The Scottish “Draft” Budget 2018/2019

In today’s blog, here at Tulip Thistle Accountancy, we are going to take a closer look at some of the key highlights of Yesterday’s Scottish “Draft” Budget for 2018-2019, for both individuals and businesses.

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The reason why Yesterday’s budget is referred to as a “Draft” budget is because as a minority government, the SNP will need to secure the support of at least one other party in order to eventually pass its budget, with the final vote due to be held on 19 February 2018. This could lead to changes along the way.

The Scottish budget for 2018/2019 was always going to be a tough one, with the government’s block grant from Westminster for day-to-day spending on public services around 0.8% lower than it was in 2017/2018. This is equivalent to a reduction of just over £200m, bringing the 2018/2019 block grant back to its 2016/2017 level in real terms*.

Of the headline grabbing additional extra £2bn for Scotland announced in the November Autumn UK budget (covering period 2017/2018 to 2020/2021), only £0.4bn was for day-to-day spending (e.g. pay & service delivery). Without the £183m increase for 2018/2019 obtained that way, the gap would have been even larger.

Similarly to the UK as a whole, the economic outlook for Scotland is challenging. The Scottish Fiscal Commission’s (SFC) growth forecasts indicate that the Scottish economy will grow at less than 1% per year until 2022. I outlines GDP growth of 0.7% in 2017/2018 and 0.8% in 2018/2019, increasing to 1.1% by 2022/2023.

Important to note is that the Scottish economy is predicted to grow at roughly half the rate of the UK as a whole (1.4% in 2018/2019). The Fraser of Allander Institute at the University of Strathclyde identifies the following two main reasons in its blog on this topic**:

  1. Productivity growth has been poor in the UK since the financial crisis. In their November UK forecast, the Office for Budget Responsibility (OBR)  significantly revised down the outlook for UK productivity. But the SFC are even more pessimistic than the OBR, forecasting Scottish productivity will be slower that in the UK in every year of the forecast.
  2. The other major source of the divergence between Scottish and UK growth is in the forecasts for the working age population growth.  The Scottish population in the age group 16-64, is expected to start declining in 2019 and fall below 2016 levels by 2021. In contrast, the UK’s working population is expected to increase slightly.

Overall Finance Secretary Derek Mackay’s Scottish Draft Budget announced major investments in the NHS (+£400m), transport infrastructure (+£1.2bn), education (+£1.8bn for Universities & Colleges) & affordable housing (increased to £756m). In part this has been funded by the increases in capital funding for Scotland announced in the November UK Autumn Budget. In addition the finance secretary has effectively introduced a new tax system for Scotland with the introduction of new bands as well as changes to Tax rates.

So what does all this mean for you?

Individuals:

