01202 022992
contact@balloonaccounting.co.uk
BH12 1PN, Poole, UK

Tax FAQ’s

with you on the journey to a brighter future

Here you will find some answers to the questions we are often asked.

We have popped these into categories to make them easier to find. Click on the category to get going.

Employers

The cost of a staff party or other entertainment event such as a Summer BBQ is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below there is no requirement to report anything to HMRC or pay tax and National Insurance.

There will also be no taxable benefit charged to employees on:

  • An annual Christmas party or other annual event offered to staff generally and is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
  • Provided the event must be open to all employees.
  • If a business has multiple locations, then a party open to all staff at one of the locations is allowable.
  • You can also have separate parties for separate departments, but employees must be able to attend one of the events.
  • There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable.
  • Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head. It is not necessary to keep a running total by employee but a cost per head per function.
  • All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

It is highly recommended when planning a staff party or other annual event to try and stick to the tax rules above. This should ensure that your party does not have an extra tax cost for you or your employees.

If you need help in crunching the numbers to make sure you do not exceed the allowable limits, please call me.

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

General

The meaning of goodwill for a business and CGT purposes is complex.

The term ‘goodwill’ is rarely mentioned in legislation and there is no definition of ‘goodwill’ for the purposes of Capital Gains legislation. In fact, most definitions of goodwill are derived from case law.

At its simplest you could describe goodwill as the ‘extra’ value of a business over and above its tangible assets. In the vast majority of cases when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of putting a monetary value on the business’s reputation and customer relationships.

Valuing goodwill is complex and there are many different methods which are used and that vary from industry to industry.

HMRC’s internal manual states that:

‘Most businesses can be expected to have goodwill even though its value is likely to fluctuate from time to time. The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist. In the same way, the writing off of purchased goodwill in the accounts of a business does not mean that its value has decreased or that it has ceased to exist.’

Please contact us for further information. 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Here I provide you with an overview of the information to provide to your accountant (me) to enable completion of your end of year accounts. 

Every business is different, and you should discuss your own bookkeeping requirement with me. Between us we can decide what you can prepare for me and agree a time schedule for when you will provide the records and for when I will have your accounts ready for discussion. 

Basic ways in which you may find you can help me…

·         Adding up and balancing your books such as cross casting of column totals

·         analysing your payments and receipts

·         filing your invoices in sensible system so that relevant invoices can be easily found 

If you’re feeling more adventurous, you can also assist by

·         preparing a bank reconciliation that reconciles the balance on your bank statement to that derived from your records after adjusting for unpresented receipts and payments

·         using control accounts for key nominal accounts such as debtors and creditors that reconcile to your year end list of debtors and creditors 

By using reconciliations and control accounts on a regular basis during the year, you help to ensure there are no errors in the records. 

Records to provide to me

Not every business will have all of the following records but if you do, you should provide them to me covering the year (plus one month after)… 

·         Access to your Cloud Accounting records.

·         Your cash book if you have one

·         Petty cash records.

·         Sales and purchase day books if operated.

·         Any ledgers that you keep.

·         Bank statements covering the whole financial year for all business accounts.

·         Purchase invoices.

·         Sales invoices.

·         Cheque books and paying in stubs if used.

·         Copies of VAT returns covering the year together with any workings.

·         Your payroll records for the year together with details of PAYE calculations for payments to HMRC.

·         Copies of any new loan or HP agreements taken out during the year.

·         Details of any business income or expenditure that didn’t go through your business bank account.

·         Anything else you feel may be relevant – if in doubt, include it. 

Schedules to provide to me 

In addition, the following schedules will assist me in completing your end of year accounts. I can prepare these myself but if you wish to do so, it would reduce the time I spend preparing your accounts… 

·         A list of fixed asset additions with copy purchase invoices provided.

·         A year end stock list. This should be at the lower of cost and net realisable value.

·         Details of work in progress at the year end.

·         A list of debtors at the year end, their age and an indication of any that unlikely to pay

·         Sales ledger control account reconciliation.

·         Reconciliations for all bank and cash accounts.

·         A list of trade creditors at the year end and their age.

·         Purchase ledger control account reconciliation.

·         Details of PAYE owed at the year end.

·         Details of VAT owed at the year end.

·         Schedules of key and tax sensitive profit and loss accounts such as repairs, sundry expenses, entertainment, etc. 

How I Can Help You 

I can help you avoid all of the above by moving you to online cloud accounting. There are many benefits to online accounting, and it also means I can work with you throughout the year, giving advice and providing reports when you need it most, not after the year end when it could be too late.   

Please contact us for further information 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Special tax rules apply to the construction industry and workers which are detailed in The Construction Industry Scheme (CIS).

The Construction Industry Scheme

CIS uses a verification system for contractors to confirm whether a subcontractor should be paid gross or net.

Construction Activities

The definition of construction activities is widely drawn and so most businesses working in construction will be caught by CIS. It applies to sole traders, partnerships and Limited Companies but not to private householders who are paying contractors.

Contractors are businesses that carry out “construction operations” as part of their business and subcontractors are those who carry out such work for the contractor, but it does not include employees of the contractor. Some businesses will be both a contractor and a subcontractor.

Registration

New subcontractors have to register with HMRC but as well as calling into the local office it can also be done by phone or online if HMRC already know about you.

The subcontractor will be informed whether they can receive payments gross or net. To qualify to be paid gross a subcontractor must pass the Business Turnover and Compliance Tests. In summary these are…

  • It is run in the UK with a bank account;
  • It has a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and companies);
  • It has complied with all its tax obligations to date.

Verification

When a contractor engages a subcontractor who has not worked for them in the current or previous two tax years, they must get the name, unique taxpayer reference and national insurance number of the subcontractor in the case of an individual and contact HMRC to ascertain if the subcontractor should be paid gross or net, this is called verification. The contractor must also decide the contract proposed is one of self-employment, or whether the worker should be treated as an employee.

