Claiming back tax

By Zad Butt on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs The question accountants are asked most is, ‘What expenses can claim tax back on in our business?’ Here’s what you can claim for, says Zad Butt of Hillier Hopkins The post Claiming back tax appeared first on Small Business UK.

Claiming back tax

By Zad Butt on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

As an accountant, the question I get asked the most is, “What expenses can we put down when it comes to claiming back tax on our business?”. As businesses emerge from the global pandemic and adapt to new ways of working, it is even more important to know what you should be able to claim tax relief on within your business.

When looking through your bank statements to see what expenses you could use when it comes to claiming back tax, the main rule to follow is the “wholly and exclusively rule” which can be applied to self-employed, partnerships and limited company businesses alike. If the expense has been incurred wholly and exclusively for the trade or profession you are in, then you should be able to claim a deduction against your business profits and reduce the amount of tax or national insurance that you would need to pay.

You should be able to easily identify these expenses and they are often the same expenses that you would claim year on year.

>See also: Nearly 300,000 sole traders face increased tax bills

For self-employed and partnership businesses, there are expenses that can be claimed which often get missed where there may be some personal elements, for example, working from home or using your car for business journeys. For those with a limited company, expenses with private elements can be claimed as an employee, with the company reimbursing you and then claiming a deduction in its annual accounts.

For self-employed and partnership businesses claiming back tax, expenses with personal elements need to be apportioned on a just and reasonable basis. For example, hours spent working from home and size of your home office, or number of business miles over the total mileage you have done in a year in your vehicle.

If you work from home, you may be able to claim a proportion of your costs for the following things:

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

If you are using your private vehicle in your business then you can claim the business proportion of your motor running expenses each year, including fuel, repairs, road tax, MOT and insurance. You can also claim capital allowances on the value of your private vehicle when you start to use it in the business. The rate of capital allowance for cars is determined by the CO2 emissions of your car and this will be either 18 per cent or 6 per cent each year on a reducing balance basis. For cars with zero CO2 emissions figure, i.e. fully electric cars, the capital allowances rate will be 100 per cent. Of course, capital allowances for all private vehicles will also need to be adjusted for the private use percentage as well.

>See also: Claiming back childcare costs

Flat rate expenses

HMRC also allow you to claim flat rate expenses, also known as simplified expenses, if you want to avoid doing complex calculations and going through bundles of receipts each year. Simplified expenses if you work from home for more than 25 hours per month are as follows:

How to calculate flat rate expenses

Hours of business use each month   Flat rate per month (£)
20 to 5010
51 to 10018
101 or more26
Source: Hillier Hopkins

Simplified motoring expenses can be claimed for the following.

  • cars
  • goods vehicles (vans)
  • motorcycles

You will need to keep a log of the business mileage and at the end of the tax year work out the mileage claim using the following rates.

How to calculate mileage claim

Vehicle   Flat rate per mile with simplified expenses
Cars and goods vehicles first 10,000 miles45p
Cars and goods vehicles after 10,000 miles25p
Source: Hillier Hopkins

Once you use the above rates for your vehicle, you will need to continue to use them as long as you use the vehicle for your business, i.e. you cannot move from claiming mileage flat rate expense in one year to claiming a proportion of actual motor running costs if they are turn out to be higher in a subsequent year.

On top of the mileage claim you can also claim for all other travel expenses such as train journeys or parking provided, they were “wholly and exclusively” incurred for your business.

Those who have limited companies can also use the above mileage rates to reimburse themselves from their company for using their own private vehicle for the company’s business. They can also reimburse themselves from their company for working from home using HMRC’s flat rate of £6 per week, instead of working out a proportion of actual gas, electricity and metered water expenses. They can also reimburse themselves from the company for any business phone calls including dial-up internet from their home phone line.

Trading allowance

The trading allowance was introduced from the 6th April 2017 for self-employed businesses only and not for partnerships. You must claim this allowance on your tax return and HMRC will not claim a deduction on your behalf – that is why it can get missed if you have not claimed it before.

In any tax year where your actual self-employed business expenses do not exceed £1,000, then instead of claiming your actual expenses you can claim the £1,000 trading allowance against your business income. So, in effect, the first £1,000 of your self-employed income will be tax free and if you have more than one self-employment then you can split the allowance between them.

Zad Butt is a tax manager at accountants

Further reading

Working from home tax breaks

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Overcoming obstacles to start-up success

By Mark Wright on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs How can you avoid your new business being one of the 60% that fail within three years? Mark Wright, winner of The Apprentice, shares his experience The post Overcoming obstacles to start-up success appeared first on Small Business UK.