  1. Income Tax changes:
    • Introduction of new Scottish Income Tax Bands & Rates
      • 19% rate: on income between £11,851 to £13,850
      • 20% rate on income between £13,851 to £24,000
      • 21% rate: on income between £24,401 to £44,273
      • 41% rate: on income between £44,274 to £150,000
      • 46% rate: on income over £150,000
    • Combined, these changes mean those earning under £26,000 will pay marginally less tax than elsewhere in the UK, whilst tax will not change for those earning less than £33,000
      • If you want to check the impact on your own salary, have a look at attached simple Take home pay calculator on my website, which compares 2017/2018 Tax payable in Scotland with the new system proposed for 2018/2019, and shows, for comparison purposes, what tax would be due in 2018/2019 if you lived in the rest of the UK (outside of Scotland). Enter your salary in the “Yellow” Box and press “ENTER”/”RETURN” for calculations
    • Implications for Pension contributions relief need to be clarified (currently 20% base rate tax relief is automatically added to pension contributions into recognised pension schemes, with higher & additional rate tax payers claiming further relief through their Self Assessment returns). It is currently unclear how the new Scottish tax bands with differing tax rates will function in this regard). If you want to know more, click  this Link to an article in “The Scotsman” on this topic
  2. The Public sector pay cap will be lifted. Pay will increase by up to 3% for those earning less than £30,000, while those earning more than that will see up to a 2% increase (those earning more than £80,000 will see increases capped at £1,600 if maximum increase of 2% is awarded)
  3. Land and Buildings Transaction Tax (LBTT) will not apply for first-time buyers for properties under £175,000 (increased from current threshold of £145,000 for all buyers)
  4. A pledge to increase the Carer’s allowance by Summer 2018 was made, and will be backdated to April 2018 once implemented. No further details were announced.
  5. Local Government councils have been given the ability to increase Council Tax by up to 3% in the 2018-2019 revenue year. Whilst funding for local government was protected in cash terms, in real terms this is a reduction (due to inflation). As in addition local government will be expected to comply with the public sector pay policy  announced, our expectation is that most councils will opt for the maximum increase of 3% for the 2018/2019 period
  6. Further increases in free childcare have been announced: by 2020 parents in Scotland will be entitled to 1,140 hours of free childcare per year
  7. University tuition fees remain free and £1.8bn will be given to colleges and universities via the Scottish Funding Council
  8. A commitment to make SuperFast broadband available to all households (& businesses) in Scotland by 2021. Supported by £600m funding over the next 4 years.

Business:

  1. Remaining recommendations of the “Barclay review” of Business Rates were accepted (with one exception), and a business rate relief package was announced:
    • continuation of small business bonus scheme (business rates relief if the combined rateable value of all your business premises in Scotland is £35,000 or less)
    • inflationary uplift in the poundage rate of business rates will be capped at the consumer-price rate of inflation (CPI), not the retail price index rate (RPI). As the CPI rate is traditionally lower, businesses are likely to see their rates increases capped at a lower level
    • introduction of a “Growth Accelerator” scheme, which will ensure that new properties are only liable for rates after first occupation
  2. £340m has been allocated for the establishment of the “Scottish National Investment Bank”, with £150m over the next two years to go to a “building Scotland” fund while the bank is set up
  3. A new national manufacturing institute will be set up with £18m of funding
  4. Business research and investment will see a 70% uplift and £10m will be provided for the new south of Scotland enterprise agency

 

If you would like to discuss how the Scottish Draft budget for 2018/2019 may effect you or your business, please get in touch!

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Until the next time!

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Charles Donkers (ACMA), Tulip Thistle Accountancy

* Source: “An Introductory Guide to this week’s Scottish Budget”, Fraser of Allandar Institute, University of Strathclyde

** Source: “The Scottish Fiscal Commission’s Forecasts: An unprecedented weak outlook?”, Fraser of Allandar Institute, University of Strathclyde

Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

10 things you didn’t know about Value Added Tax (VAT)…

In today’s blog, here at Tulip Thistle Accountancy, we are going to take a closer look at Value Added Tax (VAT) and highlight a few aspects of this tax you may not be aware of, which could even save your business some money!

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VAT is a tax on consumer spending and is collected on behalf of the government by businesses who are VAT registered. Therefore these businesses are effectively acting as “unpaid” Tax Collector for HMRC.

A transaction is within the scope of UK VAT if all the following conditions are met:

  • It is a supply of goods or services
  • It takes place in the UK
  • It is made by a taxable person (under UK legislation, a person is a taxable
    person while he is registered, or required to be registered under VAT Act (VATA) 1994 Schs 1–3A, and such persons are registered in a register of taxable persons
    maintained by HMRC)
  • It is made in the course or furtherance of any business carried on by that
    person
  • It is a taxable supply (not “Exempt”): a supply on which VAT is charged whether at standard rate (20%); reduced rate (5%) or zero rate (0%)

Certain supplies are exempt from VAT. This means that no VAT is chargeable but,
unlike zero-rated supplies, related input tax is not recoverable.

Two more key concepts to cover & then we can get to what you have been waiting for….