It is important to ensure that the status of the worker in terms of self-employment or employment is correctly established. This is a question of fact and not what the parties want it to be. The CIS scheme only applies to self-employment situations, but because a subcontractor is registered under the CIS it does not mean that he should be treated as self-employed for every job he does.

If the subcontractor is registered with HMRC the contractor will be told to pay the subcontractor gross or to apply the standard rate of deduction (20%) to all payments to the subcontractor. If the subcontractor has not registered with HMRC, a higher rate of tax deduction of 30% will be required.

The deductions count as payments on account of the eventual tax and Class 4 NI liability of the subcontractor. If the subcontractor has an accounting period ending early in the tax year, for example 31 Dec they can apply for an in-year repayment where the deductions already taken will exceed the total tax and Class 4 NI bill for the year. Arrangements exist for subcontractors that are companies to be able to set-off deductions against any PAYE, NIC and CIS deductions that they owe.

Contractors will be given a verification number for the subcontractor, or group of subcontractors, that is matched to the HMRC records in one query or phone call. This number is for the contractor’s reference only.

For each subcontractor that cannot be matched either because they are not registered or the wrong details have been given, a special verification number will be given for each unmatched subcontractor and this number must be recorded on the subcontractor’s payment statement. This will be needed to get refunds later.

Records

Payment Statement – Contractors must give a statement to each subcontractor that a deduction has been made from his payments, either done once a month to cover all payments or for each payment, and this must be issued within 14 days of the end of the month in which the payment was made. Statements can be in any format as long as they contain the necessary information. They are not required for subcontractors who are paid gross.

Monthly Return – The contractor will submit a monthly return to HMRC that shows all subcontractors that payments have been made to, the amount paid and where net payments are made, the amount of materials and deductions. The return must be filed with HMRC within 14 days of the month end, with nil returns made if there were no payments in the month.

There are penalties for filing returns late.

There is no annual return required under the new CIS.

Real Time Information (RTI)

Under the rules of RTI you cannot process subcontractors through PAYE. RTI does not change how CIS is reported. Employers will still file monthly returns (CIS300). But for Limited Companies acting as a subcontractor, on the Employer Payment Summary (EPS) each month you are required to declare ‘CIS deductions suffered’, to offset any liability due to HMRC.

Please contact us for further information

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Can we deduct entertaining expenses?

The tax rules on the deductibility of entertaining expenses are harsh and often misunderstood – the fact that the expenditure is incurred for businesses purposes does not make it deductible.

Subject to certain limited exceptions, no deduction is allowed for business entertaining and gifts in calculating taxable profits.

What counts as business entertainment?

Business entertainment is the provision of free or subsidised hospitality or entertainment. Hospitality includes the provision of food drink or similar benefits for which no payment is made by the recipient. It also extends to subsidised hospitality whereby the charge made to the recipient does not cover the costs of providing the entertainment or hospitality.

Examples of business entertaining would include taking a supplier to lunch, taking customers to a day at the races, or inviting them to a box at rugby match, and suchlike. The definition is wide.

Exception 1: Entertaining employees

One of the main exceptions to the general rule that entertaining expenses cannot be deducted is in relation to staff entertainment. A deduction is allowed for the cost of entertaining staff, as long as the costs are incurred wholly and exclusively for the purposes of the trade and the entertaining of the staff is not merely incidental to the entertaining of customers. So, for example, a company would be able to deduct the cost of the staff Christmas party in calculating its taxable profits. However, if a company takes customers to Wimbledon, the fact that a number of employees also attended is not enough to guarantee a deduction as the entertaining provided for the employees is incidental to that for customers.It should be noted that unless an exemption is in point, employees may suffer a benefit in kind tax charge on any entertainment provided.

Exception 2: Normal course of trade

The disallowance does not apply where the business is that of providing hospitality, and as such a deduction is allowed for the costs incurred in providing that hospitality as long as they are incurred wholly and exclusively for the purposes of the business. Businesses such as restaurants and events management companies would fall into this category.

Exception 3: Contractual obligation to provide entertainment

Where entertainment is provided under a contractual obligation, this is not treated as business entertainment and a deduction is allowed for the cost. A common example would be where hospitality is provided as part of a package. However, the business should be able to demonstrate that they have received a full return for the entertainment provided.

Exception 4: Small gifts carrying an advert

The provision of business gifts is treated as business entertaining with the result that a deduction for the costs is not generally allowed. However, there is an exception for gifts costing not more than £50 per year per recipient which bear a conspicuous advert for the business. An example of a deductible gift would be a diary or a water bottle featuring an advert for the business.

Remember…Just because entertaining is incurred for business purposes does not mean that it is allowable and business entertaining needs to be added back in the corporation tax computation.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Limited Company

The cost of a staff party or other entertainment event such as a Summer BBQ is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below there is no requirement to report anything to HMRC or pay tax and National Insurance.

There will also be no taxable benefit charged to employees on:

  • An annual Christmas party or other annual event offered to staff generally and is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
  • Provided the event must be open to all employees.
  • If a business has multiple locations, then a party open to all staff at one of the locations is allowable.
  • You can also have separate parties for separate departments, but employees must be able to attend one of the events.
  • There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable.
  • Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head. It is not necessary to keep a running total by employee but a cost per head per function.
  • All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

It is highly recommended when planning a staff party or other annual event to try and stick to the tax rules above. This should ensure that your party does not have an extra tax cost for you or your employees.

If you need help in crunching the numbers to make sure you do not exceed the allowable limits, please call me.

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

The meaning of goodwill for a business and CGT purposes is complex.

The term ‘goodwill’ is rarely mentioned in legislation and there is no definition of ‘goodwill’ for the purposes of Capital Gains legislation. In fact, most definitions of goodwill are derived from case law.

At its simplest you could describe goodwill as the ‘extra’ value of a business over and above its tangible assets. In the vast majority of cases when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of putting a monetary value on the business’s reputation and customer relationships.

