Self Employed Tax Allowances 3

Basically when you are self employed you spend money on 3 types of expense:

1. Capital Expenditure – Equipment & Vehicles

2. Business Expenditure – stock, wages, premises

3. Private Expenditure – day to day living expenses – mostly not allowed but some types of cost may still count as business expenses

In general its types 1 and 3 where sole traders and partnerships miss out on tax allowances.

For example, you could claim capital allowances on your car,

Example: If you are self-employed, you pay Income Tax and your accounts are drawn up for the year to 5 April 2011 and you spent £20,000 on a car that you use 100 per cent for your business that has CO2 emissions of 165g/km, the calculation is as follows:

Cost of car = £20,000
Writing-down allowance deducted (£20,000 x 10 per cent) = £2,000
Value to carry forward = £18,000
Capital allowance you can claim = £2,000

If you use your car partly for private and partly for business you simply disallow a % for private use.

On other assets there is an Annual Investment Allowance which is currently £100,000 per year but will drop to £25000 in April 2012.

For most business that will cover all their capital expenditure, but there are further allowances available too.

With regard to private expenditure, there are tax reliefs available for working from home

http://www.hmrc.gov.uk/incometax/relief-household.htm

If you have to spend money on tools or specialist clothing for your job you may be entitled to either:

  • tax relief for the actual amounts you spend
  • a ‘flat rate deduction’

http://www.hmrc.gov.uk/manuals/eimanual/eim32712.htm

steve@bicknells.net

How to claim tax relief for employment expenses 4

As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

steve@bicknells.net

 

Telephone

Self Assessment

Help and advice for customers completing their tax return and supplementary pages, or who need general advice about Self Assessment
Please have your Unique Taxpayer Reference number with you when you phone
Opening hours
8.00 am to 8.00 pm, Monday to Friday
8.00 am to 4.00 pm Saturday
Closed Sundays, Christmas Day, Boxing Day and New Year’s Day
0845 900 0444

Tax Refund for Business Mileage 5

Many employers pay their employees expenses for business mileage, but often the amount they pay is below the HMRC approved rates shown below.

If your employer pays at rates below the HMRC Approved Rates you can claim tax relief on the difference, this can add up to a lot of money particularly for site based staff who can count travel to temporary places of work as business travel or for workers who’s place of work is their home.

You can claim the tax relief via your self assessment return or by writing to HMRC.

steve@bicknells.net

Travel – mileage and fuel allowances

Approved mileage rates
From 2002/03 to 2010/11 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 40p 25p
Motor cycles 24p 24p
Bicycles 20p 20p
Approved mileage rates
From 2011/12 First 10,000 business miles in the tax year Each business mile over 10,000 in the tax year
Cars and vans 45p 25p
Motor cycles 24p 24p
Bicycles 20p 20p

 

How cash accounting can improve your cashflow Reply

Cash Accounting is a VAT scheme and it will improve your cashflow if your customers pay more slowly than you pay your suppliers and other costs. For example if your clients pay on 60 to 90 day terms and you pay suppliers on 30 days then VAT Cash Accounting should work in your favour. When you use Cash Accounting you pay VAT based on money received and money paid (so you exclude customers who havent paid).

You can use the Cash Accounting Scheme if your estimated VAT taxable turnover during the next tax year is not more than £1.35 million.

Once you start to use cash accounting, you can continue to do so until your VAT taxable turnover reaches £1.6 million.

You can use Cash Accounting with other VAT Schemes, for example the Flat Rate Scheme.

You do not need to complete an application form or advise HM Revenue & Customs (HMRC) to start using the Cash Accounting Scheme.

You can start using the Cash Accounting Scheme at the beginning of any VAT period if you are already registered for VAT

Why pay VAT before you need to?

steve@bicknells.net

Cut your Income Tax by 50% from April 2012 – Start a New Business 12

As part of the Autumn Statement, the George Osborne annouced:

From April 2012, anyone investing up to £100,000 in a new start-up business will be eligible for income tax relief of 50%. In 2012, any tax on capital gains invested in such businesses will also be waived.

http://www.bbc.co.uk/news/business-15937366

This has to great news for new businesses planned to start up next year as every new business has demand for some level of investment.

steve@bicknells.net

Simplify your Payroll Year End with Dispensations 2

Dispensations are granted by HMRC for expenses and benefits and remove the need for P11D’s and P9D’s.