Output Tax is the tax that is calculated and charged on the sale of goods and services from your business, if you are VAT-registered.

Input Tax is the tax which is added to the price when you purchase goods or services that are liable to VAT. A taxable person is entitled to reclaim input tax incurred on goods and services supplied to him, provided that the input tax relates to taxable business supplies made by him in the course of business.

So….. here are the “10 Things you didn’t (and quite possibly didn’t want to) know about VAT”:

  1. You can register voluntarily for VAT with HMRC, despite not yet having met the turnover threshold for compulsory registration (currently £85,000 in 2017/2018 tax year), or even before trading has commenced. Whilst there is obviously an administrative burden, it can be useful to consider because:
    • registering when already trading can make the process much more difficult, including  having to explain a say 20% price increase when you need to start charging VAT on a compulsory basis (you may even be forced to “share” some of the pain with your customers, impacting your business’ income!)
    • small businesses can give the appearance of being bigger and more established
    • if your customers are VAT registered they won’t be impacted & your business can reclaim the VAT you pay (Input Tax) to your own suppliers, adding to your profit & cash……. nice one!
    • you won’t have to worry about all the rules surrounding compulsory registration & keeping track of when you need to compulsory register your business (failure to register on time will lead to recovery of VAT that should have been charged as well as penalties)
  2. If you make any payments due to HMRC by direct debit, you get up to an extra 3 days after due date before payment is taken out of your bank account (potential Cash Flow benefit)
  3. VAT cannot be recovered on goods and services which are not used for business
    purposes (e.g. for private use). Where goods are used partly for business and partly
    for non-business purposes, the VAT incurred is apportioned. For example, a trader might have to apportion input tax on (mobile) telephone bills, where the telephone is used both for business and for private use.
  4. Smaller & medium sized businesses (with turnover below £1.35m (excluding VAT; and on taxable supplies, so not counting turnover on “exempt” supplies) may apply to join the “annual accounting” scheme. This allows them to complete one VAT return each year, with 9 monthly payments on account required plus a balancing payment to be submitted together with the Annual VAT return. In the same way as Quarterly returns, the annual VAT return must be completed and submitted electronically to HMRC. However any balancing payment, needs to be be available to HMRC in cleared funds within two months of the end of the annual VAT accounting period (normal seven day extension does not apply to traders on annual accounting). Please note the scheme won’t suit your business if you regularly reclaim VAT because you’ll only be able to get 1 refund a year (when you submit the VAT return)
  5. The VAT invoice is probably the most important document for VAT purposes. In
    order to be a valid VAT invoice it must show all of the following information:

