Expenses if your self employed

When advising people who are new to self employment, one of the questions I am asked most often is  " what can I claim as costs of my business"
The simple answer is business expenses that are wholly and necessarily for the purpose of the business.  However it is generally helpful to go into a bit more detail.

Costs you can claim as allowable expenses.

These include:

• office costs, eg stationery or phone bills

• travel costs, eg fuel, parking, train or bus fares

• clothing expenses, eg uniforms

• staff costs, eg salaries or subcontractor costs

• things you buy to sell on, eg stock or raw materials

• financial costs, eg insurance or bank charges

• costs of your business premises, eg heating, lighting, business rates

• advertising or marketing, eg website costs.

If something is used for both business and private purposes, then only part of the cost equivalent to the business use can be claimed.

If you work from home you have a choice. You can claim a tax deduction using the specified allowance for use of home or you can use a reasonable estimate, based on a reasonable proportion of the actual costs.

You may be able to claim a proportion of your costs for things like:

• heating
• electricity
• Council Tax
• mortgage interest or rent
• internet and telephone use

The cost of buying assets, such as equipment, for the business does not get deducted like expenses but instead there are tax adjustments called capital allowances. Usually these allowances spread the cost over more than one year.

These are the principal categories,

• equipment
• machinery
• business vehicles, eg cars, vans, lorries.

Any specific questions, let me know.

Rental income on residential property

You are receiving taxable income that you need to declare if you are receiving rental income in the UK from residential property.

This applies whether you are in the UK or overseas.

There are penalties for failure to declare and HM Revenue & Customs have advised that they are clamping down on undeclared income in this area.

If you have not previously notified HM Revenue & Customs of this income, they are currently offering an opportunity for you to bring your affairs up to date on more favourable terms than would normally be available.

There are various reliefs and deductions available so it would be wise to consult a good accountant if you are in this situation. The potential savings could well outweigh their fee.

If you have never lived in the property you will have to pay capital gains tax on any profit when you sell.

Unless you have lived in your house for the whole period of ownership, you may still have capital gains tax to pay on some of the profit.

There are a couple of recent changes that you should be aware of.

If you have let the house in which you have lived, you are eligible for principal private residence (PPR) and lettings relief against any capital gain. Under the current rules since 6 April 2014' the last 18 months are added to the period in which you lived in the property to work out the proportion of time for principal private residence relief. Before 6 April 2014, this additional period was 36 months.

Prior to April 2015, if you were overseas and not a UK tax payer, you were not subject to capital gains tax on the sale of a UK residential property. This changed from 6 April 2015. Capital Gains Tax  will be payable on the post 6 April 2015 gain at 18% and/or 28% depending on the amount if gain and your individual circumstances in relation to UK personal tax.

Property can be a complex area for UK taxes. Apart from income tax and capital gains tax, you may need to consider VAT and stamp duty land tax. Good planning is crucial.

If you have specific questions, please drop me an email.

VAT and the Single Market

Value Added Tax known as VAT is the UK version of sales tax.

Unlike in some other countries, it applies to the sale of goods and services.

The standard rate of VAT is 20%, but there are extensive rules about how VAT operates and some areas such as property and international trade are complex.

The rules are mostly based on legislation, though like any tax in the UK, court cases and tribunal decisions do play their part. Unlike other UK taxes because of the direct impact of sales tax on the value of sales and the resulting interplay across national borders, VAT legislation is heavily influenced by European Directives. The rules that apply to VAT and international trade vary depending on whether the supply is to a business or directly to the consumer. The place of supply being in the domestic market, within the EU, the European Single Market, or elsewher in the world outsidebthe EU has a bearing. There is a very comprehensive notice covering trade within the Single Market. this notice 725 has recently been rerreleased but with only minor changes.  HMRC Reference:Notice 725 (June 2013) - The Single Market

This notice explains the way VAT is charged and accounted for on movements of goods within the EC Single Market and how businesses should account for VAT on goods they buy from other EC Member States.

There are only limited changes from the previous version of the notice as follows;

- VAT registration numbers in other Member States. 

- Introduction of Croatia with effect from 1 July 2013, and

- changes to Ireland.

With the introduction of the Single Market, goods leaving the UK to go to other Member States are no longer called exports, but are referred to as dispatches or removals. The term 'export' is only used for goods leaving the UK to go to countries outside the EC. For information about exports, see HMRC Reference Notice 703 - VAT: Exports of goods from the UK

If you are involved in international trade and you are not sure of the rules, you should discuss your specific situation with an accountant or other VAT expert. 