Valuing goodwill is complex and there are many different methods which are used and that vary from industry to industry.

HMRC’s internal manual states that:

‘Most businesses can be expected to have goodwill even though its value is likely to fluctuate from time to time. The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist. In the same way, the writing off of purchased goodwill in the accounts of a business does not mean that its value has decreased or that it has ceased to exist.’

Please contact us for further information. 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

If you are an employee or in some cases a Company Director and use your own money to buy things you need for your job, you can sometimes claim tax relief for the associated costs.

It is usually only possible to claim tax relief for the cost of items used solely for your work and you may also be able to claim tax relief for using you own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from your work but the rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport used and there are approved mileage rates published by HMRC. The approved mileage allowance payment rates are available where you use your own car on a business trip and where the approved mileage rates are used, the payments to you are not regarded as a taxable benefit.

Where an employer pays less than the published rates, you could claim tax relief for the shortfall using mileage allowance relief.

For all cars the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile.

The approved mileage rates are 20p per mile for bicycle travel and 24p per mile for motorcycle travel.

There is an additional passenger payment you can receive of 5p per passenger per business mile from your employer. This is available if you carry fellow employees in your car or van on journeys which are also work journeys for your colleagues. 

Like all things tax the rules around what you can claim can be complicated so if we can help please get in touch. 

Please contact us for further information

Disclaimer: This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Here I provide you with an overview of the information to provide to your accountant (me) to enable completion of your end of year accounts. 

Every business is different, and you should discuss your own bookkeeping requirement with me. Between us we can decide what you can prepare for me and agree a time schedule for when you will provide the records and for when I will have your accounts ready for discussion. 

Basic ways in which you may find you can help me…

·         Adding up and balancing your books such as cross casting of column totals

·         analysing your payments and receipts

·         filing your invoices in sensible system so that relevant invoices can be easily found 

If you’re feeling more adventurous, you can also assist by

·         preparing a bank reconciliation that reconciles the balance on your bank statement to that derived from your records after adjusting for unpresented receipts and payments

·         using control accounts for key nominal accounts such as debtors and creditors that reconcile to your year end list of debtors and creditors 

By using reconciliations and control accounts on a regular basis during the year, you help to ensure there are no errors in the records. 

Records to provide to me

Not every business will have all of the following records but if you do, you should provide them to me covering the year (plus one month after)… 

·         Access to your Cloud Accounting records.

·         Your cash book if you have one

·         Petty cash records.

·         Sales and purchase day books if operated.

·         Any ledgers that you keep.

·         Bank statements covering the whole financial year for all business accounts.

·         Purchase invoices.

·         Sales invoices.

·         Cheque books and paying in stubs if used.

·         Copies of VAT returns covering the year together with any workings.

·         Your payroll records for the year together with details of PAYE calculations for payments to HMRC.

·         Copies of any new loan or HP agreements taken out during the year.

·         Details of any business income or expenditure that didn’t go through your business bank account.

·         Anything else you feel may be relevant – if in doubt, include it. 

Schedules to provide to me 

In addition, the following schedules will assist me in completing your end of year accounts. I can prepare these myself but if you wish to do so, it would reduce the time I spend preparing your accounts… 

·         A list of fixed asset additions with copy purchase invoices provided.

·         A year end stock list. This should be at the lower of cost and net realisable value.

·         Details of work in progress at the year end.

·         A list of debtors at the year end, their age and an indication of any that unlikely to pay

·         Sales ledger control account reconciliation.

·         Reconciliations for all bank and cash accounts.

·         A list of trade creditors at the year end and their age.

·         Purchase ledger control account reconciliation.

·         Details of PAYE owed at the year end.

·         Details of VAT owed at the year end.

·         Schedules of key and tax sensitive profit and loss accounts such as repairs, sundry expenses, entertainment, etc. 

How I Can Help You 

I can help you avoid all of the above by moving you to online cloud accounting. There are many benefits to online accounting, and it also means I can work with you throughout the year, giving advice and providing reports when you need it most, not after the year end when it could be too late.   

Please contact us for further information 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Special tax rules apply to the construction industry and workers which are detailed in The Construction Industry Scheme (CIS).

The Construction Industry Scheme

CIS uses a verification system for contractors to confirm whether a subcontractor should be paid gross or net.

Construction Activities

The definition of construction activities is widely drawn and so most businesses working in construction will be caught by CIS. It applies to sole traders, partnerships and Limited Companies but not to private householders who are paying contractors.

Contractors are businesses that carry out “construction operations” as part of their business and subcontractors are those who carry out such work for the contractor, but it does not include employees of the contractor. Some businesses will be both a contractor and a subcontractor.

Registration

New subcontractors have to register with HMRC but as well as calling into the local office it can also be done by phone or online if HMRC already know about you.

The subcontractor will be informed whether they can receive payments gross or net. To qualify to be paid gross a subcontractor must pass the Business Turnover and Compliance Tests. In summary these are…

  • It is run in the UK with a bank account;
  • It has a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and companies);
  • It has complied with all its tax obligations to date.

Verification

When a contractor engages a subcontractor who has not worked for them in the current or previous two tax years, they must get the name, unique taxpayer reference and national insurance number of the subcontractor in the case of an individual and contact HMRC to ascertain if the subcontractor should be paid gross or net, this is called verification. The contractor must also decide the contract proposed is one of self-employment, or whether the worker should be treated as an employee.

It is important to ensure that the status of the worker in terms of self-employment or employment is correctly established. This is a question of fact and not what the parties want it to be. The CIS scheme only applies to self-employment situations, but because a subcontractor is registered under the CIS it does not mean that he should be treated as self-employed for every job he does.

If the subcontractor is registered with HMRC the contractor will be told to pay the subcontractor gross or to apply the standard rate of deduction (20%) to all payments to the subcontractor. If the subcontractor has not registered with HMRC, a higher rate of tax deduction of 30% will be required.