    • a sequential, identifying invoice number
    • date of the supply
    • the date when the VAT invoice is being issued
    • The supplier’s name and address and the supplier’s VAT registration number
    • The name and address of the person to whom the goods or services are
      supplied
    • a description sufficient to identify the goods or services being supplied
    • the quantity of goods or the extent of services supplied, the rate of VAT
      applicable and the amount that is being charged, which is net of VAT
    • the total amount being charged, net of VAT
    • the rate of any discount offered
    • the total amount of tax chargeable, expressed in sterling
    • the unit price
    • N.B. Retailers are allowed to issue less detailed invoices as long as the supply is less than £250. In addition there are some other very specific elements which are beyond today’s blog scope.
    • I have attached an invoice from 1926 below –  things have changed somewhat!
    • Old Invoice
  6. Smaller business (turnover < £1.35m, with similar provisos as under “Annual Accounting” scheme, see point 4 above) may use the Cash Accounting method, with Output Tax accounted for on date the cash is received and Input Tax accounted for when the cash is paid to the supplier. Advantages:
    • helps Cash Flow
    • automatic Bad Debt relief
    • it is easier to identify the tax point for transactions
  7. A further potential simplification for smaller businesses is the “Flat Rate Scheme”, which is available for business with turnover (of taxable supplies excluding VAT) of  £150,000 or less. As an additional benefit it give you a 1% discount if you’re in your first year as a VAT-registered business. It involves your business charging your customers the normal rate of VAT for your supply (i.e. 20% or standard rate for say Accounting Services), and pay a fixed rate of VAT to HMRC (VAT flat rate you are charged usually depends on your business type, but note that you may pay a different (higher) rate if you only spend a small amount on goods). For example for “Accountancy” the Flat Rate is 14.5% & for “Management Consultancy” it is 14%. Your business can keep the difference between what you charge your customers and the amount you have to pay to HMRC. This effectively reimburses you for not being allowed to reclaim any (Input) VAT on your purchases (other than on certain capital assets over £2,000). Here is a link to HMRC’s website showing a list of the current flat rate percentages for different business types.
  8. For accounting periods starting on or from 6 April 2019, the “Making Tax Digital” initiative will require businesses with turnovers above the VAT threshold (currently £85,000), to keep digital records for VAT purposes. For more information on “Making Tax Digital” have a look at my blog on that topic.
  9. VAT incurred on a number of items is non-deductible (“blocked”). The most common of these are motor cars (with certain exceptions) and business entertaining:
    • Motor cars: VAT cannot be recovered on the purchase of a motor car. Also the VAT is not blocked on repairs for the car. There is an exception when a motor car is purchased and exclusive business use is intended (it is used only for business journeys and it is not available for private use). However if a business leases a car which is available for business and private use, in these circumstances the trader is able to recover 50% of the VAT on the lease charges. N.B. vans are not cars and therefore the VAT is not blocked, but this is a complicated area, so make sure you get professional advice before buying.
    • Business Entertaining means entertainment (including hospitality of any kind)
      provided by a taxable person in connection with a business carried on (e.g. provision of food and drink; provision of accommodation (hotels, etc.); provision of theatre and concert tickets; entry to sporting events and facilities;
      entry to clubs, nightclubs, etc; and use of capital goods such as yachts and aircraft for the purpose of entertaining).

      • Dual use: Where goods or services are used, or to be used, partly for business entertainment and partly for other business purposes, an apportionment of the input tax must be made between the entertainment and other business use, and only that input tax apportioned to entertainment cannot be recovered as input
        tax by the business.
      • Staff entertainment: HMRC accept that where an employer provides entertainment for the benefit of its employees (e.g. to reward them for good work or to maintain and improve staff morale), it does so wholly for business purposes. As a result the VAT incurred on entertainment of employees (e.g. staff parties, team building exercises, staff outings and similar events) is input tax and is not blocked from recovery under the business entertainment rules, with exception of:
        • Where entertainment is provided only for directors, partners or sole proprietors of a business, the VAT incurred is not input tax as the goods or services are not used for a business purposes
        • Where employees act as hosts to non-employees, the costs are incurred solely for the purpose of entertaining the non-employees and the input tax is blocked under the business entertainment rules.
      • Subsistence: where meals etc. are provided away from the place of
        work on a business trip, the VAT incurred on the employee’s meal can be claimed as input tax under the subsistence rules
      • Staff parties with guests, etc. Where a business entertains both employees and non-employees, it can only recover as input tax the VAT it incurs on entertaining its employees. The portion of the input tax incurred in entertaining others is blocked under the business entertainment rules. However the input tax can be recovered if
        the business levies a charge on the non-employees attending the event
  10. You do not need a VAT invoice to reclaim Input Tax for some types of supply if your total expenditure for each taxable supply was £25 or less (including VAT) & you must be sure that the supplier was registered for VAT, namely:
    • purchases through coin-operated machines
    • car-park charges (on-street parking meters are not subject to VAT)
    • a single or return toll charge paid at the tollbooth
    • phone calls from public or private phones (if you can still find a pay-phone these days…..)

Today we have just covered the top of the iceberg as far as VAT is concerned. It is always worthwhile getting professional advice & a full review of your specific circumstances to ensure you not only comply with all regulations, but also maximise possible recovery of VAT.