Overcoming obstacles to start-up success

By Mark Wright on Small Business UK - Advice and Ideas for UK Small Businesses and SMEs

With over 660,000 new businesses registered between 2019-2020 in the UK – which equates to over 70 per hour – it goes without saying that start-ups face some stiff competition on their journey to success.

The Telegraph reported in 2019 that 20 per cent of new ventures will fail within just 12 months of opening their doors, with that figure climbing to 60 per cent within the first three years. In fact, failure is so widespread at the start-up phase that many entrepreneurs have taken to writing a “failure post-mortem” to assess where they went wrong in the hopes that other aspiring entrepreneurs can learn from their mistakes.

Being aware of some of the most common setbacks and obstacles facing a new business is vital for recognising the weak points in your own model, enabling you to do something about them before your start-up becomes part of that growing 60 per cent.

#1- Cement your vision

Start-ups face many challenges in the initial stages, and without a clear vision in mind of where you and your company are heading, you can easily lose motivation.

Defining a mission statement isn’t simply stating what your vision is, but actively laying out the framework to achieving that vision, so you can establish clear goals and start to measure progress. Not only this, a clear vision also acts as a foundation for your entire business, allowing you to develop a strategy for the long-term that engages and unites your staff in what you are working towards and why.

#2 – Take control of cash flow

Poor financial planning is one of the primary reasons so many start-ups fail before they truly get off the ground.

Why? Businesses in their infancy can often appear profitable on paper, but money owed is not the same as money in the bank, and the gap between the delivery of your product or service and receipt of actual payment can leave you in a financially precarious situation.

Without a healthy cashflow and firm grasp of costs incurred, growing and scaling your business, or securing additional funding will be an uphill struggle. Developing strict budgets and cash flow forecasts can help mitigate these issues, enabling you to keep on top of your finances so you can plan for both the short and long-term.

#3 – Build your brand and market your business

The importance of a strong brand identity cannot be overstated. So many start-ups neglect this crucial aspect of their company, when it should be part of their vision from the start. Your brand is what communicates your values and is what will help you build trust and recognition, and effectively tap into your target customer base.

Though a strong brand identity is what will differentiate you from your competition, this is futile without a solid marketing strategy in place to ensure people actually know about your business. Without proper marketing, you might have the best product or service on the market, but your ability to generate leads, acquire clients and ultimately convert them into sales is going to be severely hampered.

Successful companies, no matter their size, understand the importance of both brand identity and marketing. Though start-ups often operate on tight, limited budgets, omitting or severely cutting your marketing budget is always to the detriment of your own business. Instead, look at cost-effective ways to get your product or service out there, or outsource to a marketing provider.

There are plenty of opportunities for small companies to market themselves without breaking the bank, and however you choose to do it, always have a strategy in place, and regularly measure your marketing efforts to track their effectiveness and ensure you are getting a good ROI.

>See also: Why every entrepreneur needs their own mentor

#4 – Hire the right people

Having the right team in place can make or break a business in the early stages, so having a clear idea of the kind of people you want in your business is key. The hiring process can be an arduous one, more so when you have limited capital to spend on personnel, so ensuring you take a discerning approach to your first hires can save a lot of time and resource in the long-run.

Bringing in too many people too quickly can create problems – particularly if you don’t have the cash and income to sustain payroll. In the early days, it’s often better to have a small, dedicated team who understand the vision and direction of the business and can help you establish a positive working culture that will pay dividends in recruitment further down the line.

High rates of staff turnover can also be avoided by establishing clear lines of communication with your employees and ensuring they know what is expected of them from the start while developing a workplace culture that makes them feel appreciated and valued.

#5- Create a scalable business model

The goal of every entrepreneur is to ultimately grow their business into something bigger and better, but growth that your business is not prepared for could be damaging if you don’t have the structure in place to support it. You may find your business is proving to be a success, but don’t let this tempt you into jumping headfirst into scaling without any strategy or plan.

Take the opportunity while your business is still in its infancy to create the structures it needs to scale. By implementing the right procedures and systems in the early stages, you will avoid the headache of playing catch-up later on as your company expands, and without negatively impacting customer service and/or product delivery.

#6 – Never, never give up

Navigating the many pitfalls of building a new business may seem like a daunting task, but resilience and a readiness to change tact when something is not working are hallmarks of a good entrepreneur. And finally – in the words of Winston Churchill – never, never, never give up.

Mark Wright is a winner of BBC’s The Apprentice and director of digital marketing agency Climb Online

More by Mark Wright

5 steps to bolster your business finances

The post Overcoming obstacles to start-up success appeared first on Small Business UK.

Source : UK Small Businesses More   

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