The deductions count as payments on account of the eventual tax and Class 4 NI liability of the subcontractor. If the subcontractor has an accounting period ending early in the tax year, for example 31 Dec they can apply for an in-year repayment where the deductions already taken will exceed the total tax and Class 4 NI bill for the year. Arrangements exist for subcontractors that are companies to be able to set-off deductions against any PAYE, NIC and CIS deductions that they owe.

Contractors will be given a verification number for the subcontractor, or group of subcontractors, that is matched to the HMRC records in one query or phone call. This number is for the contractor’s reference only.

For each subcontractor that cannot be matched either because they are not registered or the wrong details have been given, a special verification number will be given for each unmatched subcontractor and this number must be recorded on the subcontractor’s payment statement. This will be needed to get refunds later.

Records

Payment Statement – Contractors must give a statement to each subcontractor that a deduction has been made from his payments, either done once a month to cover all payments or for each payment, and this must be issued within 14 days of the end of the month in which the payment was made. Statements can be in any format as long as they contain the necessary information. They are not required for subcontractors who are paid gross.

Monthly Return – The contractor will submit a monthly return to HMRC that shows all subcontractors that payments have been made to, the amount paid and where net payments are made, the amount of materials and deductions. The return must be filed with HMRC within 14 days of the month end, with nil returns made if there were no payments in the month.

There are penalties for filing returns late.

There is no annual return required under the new CIS.

Real Time Information (RTI)

Under the rules of RTI you cannot process subcontractors through PAYE. RTI does not change how CIS is reported. Employers will still file monthly returns (CIS300). But for Limited Companies acting as a subcontractor, on the Employer Payment Summary (EPS) each month you are required to declare ‘CIS deductions suffered’, to offset any liability due to HMRC.

Please contact us for further information

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Can we deduct entertaining expenses?

The tax rules on the deductibility of entertaining expenses are harsh and often misunderstood – the fact that the expenditure is incurred for businesses purposes does not make it deductible.

Subject to certain limited exceptions, no deduction is allowed for business entertaining and gifts in calculating taxable profits.

What counts as business entertainment?

Business entertainment is the provision of free or subsidised hospitality or entertainment. Hospitality includes the provision of food drink or similar benefits for which no payment is made by the recipient. It also extends to subsidised hospitality whereby the charge made to the recipient does not cover the costs of providing the entertainment or hospitality.

Examples of business entertaining would include taking a supplier to lunch, taking customers to a day at the races, or inviting them to a box at rugby match, and suchlike. The definition is wide.

Exception 1: Entertaining employees

One of the main exceptions to the general rule that entertaining expenses cannot be deducted is in relation to staff entertainment. A deduction is allowed for the cost of entertaining staff, as long as the costs are incurred wholly and exclusively for the purposes of the trade and the entertaining of the staff is not merely incidental to the entertaining of customers. So, for example, a company would be able to deduct the cost of the staff Christmas party in calculating its taxable profits. However, if a company takes customers to Wimbledon, the fact that a number of employees also attended is not enough to guarantee a deduction as the entertaining provided for the employees is incidental to that for customers.It should be noted that unless an exemption is in point, employees may suffer a benefit in kind tax charge on any entertainment provided.

Exception 2: Normal course of trade

The disallowance does not apply where the business is that of providing hospitality, and as such a deduction is allowed for the costs incurred in providing that hospitality as long as they are incurred wholly and exclusively for the purposes of the business. Businesses such as restaurants and events management companies would fall into this category.

Exception 3: Contractual obligation to provide entertainment

Where entertainment is provided under a contractual obligation, this is not treated as business entertainment and a deduction is allowed for the cost. A common example would be where hospitality is provided as part of a package. However, the business should be able to demonstrate that they have received a full return for the entertainment provided.

Exception 4: Small gifts carrying an advert

The provision of business gifts is treated as business entertaining with the result that a deduction for the costs is not generally allowed. However, there is an exception for gifts costing not more than £50 per year per recipient which bear a conspicuous advert for the business. An example of a deductible gift would be a diary or a water bottle featuring an advert for the business.

Remember…Just because entertaining is incurred for business purposes does not mean that it is allowable and business entertaining needs to be added back in the corporation tax computation.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Whilst there is usually no tax relief for ordinary commuting – home to work – there are a few exceptions. 

The term ‘ordinary commuting’ is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace.

Case law has established the principle that travelling between your home and a permanent workplace is not a travel expense related to the performance of your duties.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee only goes there to perform a task of limited duration or for a temporary purpose.

Other home to work travel that may be allowed includes:

  • where the employee has a travelling appointment;
  • where the employee’s home is a place of work and the place where the employee lives is dictated by the requirements of the job;
  • where the duties of the employment are carried out wholly or partly outside the UK; where a non-domiciled employee is working in the UK;
  • emergency call-outs.

There are also specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Many small business, whether incorporated or not, pay family members for working for the business. However, as a recent case shows, it is easy to make mistakes which can prove costly.

The case in question, Nicholson v HMRC (TC06293), concerned the payment of wages by a sole trader to his son while at university. Mr Nicholson was a central heating salesman, who was trying to build up an internet business. His son had worked for his father for many years, and when he went away to university, he continued to work for his father, ‘promoting the business through internet and leaflet distribution and computer work’. He was paid at the rate of £10 per hour for 15 hours’ work a week.

However, there was no evidence to support the payment of wages on this basis and payments were made partly in cash and partly through the provision of goods – Mr Nicholson bought his son food and drink to help him whilst at university and claimed a deduction in his business accounts for this as ‘wages’.

The First Tier Tax Tribunal disallowed a deduction for the wages paid to Mr Nicholson’s son. Although there was no dispute that his son worked in the business, there was no evidence to back up the claim that the payments had been made wholly and exclusively for the purposes of the trade. It was not possible to reconcile what had been paid as wages to the bank statements, and without contemporaneous records to support the payments, HMRC were unable to accept the sums claimed were ‘wages’ incurred as a business expense.

