proceeds. The turnover to be | | | | lunch may not be allowed when staying away |
| included in your financial accounts is the date it | | | | overnight. Lunch with clients is regarded as |
| was invoiced or earned and not the date it was | | | | entertainment and is not allowed. If you are |
| received. | | | | accompanied on a business trip by family only |
| What is excluded from Business Turnover? | | | | your cost is allowable and specifically only if the |
| Sales turnover excludes sales of fixed assets | | | | trip was purely for business purposes. Expenses |
| such as premises, vehicles and plant and | | | | on combined business and personal trips are not |
| equipment. Also exclude business start up | | | | allowed to be deducted as business expenses on |
| allowances which are entered separately on the | | | | tax returns. |
| self assessment tax return. Money introduced to | | | | Can home costs be claimed? |
| the business is excluded being capital introduced | | | | If part of your home is identifiable as solely for |
| and not sales turnover. | | | | business purposes then running costs can be |
| What business expenses are allowable? | | | | claimed. The cost allowed is the proportion of the |
| All running costs incurred solely for the purpose of | | | | total area of the home the business area |
| the business may be deducted as allowable | | | | occupies. For example, excluding shared facilities |
| business expenses including goods bought for | | | | of kitchen and toilet if the home has three |
| resale, employee wages, premises rent and | | | | bedrooms, living and dining room and one |
| overheads, administration costs, vehicle running | | | | bedroom is used solely as an office then 1/5 of |
| costs. Interest on loans and overdrafts can be | | | | home costs could be claimed. The costs to claim |
| claimed as business expenses excluding the capital | | | | would be heat and light, insurance, general and |
| element of repayments. Higher business expense | | | | water rates and mortgage interest excluding |
| levels accurately recorded can keep taxable profit | | | | repayment amounts. Where mortgage interest is |
| below the higher tax rate. | | | | claimed the revenue might also claim as a capital |
| Can the cost of buying and repairing plant and | | | | gain the increase in value of that proportion of |
| machinery be claimed? | | | | the home, such Capital Gains Tax being subject to |
| Repairs and maintenance costs are allowable | | | | tapering relief over time. |
| business expenses. The purchase cost including | | | | How do I treat business goods taken for my own |
| improvements and replacement costs are not | | | | use? |
| allowable business expenses, these costs being | | | | Any business goods taken for personal use should |
| subject instead to capital allowances. Depreciation | | | | be added to sales at normal selling prices including |
| is not allowed and replaced by Capital Allowances | | | | items supplied to family and friends at less than |
| for the purposes of calculating the tax payable. | | | | normal prices. He cost of providing services for |
| What are Capital Allowances? | | | | family and friends is not allowable as a business |
| Capital allowances are designed to write off the | | | | expense. |
| cost of purchasing a fixed asset over the life of | | | | Can I deduct my salary or drawings as a business |
| the asset rather than in the financial year in which | | | | expense? |
| it was purchased. Capital allowances on the | | | | You cannot deduct your own wages, personal |
| majority of assets are based upon a higher rate | | | | national insurance or drawings from the business |
| of allowance in the year of purchase, First Year | | | | as a business expense as these are distributions |
| Allowance with the balance of the cost being | | | | of the business income after net taxable profit |
| written off at a lower rate, Writing Down | | | | has been calculated and not allowable expenses |
| Allowance. The full cost of any asset may be | | | | before tax.. |
| claimed as an expense in the year it is sold or | | | | Can I deduct my partners wages? |
| scrapped less the total of accumulated capital | | | | Yes partners wages can be deducted as a |
| allowances that have been claimed against taxable | | | | business expense although there are rules which |
| profits. Any sales proceeds over and above the | | | | would be applied in such circumstances to ensure |
| written down value after Capital Allowances is | | | | the amount paid is both real and reasonable. The |
| added back to net profits and becomes taxable. | | | | business would need to operate a PAYE scheme |
| Cars are subject to writing down allowances but | | | | for that employee, deducting income tax and |
| not First Year Allowances unless they are classed | | | | national insurance, the work carried out must be |
| as commercial vehicles. DIY Accounting has small | | | | real not invented and the rate paid reasonable for |
| business software templates that automate the | | | | the nature of the work and the time spent. |
| calculation of capital tax allowances. | | | | Evidence may also be required that the amounts |
| Can expenses incurred for both business and | | | | were actually physically paid to that partner, for |
| personal purposes be claimed? | | | | example in the form of a cheque. |
| No. HMRC only allow such expenses if the | | | | Should Tax Credits be included? |
| business expenses element of the cost can be | | | | No these are excluded from business profits |
| separated from the personal element. If you claim | | | | although the level of credit received may |
| the travelling expenses to buy business goods | | | | subsequently be changed in the light of the actual |
| they can be claimed for tax purposes but would | | | | business profit earned compared with the amount |
| be disallowed if you also showed evidence of | | | | declared when the Tax Credit was applied for. |
| personal items being purchased on the same | | | | HMRC do check that the net taxable profit shown |
| journey. Using your home phone is an allowable | | | | on the tax return is the same as that declared |
| business expense if you claim specific identified | | | | when the Tax Credit was claimed. |
| business calls in which case you would also be able | | | | Can I claim expenditure incurred prior to trading |
| to claim a similar proportion of the rental cost. | | | | commencing? |
| Can vehicle costs be claimed when that vehicle is | | | | Yes business expenses incurred up to seven |
| also used for personal use? | | | | years prior to trading commencing can be claimed. |
| Vehicle running costs and expenses such as fuel, | | | | The actual date of the expenditure should be |
| excise duty, insurance, repairs and breakdown | | | | recorded although all pre-trading expenditure is |
| membership may be claimed as business | | | | treated as having been incurred on the first day |
| expenses if the vehicle is used solely for business | | | | of trading. |
| purposes. Travel from home to work is not | | | | Are pool cars taxable? |
| business use and disallowed. Vehicle running costs, | | | | Company cars are taxable as a taxable benefit |
| and capital allowances on vehicles, are split | | | | while pool cars are not taxable. To qualify as a |
| between claimable costs and a disallowed cost | | | | pool car, private use should be incidental to |
| depending on the proportion the vehicle is used | | | | business use, the vehicle should not normally be |
| for business and personal use. Parking fees for | | | | kept at the employee home and the vehicle must |
| business purposes may be claimed, parking fines | | | | be available and used by more than one |
| and penalties for motoring expenses are not | | | | employee. |
| claimable as business expenses for tax purposes. | | | | |