Contact us

Until the next time!

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Disclaimer: 

The information contained in this blog is for general information purposes only. The information is provided by Tulip Thistle Accountancy and while we endeavour to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

In no event will we be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this blog.

 

Business Expenses: what you need to know if you run a business….

Today in my blog, at Tulip Thistle Accountancy, we are going to focus on the rules surrounding Business Expenses, what is tax deductible and what is not.

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Although the concepts are broadly comparable, we will focus today’s blog on unincorporated businesses (e.g. not Limited Companies or Limited Liability Partnerships).

The general rule set by Her Majesty’s Revenue and Customs (HMRC to you and me…) is that all business expenses must be incurred “wholly, exclusively and necessarily for the purpose of trade”

Easiest way to stay on the right side of the law is to ask yourself two questions:

  1. Did I buy the product or service because I need it in my business? If the answer is yes, it is a business expense.
  2. Is the product or service used just for my business? If there is a private use element, a proportion of the cost needs to be excluded (or disallowed in “HMRC-speak”). For example if your mobile phone phone bill for the year is £400 and of this £150 is for personal calls, only £250 can be deducted as a business expense. However, if you have a business only mobile phone (on which you make no private calls), the full cost is deductible.

There is one further key concept to make you aware of, namely whether a business expense or cost is “Capital Expenditure” or “Revenue Expenditure”. The distinction is important because revenue expenditure is deductible in computing taxable profits; capital expenditure is not deductible, but it may qualify for capital allowances*

Capital equipment (or Assets) are higher value items that will be used by the business over several years. For a small business an asset is generally an item of equipment, referred to as “plant and machinery”, but it can also be “land and buildings”. There is no firm categorisation as it will depend on the size of the business,  but as a rough guideline for small businesses, an asset can be thought of as an item of equipment costing over £100 with a working lifespan of 3 years or more.

Now I think it is time to challenge you to a little test……….to see if you are already an expert!

Don’t worry if you are not, we cover answers to each question later on.

Test

Are the following expenses allowable for tax purpose?

  1. Bank overdraft interest?
  2. Expenses incurred prior to the formation of a business?
  3. Rent of business premises?
  4. Depreciation?
  5. A purchase of a new van (not via a business lease or contract hire)?
  6. An unrecoverable  or “bad debt”?
  7. Roof repairs on your factory?
  8. Dental treatment for a salesman, necessary for performance of his work?
  9. a) Travelling to and from a building site for a self-employed joiner b) Travelling to and from a building site for an employee (i.e. can employee deduct these costs?)
  10. Costs of an accountant preparing a sole trader’s or partnership’s tax return
  11. Repairs required for a second hand machine in order to get it into a workable condition
  12. Claiming for your lunch at your normal place of work?
  13. a) Parking fine for an employee b) Speeding fine for an employee?
  14. Entertaining a customer?
  15. Protective clothing for work?
  16. Using your car for your business?
  17. Accounting expenses relating to a HMRC enquiry where discrepancies were found?
  18. When using your home as an office – house related costs?
  19. Cost of a monthly payment for software used in a business (e.g. cloud based accounting software or Microsoft office etc.?
  20. Advertising in local paper?
  21. Cost of designing a website with online selling capability?
  22. Tools purchased for use in the business?
  23. Political Donations?
  24. Pension contributions by an employer?
  25. A membership to a professional organisation (e.g. member of Institute of Mechanical Engineers)

For those of you of who “suffer” from a competitive nature, let me know how many you got right! I’ll mention the highest scorer in my next blog…..