If  you don't have one,why not try;
Business Orchard

HMRC revised toolkits to help minimise common errors

HMRC has published the updated Business Profits and Capital v Revenue Toolkits to assist agents when completing their clients' 2012-13 returns. These can be useful to individuals who have an understanding of the tax rules and wish to prepare their own tax returns. Links are provided here and they should should be read in conjunction with the essential information reproduced below.

If in any doubt contact an accountant to assist you.

If  you don't have one,why not try;

Business Orchard

Individuals, business and corporations

• Business Profits (PDF 181K)
• Capital Allowances for Plant and Machinery (PDF 255K)
• Capital Gains Tax for Land and Buildings (PDF 243K)
• Capital Gains Tax for Shares (PDF 191K)
• Capital v Revenue Expenditure (PDF 147K)
• Chargeable Gains for Companies (PDF 221K)
• Company Losses (PDF 152K)
• Directors' Loan Accounts (PDF 120K)
• Expenses and Benefits from Employment (PDF 207K)
• Income Tax Losses (PDF 127K)
• National Insurance Contributions and Statutory Payments (PDF 250K)
• Private and Personal Expenditure (PDF 247K)
• Property Rental (PDF 209K)
• Small Profits Rate and Marginal Relief (PDF 112K)
• VAT Input Tax (PDF 182K)
• VAT Output Tax (PDF 208K)
• VAT Partial Exemption (PDF 155K)

Trusts and Estates

• Capital Gains Tax for Trusts and Estates (supplement) (PDF 215K)
• Inheritance Tax (PDF 180K)
• Trusts and Estates (PDF 223K)

Toolkits to help reduce errors - essential information
These toolkits are aimed at helping and supporting tax agents and advisers. They are part of HM Revenue & Customs' (HMRC's) wider approach to improving tax compliance, which is focused on help and support to ensure that returns are correct.

The toolkits have been developed with the benefit of input from agents and their representatives, including the Compliance Reform Forum. However, the content is based on HMRC's view of how tax law should be applied.

Read more about the Compliance Reform Forum

The application of these toolkits to specific cases will depend on the law at the relevant time and on the precise facts.

Overview

Each toolkit has three key elements:

• A checklist - to help you to address the areas of possible error that HMRC identifies as key.
• Explanatory notes - which identify the underlying types of error, how to mitigate those errors and a brief outline of the tax treatment. HMRC recommends that you review these notes, even if you are confident about answering the questions in the checklist.
• Cross references - linking to the relevant guidance available online, so you can easily find more detailed guidance if required.

By being more open on the errors that HMRC sees in returns, and suggesting the steps that you can take to reduce those errors, the toolkits will help you to assure the completeness and accuracy of your clients’ returns.

Use of the toolkits is voluntary and you can use them in whatever way best suits you and your clients.

Examples of how the toolkits are used include:

• as a straightforward checklist
• to complement or check and refresh your existing processes
• as a training aid for your staff

It should not be necessary for you to refer to all of the toolkits, only those that are relevant to your clients' circumstances and the return being completed.

Scope

Each toolkit is focused on errors which HMRC finds commonly occur. They are not comprehensive statements of all types of error that may arise in any particular return. For areas not dealt with in the toolkits you should refer to the full HMRC guidance.

Find HMRC reference material and publications

Each toolkit will be updated each year to reflect any changes arising from the relevant Finance Act, where applicable, and released for use with that year’s returns.

Where there are changes to legislation, the toolkits provide a brief summary of those changes. The types of error that may arise from new legislation will not be immediately apparent, but if HMRC encounters particular areas of common error, they will seek to address these errors by releasing an updated version.

HMRC's guidance is updated regularly. There will however be occasions when the draft guidance has not yet been published. Where that is the case, the toolkits provide a link to the latest publication available on the HMRC website.

The toolkits do not cover tax avoidance or deliberate attempts to evade tax, which are outside the scope of the toolkits and are subject to HMRC's normal compliance procedures.

Taking reasonable care

Under the penalty legislation, there will not be a penalty for an error in a return or other document where the person has taken reasonable care that the return or document is accurate. As part of their efforts to take reasonable care, a person may seek professional advice and may appoint an agent to help them.

Where a person appoints an agent, this does not relieve them of their responsibility for their tax affairs. They still have a duty to take reasonable care, within their ability and competence, and this includes the person taking reasonable care to avoid inaccuracy by their agent.

Further guidance on reasonable care

The aim of these toolkits is to highlight errors which HMRC finds commonly occur and to help you avoid inaccuracies in your clients' returns that may otherwise lead to penalties. Their use remains entirely voluntary. Whether reasonable care has been taken in any particular case will be a question of fact and will not depend on whether a toolkit has or has not been used.

Further guidance on penalties where an agent is acting

Find more information on understanding penalties

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