The payments had a dual purpose – the underlying motive was the ‘personal and private’ motive of supporting his son while at university.

Avoiding the pitfalls

Had Mr Nicholson taken a different approach, he would have been able to claim a deduction for the wages paid to his son. The judge noted that had payment been made on a time recorded basis or using some other methodology to calculate the amount payable, and had an accurate record been maintained of the hours worked and the amount paid, it is unlikely that the deduction would have been denied. If instead Mr Nicholson had made payments to his son’s bank account at the rate of £10 per hour for 15 hours’ work a week, leaving his son to buy food and drink etc. from the money he had earned working for his Dad, the outcome would have been different. The bank statements would provide evidence of what had been paid and this could be linked to the record of hours worked.

Maintaining the link is key. When paying family members, it is also important that the amount paid is reasonable in relation to the work done. The acid test is whether payment would be made to a person who was not a family member at the same rate. A deduction may also be denied if the wages paid are excessive. 

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Self Employed

Self Employed Expenses

What are allowable expenses?

Essentially expenses are costs that you’re able to deduct from income to calculate your taxable profits.

For example, if you earn £40,000 in a year and can offset £10,000 in expenses during the same period you will pay tax on £30,000. This would be your taxable profit. Allowable tax expenses can of course significantly reduce your tax bills.

What business expenses can I claim for as a sole trader?

Generally, you are able to claim expenses for any product or service used to run your business as a sole trader.

All these expenses must relate to your business and not include any private expenditure.

Examples of expenses that can be included (this is not exhaustive) are:

 Office costs – This includes everything from stationery, rent, postage and utility bills.

Travel expenses – From vehicle insurance to fuel, parking and hotel rooms, to train fares and breakdown cover. This assumes you travel as part of your sole trader business but if your only travel is to an office and back home then that won’t count.

Clothing – This only covers uniforms and anything you need to wear to carry out your work as a sole trader. Examples would be, protective clothing, or costumes for actors and entertainers. You aren’t able to claim for everyday clothes / anything that would be part of a normal wardrobe, even if you only wear these items for work.

Reselling goods – If you’ve bought things to sell on as part of your business, including stock or raw materials, those are included in your allowable expenses.

Legal and financial costs – You can claim for the fees spent on hiring accountants or professional services such as lawyers, as well as for bank charges or hire purchase interest.

Marketing and advertising and subscriptions – Allowable expenses in this category include free samples, website costs and advertising including via social media.

 Entertaining clients and suppliers – None of these costs of entertaining are allowable.

Training courses – Providing the courses relate to your business and improve your skills or knowledge then you are able to claim allowable expenses. It does not include courses taken to help you expand into new areas of business.

Mixed Use Expenses

You won’t be able to claim against the full amount of the expense, only against the proportion you use for business purposes.

For example, if you don’t have a separate business phone, you likely use your mobile phone for both business and personal reasons. If you spend £100 in a year on your phone bill, if £30 of that bill is for personal calls and £70 on business, then you can claim for £70 of expenses.

The same would apply to home phone, broadband costs and possibly the use of a private car.

Simplified Expenses

Simplified expenses are a useful way of reducing the number of records you need to keep. They make claiming expenses much easier by using a flat rate for expenses. The flat rate method can be used for expenses such as vehicles or working from home. It means that you won’t need to work out the proportion you use for the business.

Whatever expenses you intend to claim, if your not sure, ask your accountant first.

Category: Self Employed

The cost of a staff party or other entertainment event such as a Summer BBQ is generally allowed as a deduction for tax purposes. If you meet the various criteria outlined below there is no requirement to report anything to HMRC or pay tax and National Insurance.

There will also be no taxable benefit charged to employees on:

  • An annual Christmas party or other annual event offered to staff generally and is not taxable on those attending provided that the average cost per head of the function does not exceed £150.
  • Provided the event must be open to all employees.
  • If a business has multiple locations, then a party open to all staff at one of the locations is allowable.
  • You can also have separate parties for separate departments, but employees must be able to attend one of the events.
  • There can be more than one annual event. If the total cost of these parties is under £150 per head, then there is no chargeable benefit. However, if the total cost per head goes over £150 then whichever functions best utilise the £150 are exempt and the others taxable.
  • Note, the £150 is not an allowance and any costs over £150 per head are taxable on the full cost per head. It is not necessary to keep a running total by employee but a cost per head per function.
  • All costs including VAT must be taken into account. This includes the costs of transport to and from the event, food and drink and any accommodation provided.

It is highly recommended when planning a staff party or other annual event to try and stick to the tax rules above. This should ensure that your party does not have an extra tax cost for you or your employees.

If you need help in crunching the numbers to make sure you do not exceed the allowable limits, please call me.

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

The meaning of goodwill for a business and CGT purposes is complex.

The term ‘goodwill’ is rarely mentioned in legislation and there is no definition of ‘goodwill’ for the purposes of Capital Gains legislation. In fact, most definitions of goodwill are derived from case law.

At its simplest you could describe goodwill as the ‘extra’ value of a business over and above its tangible assets. In the vast majority of cases when a business is sold a significant proportion of the sale price will be for the intangible assets or goodwill of the company. This is essentially a way of putting a monetary value on the business’s reputation and customer relationships.

Valuing goodwill is complex and there are many different methods which are used and that vary from industry to industry.

HMRC’s internal manual states that:

‘Most businesses can be expected to have goodwill even though its value is likely to fluctuate from time to time. The fact that goodwill may not be reflected in the balance sheet of a business does not mean that it does not exist. In the same way, the writing off of purchased goodwill in the accounts of a business does not mean that its value has decreased or that it has ceased to exist.’

Please contact us for further information. 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

If you are an employee or in some cases a Company Director and use your own money to buy things you need for your job, you can sometimes claim tax relief for the associated costs.