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ANSWERS:

  1. Allowable. You can claim costs for the following financial charges:
    • bank, overdraft and credit card charges
    • interest on bank and business loans
    • hire purchase interest
    • leasing payments
    • alternative finance payments, eg Islamic finance
  2. Allowable. You are allowed to reclaim expenses from the last seven years before starting trading (N.B. for VAT purposes however, it’s just six months). In addition you need to be confident that you’ve purchased the items specifically and wholly for your new business. Don’t claim for equipment you have purchased originally for say hobby purposes which you’ve then later decided to use in your business. As always, make sure you keep good records of your expenses, including the receipts. It is always advisable to ask your accountant for advice in these circumstances.
  3. Allowable. You can claim not only for rent but also for following costs:
    • business and water rates
    • utility bills
    • property insurance
    • security
  4. Disallowed. Depreciation is an accounting concept & not used to calculate taxable profits. Instead capital allowances are provided which give relief to some of the capital in use in your business
  5. Disallowed. If it is a straight purchase or bought via hire purchase, this is classified as Capital Expenditure and  Capital Allowances will be available. Depending on type of van purchased, Annual Investment Allowance may be available, enabling full cost to be offset against income **. If you lease your van or have a rental agreement, the whole or only part of the monthly payment is tax deductible. Speak to your accountant for further detail.
  6. Allowable if you don’t use cash accounting. You can claim for amounts of money you include in your turnover but won’t ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they won’t be recovered from your customer in the future. You can’t claim for:
    • debts not included in turnover
    • debts related to the disposal of fixed assets, e.g. land, buildings, machinery
    • bad debts that aren’t properly calculated, e.g. you can’t just estimate that your debts are equal to 5% of your turnover
  7. Allowable. You can claim expenses for repairs and maintenance of business premises and equipment, but improvement and alteration are treated as capital costs. So replacing a worktop by a like-for-like one in a kitchen in a buy-to-let property would be allowable, however upgrading to granite would not be. Similarly increasing the number of kitchen cabinets etc. would also not be an allowable expenses.
  8. Disallowed. Whilst an argument could be made that this treatment is necessary for the performance of the salesperson’s job, it fails the “duality principle” (when an expenditure has a dual purpose, but is not capable of being analysed into business and private use, it is not tax deductible)
  9. a) Allowable, as long as IR35 legislation does not apply. b) Normally disallowed as seen as commuting. Only allowable if the workplace is regarded as a temporary workplace (if an employee goes there only to perform a task of limited duration or for a temporary purpose) ***
  10. Allowable. You can claim cost of legal and financial costs such as:
    • hiring of accountants, solicitors, surveyors and architects for business reasons
      • but can’t claim legal costs of buying property and machinery. You can claim capital allowances on these costs instead ****
    • personal indemnity insurance premiums
  11. Disallowed. If the expenditure was necessary in order to put the asset into a workable condition, then cost will represent part of the acquisition cost and will be capitalised.
  12. Disallowed. There are certain situations where you can claim for food and drink expenses. The rule is that you’re only allowed to claim a meal as a travel expense – but it has to be outside of your normal working routine – so, if you’re travelling to and from the same workplace every day, it’s unlikely that this will be classed as a ‘travel’ expense (also see answer 9b). Cost of food is also allowable when you are away from home on business overnight.
  13. a) Allowable if an employer pays, or reimburses, a parking fine which is the employee’s liability (if the penalty notice was actually handed to employee at the time of the offence, or if the employee owns the car). In such circumstances a deduction may be allowed to the employer for the fine paid on behalf of the employee, but note the fine will be seen as income for the employee! But if the notice was fixed to a car owned by the employer, and the employer pays the fine as the registered owner, the fine should be disallowed in computing the employer’s taxable profit. b) Disallowed as there is a general principle that fines for breaking the law are not tax deductible.
  14. Disallowed. No deduction is available for business entertainment expenses, defined by HMRC as those costs you incur when providing either subsidised or free hospitality to clients, suppliers or customers. Some examples include (but are not limited to): providing food and drink, theatre or concert tickets, sporting event tickets and use of company assets such as executive suites. These are non tax deductible for either VAT or Income Tax
