Business expenses - what I can and can I not claim for...?

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.
2. Entertaining: even though entertaining produces new business, all expenditure under this category is deemed a non-allowable expense for tax purposes.
3. 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.
   
4. Travel expenses: All business related travel costs are allowable. Home to work travel costs are not tax allowable.
5. 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.
6. 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.
7. 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).
8. 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.

Don't forget - if you need help with managing your company accounts our team are always here for advice.

 



The road to success is rarely simple...

We are privileged to work with many different types of businesses - some are obviously more successful than others. But what I know to be true is that the path to success is rarely ever straightforward.

The images below perfectly shows the ‘perception’ and the ‘reality’ of attaining success (whatever ‘success’ means to you).

 
I can’t recall any business that we have worked with who have attained success without challenges or problems along the way. In fact, when I meet with start-ups, whilst I obviously encourage the owner(s) one thing I always mention is to expect obstacles in the road and to meet them head-on when they occur rather than ignoring them. There’s absolutely no shame in having to deal with the challenges of running a business.

And I do think it’s getting harder to run a business.For example, the online world has made competition even more significant (once, you had to contend with local competitors; now, ‘local’ means WORLDWIDE!).

But no matter what business you’re in, it’s these challenges what make us all stronger, battle-hardened and wiser. And whilst it’s sensible to expect a rocky road from time to time, you should take comfort in the fact that you can draw upon experience of others.

What many business owners seem to forget is that their accountant is arguably in the perfect position to help. We come across literally hundreds of challenges that our clients face, and that makes us experienced problem-solvers. We like to ‘roll our sleeves up’ and get stuck in - that’s one of the best things about being in this business.

After all, success is rarely achieved without the help of others!

Michael Carthy
Director

Making Tax Digital - it's your time to talk

HMRC have had a busy few weeks publishing 7 major documents surrounding the Making Tax Digital initiative, and asking individuals affected to participate and share their views in response to the consultations.

 

The aim of Making Tax Digital is to simplify record keeping and digitise tax reporting for businesses and individuals so that taxpayers will be able to see their complete financial picture in one digital account.

 

However, there has been huge speculation around what changes will actually mean, particularly for small businesses – in fact a recent study of over 350 accountants showed that almost 91% fell that there is not enough information about the initiative in circulation, with over a quarter advising that without more details they couldn’t testify to being particularly for or against the reform.

 

Ambiguous and misleading claims have been circulating since plans were mooted in the 2015 Budget, with the biggest concern being that changes would lead to the need for quarterly tax returns instead of the mandatory annual submission now in place. Advocates allege this to be especially unfair when the aim of the programme is to eliminate the whole concept of a big, difficult end of year return.

 

Here’s what we do know for certain:

 

-      Digital record-keeping will be required: From 2018 most businesses, sole traders and landlords will need to start using software to keep records and update HMRC quarterly - or more often, if they wish.

 

-      HMRC won’t be offering software: By 2020 HMRC will not provide any interface or software for filing tax updates. Third party software will be a requirement (and HMRC is ensuring free options will be available).

 

-      Those below £10,000 won’t have to switch: Those with an income below £10,000 will not be required to use the new system. A transitionary approach is proposed for businesses just above £10,000, but what thresholds will be used has not yet been declared.

Plus HMRC have have issued their own "myth buster" guide below:

The hope is that you’ll be more aware of your tax position and therefore able to communicate with HMRC by using the software to better manage and report your business finances. Plans would also see HMRC make greater use of information already held in other workstreams - such as from banks and pension providers – thereby creating a more cohesive database of info and (hopefully) reducing the burden of requests on individual taxpayers.

Claims that HMRC plans a new penalty system or ways of paying your tax are apparently embellished as they are still consulting on options, and changes will require ministerial and even Parliamentary approval before happening (if they ever happen).

In reality though we won’t know for sure for some time, as much is still up for consideration and the consultations don’t close until 7th November, and the plan itself is being gradually rolled out as below from now until 2020:

As with any reform – like the introduction of RTI PAYE and digital VAT returns – we’ll continue to review changes, adopt our procedures accordingly and advise our clients on how to be the most tax efficient.


Further info as issued by HMRC - including links to the consultations, and events and webinars where you can voice your thoughts - can be found below:

https://www.gov.uk/government/collections/making-tax-digital-consultations

https://www.gov.uk/government/news/webinars-and-events-for-making-tax-digital


As always, our accounts team are on hand at 01785 248 939 if you have further questions about tax planning.








Catherine McDonald
Business Development and Marketing Coordinator

Claiming back VAT on a vehicle purchase

Generally speaking, the purchase of any vehicle where there is any element of private use means any reclaim of VAT may be restricted.

HMRC’s website offers the following guidance:

• You may be able to reclaim all the VAT on a new car if you use it only for business.
• The car must not be available for private use, and you must be able to show that it isn’t, e.g. it’s specified in your employee’s contract.
• Private use includes travelling between home and work, unless it’s a temporary place of work.

Due to the private use restriction, it is usual that no VAT can be recovered on the purchase of a car. However, you may be able to claim all the VAT on a new car if it’s mainly used:

• as a taxi
• for driving instruction
• for self-drive hire

If you are buying a commercial vehicle, you can usually reclaim the VAT. For example, a van, lorry or tractor. You can only reclaim the VAT if you use the vehicle in a business.

If they’re used only for business, you can also reclaim VAT on:

• motorcycles
• motorhomes and motor caravans
• vans with rear seats (combi vans)
• car-derived vans

If you are in any doubt that a proposed vehicle purchase is eligible for a VAT reclaim please contact us for advice.

Reclaiming the VAT when a claim is in doubt will only attract the attention of HMRC - don't get caught out.

Rupert Carthy
Director