It is usually only possible to claim tax relief for the cost of items used solely for your work and you may also be able to claim tax relief for using you own vehicle, be it a car, van, motorcycle or bike. As a general rule, there is no tax relief for ordinary commuting to and from your work but the rules are different for temporary workplaces where the expense is usually allowable and if you use your own vehicle to do other business related mileage.

Employers usually make payments based on a set rate per mile depending on the mode of transport used and there are approved mileage rates published by HMRC. The approved mileage allowance payment rates are available where you use your own car on a business trip and where the approved mileage rates are used, the payments to you are not regarded as a taxable benefit.

Where an employer pays less than the published rates, you could claim tax relief for the shortfall using mileage allowance relief.

For all cars the approved mileage allowance payment for the first 10,000 business miles is 45p per mile and 25p per mile for every additional business mile.

The approved mileage rates are 20p per mile for bicycle travel and 24p per mile for motorcycle travel.

There is an additional passenger payment you can receive of 5p per passenger per business mile from your employer. This is available if you carry fellow employees in your car or van on journeys which are also work journeys for your colleagues. 

Like all things tax the rules around what you can claim can be complicated so if we can help please get in touch. 

Please contact us for further information

Disclaimer: This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Here I provide you with an overview of the information to provide to your accountant (me) to enable completion of your end of year accounts. 

Every business is different, and you should discuss your own bookkeeping requirement with me. Between us we can decide what you can prepare for me and agree a time schedule for when you will provide the records and for when I will have your accounts ready for discussion. 

Basic ways in which you may find you can help me…

·         Adding up and balancing your books such as cross casting of column totals

·         analysing your payments and receipts

·         filing your invoices in sensible system so that relevant invoices can be easily found 

If you’re feeling more adventurous, you can also assist by

·         preparing a bank reconciliation that reconciles the balance on your bank statement to that derived from your records after adjusting for unpresented receipts and payments

·         using control accounts for key nominal accounts such as debtors and creditors that reconcile to your year end list of debtors and creditors 

By using reconciliations and control accounts on a regular basis during the year, you help to ensure there are no errors in the records. 

Records to provide to me

Not every business will have all of the following records but if you do, you should provide them to me covering the year (plus one month after)… 

·         Access to your Cloud Accounting records.

·         Your cash book if you have one

·         Petty cash records.

·         Sales and purchase day books if operated.

·         Any ledgers that you keep.

·         Bank statements covering the whole financial year for all business accounts.

·         Purchase invoices.

·         Sales invoices.

·         Cheque books and paying in stubs if used.

·         Copies of VAT returns covering the year together with any workings.

·         Your payroll records for the year together with details of PAYE calculations for payments to HMRC.

·         Copies of any new loan or HP agreements taken out during the year.

·         Details of any business income or expenditure that didn’t go through your business bank account.

·         Anything else you feel may be relevant – if in doubt, include it. 

Schedules to provide to me 

In addition, the following schedules will assist me in completing your end of year accounts. I can prepare these myself but if you wish to do so, it would reduce the time I spend preparing your accounts… 

·         A list of fixed asset additions with copy purchase invoices provided.

·         A year end stock list. This should be at the lower of cost and net realisable value.

·         Details of work in progress at the year end.

·         A list of debtors at the year end, their age and an indication of any that unlikely to pay

·         Sales ledger control account reconciliation.

·         Reconciliations for all bank and cash accounts.

·         A list of trade creditors at the year end and their age.

·         Purchase ledger control account reconciliation.

·         Details of PAYE owed at the year end.

·         Details of VAT owed at the year end.

·         Schedules of key and tax sensitive profit and loss accounts such as repairs, sundry expenses, entertainment, etc. 

How I Can Help You 

I can help you avoid all of the above by moving you to online cloud accounting. There are many benefits to online accounting, and it also means I can work with you throughout the year, giving advice and providing reports when you need it most, not after the year end when it could be too late.   

Please contact us for further information 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us. 

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Special tax rules apply to the construction industry and workers which are detailed in The Construction Industry Scheme (CIS).

The Construction Industry Scheme

CIS uses a verification system for contractors to confirm whether a subcontractor should be paid gross or net.

Construction Activities

The definition of construction activities is widely drawn and so most businesses working in construction will be caught by CIS. It applies to sole traders, partnerships and Limited Companies but not to private householders who are paying contractors.

Contractors are businesses that carry out “construction operations” as part of their business and subcontractors are those who carry out such work for the contractor, but it does not include employees of the contractor. Some businesses will be both a contractor and a subcontractor.

Registration

New subcontractors have to register with HMRC but as well as calling into the local office it can also be done by phone or online if HMRC already know about you.

The subcontractor will be informed whether they can receive payments gross or net. To qualify to be paid gross a subcontractor must pass the Business Turnover and Compliance Tests. In summary these are…

  • It is run in the UK with a bank account;
  • It has a construction turnover, excluding VAT and the cost of materials, of at least £30,000 each year (more for partnerships and companies);
  • It has complied with all its tax obligations to date.

Verification

When a contractor engages a subcontractor who has not worked for them in the current or previous two tax years, they must get the name, unique taxpayer reference and national insurance number of the subcontractor in the case of an individual and contact HMRC to ascertain if the subcontractor should be paid gross or net, this is called verification. The contractor must also decide the contract proposed is one of self-employment, or whether the worker should be treated as an employee.

It is important to ensure that the status of the worker in terms of self-employment or employment is correctly established. This is a question of fact and not what the parties want it to be. The CIS scheme only applies to self-employment situations, but because a subcontractor is registered under the CIS it does not mean that he should be treated as self-employed for every job he does.

If the subcontractor is registered with HMRC the contractor will be told to pay the subcontractor gross or to apply the standard rate of deduction (20%) to all payments to the subcontractor. If the subcontractor has not registered with HMRC, a higher rate of tax deduction of 30% will be required.