The main expenses routinely covered by a dispensation are:

  • travel, including subsistence costs associated with business travel
  • fuel for company cars
  • hire car costs
  • telephones
  • business entertainment expenses
  • credit cards used for business
  • fees and subscriptions

Provided you have someone checking expense claims and the claims arent excessive, you wont need receipts.

Its worth getting your dispensations now rather than applying in the new year as if you dont get them before April you will end up filling in P11D’s and P9D’s.

steve@bicknells.net

Have a party! £150 per head is tax free 4

Its will soon be Christmas and its definitely party season, did you know that you can spend £150 per head per year on parties and functions and its not a taxable benefit to the employee and you can reclaim the VAT on entertaining employees.

You can have multiple events, the exact rules are

http://www.hmrc.gov.uk/manuals/eimanual/eim21690.htm

So what are you waiting for? book up now or if you’re a small business you could even hold the party at your home

steve@bicknells.net

Salary Sacrifice could save 45.8% in Tax and NI – how does it work? 10

Most employees pay 20% tax, 12% Ees NI and their employer pays 13.8% NI, so thats a total tax of 45.8% on employment income.

 

There are a range of tax and NI free benefits, for example childcare vouchers, where £55 per week can be paid by the employer, so lets use that as an example, using the calculator

http://listentotaxman.com/index.php

An employee earning £30k a year gets

 Wage Summary  Yearly  Monthly  Week
Gross Pay £30,000.00 £2,500.00 £576.92
Tax free Allowances £7,475.00 £622.92 £143.75
Total taxable £22,525.00 £1,877.08 £433.17
xTax due £4,505.00 £375.42 £86.63
National Insurance £2,732.64 £227.72 £52.55
Total Deductions £7,237.64 £603.14 £139.19
Net Wage £22,762.36 £1,896.86 £437.74
Employers NI £3,164.06 £263.67 £60.85

 

 

 

 

 

 

 

Total Tax and NI = £10401.70

If they use Salary Sacrifice for £55 x52 = £2860, new salary would be £27140

 Wage Summary  Yearly  Monthly  Week
Gross Pay £27,140.00 £2,261.67 £521.92
Tax free Allowances £7,475.00 £622.92 £143.75
Total taxable £19,665.00 £1,638.75 £378.17
xTax due £3,933.00 £327.75 £75.63
National Insurance £2,389.44 £199.12 £45.95
Total Deductions £6,322.44 £526.87 £121.59
Net Wage £20,817.56 £1,734.80 £400.34
Employers NI £2,769.38 £230.78 £53.26

 

 

 

 

 

 

 

Total Tax and NI = £9091.82

A saving of £1309.98 (45.8% of £2860)

For saves on this scale should you be looking at Salary Sacrifice schemes for your employees,I have seen schemes where it can be applied to a wide variety of things from Pensions to Cars

steve@bicknells.net

Holiday Pay without any National Insurance to pay 1

There is a special concession which ends on 30th October 2012 which allows holiday pay to be paid without the Employee or the Employer paying any National Insurance.

Its been used in the Construction Industry for years and orginally employees had physical cards and collected stamps, it much easier now with companies like B&CE doing all the work for you.

Check to see if your business sector qualifies

http://www.bandce.co.uk//downloads/niFurtherInfo.pdf

http://www.hmrc.gov.uk/paye/payroll/special-pay/holiday.htm#x4

steve@bicknells.net

200% Tax Relief for R&D, could your business claim it? Reply

All companies spending at least £10,000 in their accounting year on qualifying R&D are entitled to claim a deduction when calculating their taxable profits of:

  • 175% of qualifying expenditure for SMEs in respect of expenditure incurred on or after 1 August 2008 rising to 200% from April 2011 and 225% from April 2012, subject to EU approval under the State aid rule

or

  • 130% of qualifying expenditure for larger companies until 31 March 2008

http://www.bis.gov.uk/policies/innovation/business-support/rd-tax-credits/about#6

Companies can claim R&D tax credits for their revenue expenditure on:

  • employing staff directly and actively engaged in carrying out R&D
  • paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D
  • consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D)
  • power, water, fuel and computer software used directly in carrying out R&D

Lots of businesses carry out R&D and never claim, so why not see if your R&D qualifies?

Steve@bicknells.net