  15. Allowable. You can claim for uniforms, protective clothing for your work and costumes for actors and entertainers
  16. Allowable. Often the easiest way is to use the “simplified expenses” route. You can claim a rate of £0.45/mile on business mileage up to 10,000 miles per tax year and £0.25/mile for business miles above this threshold. Please remember that travel between work and home is not business mileage (but also see answer to 9b above). Alternatively you can work our the cost of running your car (e.g. vehicle insurance, repairs and servicing,  vehicle licence fees, breakdown cover etc.) and claim for the business element of that (you will need detailed records of your business mileage and all relevant invoices/receipts)
  17. Disallowed. Additional accountancy expenses arising out of an enquiry into the accounts information in a particular year’s return will not be allowed where the enquiry reveals discrepancies and additional liabilities for the year of enquiry, or any earlier year, which arise as a result of negligent or fraudulent conduct. Where, however, the enquiry results in no addition to profits, or an adjustment to the profits for the year of enquiry only and that adjustment does not arise as a result of negligent or fraudulent conduct, the additional accountancy expenses will be allowable
  18. Allowable. You can either:
    • use simplified expenses, based on number of hours of business use per month:
      • if 25 -50 hours: £10 flat rate/month
      • if 51 – 100 hours: £18 flat rate/month
      • 101 and more: £26 flat rate/month
    • you can claim a proportion of your actual costs incurred such as heating, electricity, Council Tax, mortgage interest or rent, insurance and internet & telephone use. You’ll need to find a reasonable method of allocating your costs, e.g. by the number of rooms you use for business or the amount of time you spend working from home. As this method has potential implications for Capital Gains Tax on your main residence, I would recommend speaking to your accountant before adopting it.
  19. Allowable. These type of costs are treated as “Stationary” by HMRC, which also includes phone, mobile, fax and internet bills; postage; printing; stationary, printer ink and cartridges, as well as computer software your businesses uses for less than two years, and computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years). Claim other software for your business as capital allowances ****
  20. Allowable. Other marketing costs that are allowed are advertising in newspapers or directories, bulk mail advertising (mailshots), free samples & website costs, but not entertaining clients, suppliers and customers or event hospitality
  21. Disallowed. If a website itself generates income (i.e. provides the opportunity for direct online sales, or generates referrals, links or similar “click income”, advertising revenue etc.), it is capitalised as long as long as website is directly capable of generating sales at least equal in value to the amount capitalised. If it is an advertising or awareness creating site, cost can be expensed.
  22. Allowable. Tools are items of equipment that are either going to be used within the business year across a number of customer jobs or for admin or office purposes. They are generally lower in value (exact cut-off will depend on the size of your business and could be in the £100 – £2,000 range).
  23. Disallowed. Political donations by individuals are not tax-deductible in the UK. Rules for political donations via companies are complex and need an in-depth discussion with your accountant.
  24. Allowable. Staff expenses such as salaries and wages (only tax deductible if remuneration is commensurate with the work & money is actually paid; so a salary to an employer’s wife who does not perform any duties, will be disallowed), bonuses, pensions, benefits, agency fees and employer’s National Insurance contributions are all tax deductible. You can’t claim for carers or domestic help, e.g. nannies
  25. Allowable. You can claim subscription for trade body or professional organisation membership if related to your business. You can also claim for trade or professional journals

Business expenses can be a complex area so if you are in any doubt, speak to your accountant who will help you make the right decision.

If you want to discuss any of the concepts or points raised in today’s blog, please get in touch.

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Until the next time!

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Notes:

* Currently up to £200,000 a year of capital expenditure on plant and machinery (includes certain vans but not cars) qualifies for the annual investment allowance and is deductible in full. Capital expenditure that is over this Annual Allowance limit, and also the cost of buying most cars, qualifies for writing down allowances at 8% or 18%.

** Get in touch with your accountant to ensure your van qualifies before buying it.

*** Extensive rules are in place but in practice an employee is no longer eligible for tax relief on their travel to a temporary workplace from the moment that they or their employer expect or intend that they will work there for more than 24 months

**** if you don’t use “cash accounting” method

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