The deductions count as payments on account of the eventual tax and Class 4 NI liability of the subcontractor. If the subcontractor has an accounting period ending early in the tax year, for example 31 Dec they can apply for an in-year repayment where the deductions already taken will exceed the total tax and Class 4 NI bill for the year. Arrangements exist for subcontractors that are companies to be able to set-off deductions against any PAYE, NIC and CIS deductions that they owe.

Contractors will be given a verification number for the subcontractor, or group of subcontractors, that is matched to the HMRC records in one query or phone call. This number is for the contractor’s reference only.

For each subcontractor that cannot be matched either because they are not registered or the wrong details have been given, a special verification number will be given for each unmatched subcontractor and this number must be recorded on the subcontractor’s payment statement. This will be needed to get refunds later.

Records

Payment Statement – Contractors must give a statement to each subcontractor that a deduction has been made from his payments, either done once a month to cover all payments or for each payment, and this must be issued within 14 days of the end of the month in which the payment was made. Statements can be in any format as long as they contain the necessary information. They are not required for subcontractors who are paid gross.

Monthly Return – The contractor will submit a monthly return to HMRC that shows all subcontractors that payments have been made to, the amount paid and where net payments are made, the amount of materials and deductions. The return must be filed with HMRC within 14 days of the month end, with nil returns made if there were no payments in the month.

There are penalties for filing returns late.

There is no annual return required under the new CIS.

Real Time Information (RTI)

Under the rules of RTI you cannot process subcontractors through PAYE. RTI does not change how CIS is reported. Employers will still file monthly returns (CIS300). But for Limited Companies acting as a subcontractor, on the Employer Payment Summary (EPS) each month you are required to declare ‘CIS deductions suffered’, to offset any liability due to HMRC.

Please contact us for further information

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Can we deduct entertaining expenses?

The tax rules on the deductibility of entertaining expenses are harsh and often misunderstood – the fact that the expenditure is incurred for businesses purposes does not make it deductible.

Subject to certain limited exceptions, no deduction is allowed for business entertaining and gifts in calculating taxable profits.

What counts as business entertainment?

Business entertainment is the provision of free or subsidised hospitality or entertainment. Hospitality includes the provision of food drink or similar benefits for which no payment is made by the recipient. It also extends to subsidised hospitality whereby the charge made to the recipient does not cover the costs of providing the entertainment or hospitality.

Examples of business entertaining would include taking a supplier to lunch, taking customers to a day at the races, or inviting them to a box at rugby match, and suchlike. The definition is wide.

Exception 1: Entertaining employees

One of the main exceptions to the general rule that entertaining expenses cannot be deducted is in relation to staff entertainment. A deduction is allowed for the cost of entertaining staff, as long as the costs are incurred wholly and exclusively for the purposes of the trade and the entertaining of the staff is not merely incidental to the entertaining of customers. So, for example, a company would be able to deduct the cost of the staff Christmas party in calculating its taxable profits. However, if a company takes customers to Wimbledon, the fact that a number of employees also attended is not enough to guarantee a deduction as the entertaining provided for the employees is incidental to that for customers.It should be noted that unless an exemption is in point, employees may suffer a benefit in kind tax charge on any entertainment provided.

Exception 2: Normal course of trade

The disallowance does not apply where the business is that of providing hospitality, and as such a deduction is allowed for the costs incurred in providing that hospitality as long as they are incurred wholly and exclusively for the purposes of the business. Businesses such as restaurants and events management companies would fall into this category.

Exception 3: Contractual obligation to provide entertainment

Where entertainment is provided under a contractual obligation, this is not treated as business entertainment and a deduction is allowed for the cost. A common example would be where hospitality is provided as part of a package. However, the business should be able to demonstrate that they have received a full return for the entertainment provided.

Exception 4: Small gifts carrying an advert

The provision of business gifts is treated as business entertaining with the result that a deduction for the costs is not generally allowed. However, there is an exception for gifts costing not more than £50 per year per recipient which bear a conspicuous advert for the business. An example of a deductible gift would be a diary or a water bottle featuring an advert for the business.

Remember…Just because entertaining is incurred for business purposes does not mean that it is allowable and business entertaining needs to be added back in the corporation tax computation.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Whilst there is usually no tax relief for ordinary commuting – home to work – there are a few exceptions. 

The term ‘ordinary commuting’ is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace.

Case law has established the principle that travelling between your home and a permanent workplace is not a travel expense related to the performance of your duties.

The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee only goes there to perform a task of limited duration or for a temporary purpose.

Other home to work travel that may be allowed includes:

  • where the employee has a travelling appointment;
  • where the employee’s home is a place of work and the place where the employee lives is dictated by the requirements of the job;
  • where the duties of the employment are carried out wholly or partly outside the UK; where a non-domiciled employee is working in the UK;
  • emergency call-outs.

There are also specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Many small business, whether incorporated or not, pay family members for working for the business. However, as a recent case shows, it is easy to make mistakes which can prove costly.

The case in question, Nicholson v HMRC (TC06293), concerned the payment of wages by a sole trader to his son while at university. Mr Nicholson was a central heating salesman, who was trying to build up an internet business. His son had worked for his father for many years, and when he went away to university, he continued to work for his father, ‘promoting the business through internet and leaflet distribution and computer work’. He was paid at the rate of £10 per hour for 15 hours’ work a week.

However, there was no evidence to support the payment of wages on this basis and payments were made partly in cash and partly through the provision of goods – Mr Nicholson bought his son food and drink to help him whilst at university and claimed a deduction in his business accounts for this as ‘wages’.

The First Tier Tax Tribunal disallowed a deduction for the wages paid to Mr Nicholson’s son. Although there was no dispute that his son worked in the business, there was no evidence to back up the claim that the payments had been made wholly and exclusively for the purposes of the trade. It was not possible to reconcile what had been paid as wages to the bank statements, and without contemporaneous records to support the payments, HMRC were unable to accept the sums claimed were ‘wages’ incurred as a business expense.

The payments had a dual purpose – the underlying motive was the ‘personal and private’ motive of supporting his son while at university.

Avoiding the pitfalls

Had Mr Nicholson taken a different approach, he would have been able to claim a deduction for the wages paid to his son. The judge noted that had payment been made on a time recorded basis or using some other methodology to calculate the amount payable, and had an accurate record been maintained of the hours worked and the amount paid, it is unlikely that the deduction would have been denied. If instead Mr Nicholson had made payments to his son’s bank account at the rate of £10 per hour for 15 hours’ work a week, leaving his son to buy food and drink etc. from the money he had earned working for his Dad, the outcome would have been different. The bank statements would provide evidence of what had been paid and this could be linked to the record of hours worked.

Maintaining the link is key. When paying family members, it is also important that the amount paid is reasonable in relation to the work done. The acid test is whether payment would be made to a person who was not a family member at the same rate. A deduction may also be denied if the wages paid are excessive. 

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

If you are self employed and running a business from your home, there are simplified arrangements available for claiming a fixed rate deduction for certain expenses where there is a mix of business and private use.

The simplified expenses rules are not available to limited companies or business partnerships involving a limited company.

The use of the flat rate expenses for business work carried out from your home will eliminate tedious calculations based on the proportion of personal to business use for household bills. Instead a monthly deduction is allowable. 

The current monthly rates are based on the amount of business use of the home as follows:

25 or more hours worked per month can claim  £10.00
51 or more hours worked per month can claim  £18.00
101 or more hours worked per month can claim  £26.00

There is no issue if the amount of hours worked varies from month to month as different amounts can be claimed for each month.

The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs and business use.

Please contact us for further information.

Disclaimer:  This App and its contents have been produced as a helpful reference point. The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up-to-date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: Self Employed

The Tax Advantages of Self-Employment

There are a number of advantages of being self-employed, but you must also comply with various regulations including the tax law.

When you decide to work for yourself you need to choose which form your business will take. The most common forms of business are:

  • Sole-trader – you run the business on your own, usually under your own name;
  • Partnership – you and one or more other people jointly run the business;
  • Limited liability partnership – a special type of partnership that gives you and the other business owners more protection from creditors;
  • Limited company – an organisation that you own and control, which carries out the business on your behalf.

If you run your business as a sole-trader or as a partnership you are legally self-employed.

When you choose to run your business as a limited company you will normally be a director and an employee of that company. You will be employed rather than self-employed, but in practice you will work for your own business.

It is important to understand the difference between being employed by your own company, and being self-employed, as it will affect the tax you pay, and the regulations you have to comply with. This article deals only with the advantages and regulations of being self-employed.

Tax Advantages

Cash-Flow

As a self-employed person you only have to pay income tax twice a year on 31 January and 31 July. This means you can hang on to your money for longer than an employee who has tax deducted under PAYE from every pay packet.

You must make sure you have the money ready to pay the tax when it is due as you will be charged interest on any tax paid late.

If you work in the co industry you may have tax deducted from each of your sales invoices by the contractor you work for, under the Construction Industry Scheme (CIS). You may be able to reclaim some of the CIS deductions each year when you submit your tax return.

Expenses to Claim

·         The cost of any goods or services you use fully for your business can be deducted from your sales revenue for tax purposes. Where an item is used partially for your business and partly for private purposes, such as private car or home, you can claim the business proportion of the costs against your business profits. However, you must be able to justify the business proportion with evidence such as the miles driven, or space used by the business.

  • Capital allowances – if you purchase an item that is expected to last several years, such as a van, you can claim a special deduction known as a capital allowance. From January 2016, the first £200,000 you spend on equipment each year qualifies for 100% capital allowances in the year of purchase. This does not include cars.
  • Loan interest – if you take out a business loan the interest paid on that loan can be deducted from your sales revenue. The loan must be taken out to fund your business, rather than a personal loan or credit card borrowings.

Goverment Support

  • Government funding – if you live in an area in the UK that has been designated as a regeneration area you may qualify for a government programme to help people start their own businesses.
  • Charitable support is also available from the Prince’s Trust throughout Britain for those aged 18 to 30 who wish to start their own business.
  • Self-employed credit – if you have been registered as unemployed for at least six months you may qualify for a self-employed credit of £50 per week if you start your own business. Ask at your local Jobcentre Plus office for more details.
  • Working and child tax credits – You may qualify for these while you run your own self-employed business. Your tax credit award is based on your family’s joint income including your self-employed profits, but it will also be determined by the number of hours worked by the adults in the family, and the number of children aged under 16.

Your Tax Obligations

Tell the Taxman

When you start your own business you must register as a self-employed person with HMRC. It is best to do this as soon as possible after you start to charge your customers for the goods you sell or for the services you provide. You can register…

  • On the HMRC website
  • By telephoning the tax office
  • By completing the leaflet CWF1: Becoming self-employed and registering for national insurance contributions and tax.

You must register as self-employed even if you make a loss from your business. Every partner in a partnership business must register separately as a self-employed person. If you do not register with the Taxman by 5th October following the end of the tax year in which you started your business you may be charged a penalty of up to 100% of the tax and national insurance you do not pay as a result of the failure to notify. 

National Insurance

As a self-employed person you must pay two types of national insurance contributions (NICs) known as class 2 and class 4.

Tax Returns

You must complete a self-assessment tax return every year to report the income and expenses from your self employed business and any other income you have to the Tax Office.

Register for VAT

When your sales for 12 months reach the compulsory VAT threshold, you must register for VAT within 30 days.

Please contact us for further information 

Disclaimer:  This App and its contents have been produced as a helpful reference point.  The information should be used as a guide only and your specific circumstances are best discussed directly with us.

No reliance should be placed on this material and no action should be taken without seeking the appropriate professional or legal advice. Although the authors make reasonable efforts to ensure the content of this App is accurate and up to date, the authors make no representations, warranties or guarantees that the content is accurate, complete or up-to-date and accept no responsibility whatsoever for any loss occasioned by anyone acting on information within this App.

Category: Self Employed
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