Tax return question - net profit
Discussion
What's the minimum of expenses I would need to show to keep HMRC happy on a sole trader tax return?
Based on what my accountant did last time, I assuming my net profit is simply gross profit minus:
So:
1) Is there anything else I would need to show as a bare minimum of expenses?
2) Do I include VAT on the goods and services? Presumably I give the full upfront cost (i.e. if a printer cartridge is £20 on the shelf that's what I put down, it's not a percentage figure or anything odd like that?)
3) What's the lowest rate I can use for mileage? I think my accountant charged it at 10p/mile last time - presumably as a token figure to show there was activity taking place
Incidentally, if anyone is wondering why someone so clearly financially inept isn't leaving this to his accountant... I did send him all the figures a fortnight ago and explained it was an urgent thing to support a meeting with the broker. He now appears to have gone on holiday for the next fortnight and is likely to be my ex-accountant when he returns, so if anyone reading this is a chartered accountant specialising in sole traders feel free to drop me your details.
Based on what my accountant did last time, I assuming my net profit is simply gross profit minus:
- Cost of goods and services to the business
- Mileage
So:
1) Is there anything else I would need to show as a bare minimum of expenses?
2) Do I include VAT on the goods and services? Presumably I give the full upfront cost (i.e. if a printer cartridge is £20 on the shelf that's what I put down, it's not a percentage figure or anything odd like that?)
3) What's the lowest rate I can use for mileage? I think my accountant charged it at 10p/mile last time - presumably as a token figure to show there was activity taking place
Incidentally, if anyone is wondering why someone so clearly financially inept isn't leaving this to his accountant... I did send him all the figures a fortnight ago and explained it was an urgent thing to support a meeting with the broker. He now appears to have gone on holiday for the next fortnight and is likely to be my ex-accountant when he returns, so if anyone reading this is a chartered accountant specialising in sole traders feel free to drop me your details.
thebraketester said:
Minimum? I wouldn't worry about minimum. If you claim for very little, you'll be paying more tax.... I cannot see them grumbling about that.
That was my thinking, but my accountant insisted on submitting some degree of expenditure so it didn't look out of the ordinary to HMRC. Like I say, my overheads are virtually non-existent anyway - and as you mention, this way I will give them more money - so there's nothing dodgy as such.I will get a proper accountant to go over the figures before I actually submit anything, I'd just like a bit of advice on how I could generate a realistic estimate in the meantime.
HMRC expects you to tell the truth. So, if you have legitimate business related costs - claim them.
Your accountant should elaborate on what can be claimed.
However, if you decide you want to pay more more tax and Class 4 NI than you really have to, that's your choice.
Don't forget, accounts are not just for tax purposes. How do you know if your business is worthwile if you aren't bothering to account properly for the costs the business is incurring.
Your accountant should elaborate on what can be claimed.
However, if you decide you want to pay more more tax and Class 4 NI than you really have to, that's your choice.
Don't forget, accounts are not just for tax purposes. How do you know if your business is worthwile if you aren't bothering to account properly for the costs the business is incurring.
Eric Mc said:
HMRC expects you to tell the truth. So, if you have legitimate business related costs - claim them.
Your accountant should elaborate on what can be claimed.
However, if you decide you want to pay more more tax and Class 4 NI than you really have to, that's your choice.
Don't forget, accounts are not just for tax purposes. How do you know if your business is worthwile if you aren't bothering to account properly for the costs the business is incurring.
He's not around to "elaborate on what can be claimed" which is why I'm asking if anyone can help me calculate my own estimate. Rest assured, I will get someone who knows what they're doing to do the final figures.Your accountant should elaborate on what can be claimed.
However, if you decide you want to pay more more tax and Class 4 NI than you really have to, that's your choice.
Don't forget, accounts are not just for tax purposes. How do you know if your business is worthwile if you aren't bothering to account properly for the costs the business is incurring.
My accountant is a fellow of Institute of Chartered Accountants and was more than happy to submit my previous tax return on this basis. All the basic costs are reflected, I just asked him to minimise the expenses where it was acceptable to do so. I'm doing this for a mortgage application.
All the above is moot, to be honest. I'm not looking to debate the wisdom of what I'm doing.
To simplify the questions:
1) Do I include VAT on the expenses for goods and services? (I'm not VAT registered, so I presume I just put the full receipt price down?)
2) Under instruction to minimise expenses, my accountant put mileage through at 10p/mile. I think, it certainly wasn't the full 45p/mile allowed by HMRC. Is there any significance to this figure (like a minimum amount set by HMRC or something)?
3) Are costs and mileage just a straightforward subtraction from the gross figure? I take it there aren't any convoluted rules where I only deduct costs after a certain threshold or charge a percentage or anything like that?
Do you prepare accounts purely for tax return purposes or, as a person who in business normally would be expected to do, prepare annual accounts as part of your normal business procedures.
Accounts are not just a tax exercise. They are part of business management.
Regarding your specific questions -
If you are not VAT registered, then the costs your business incurs are the full VAT inclusive value of those costs and therefore the VAT inclusive cost is what you must show in the accounts.
Regarding motoring costs. Normal procedure for a business is to claim the actual costs of business motoring i.e the actual cost of fuel, maintenance, repairs, tax, insurance etc.
Businesses also claim depreciation on the vehicles in the accounts. HMRC substitute Capital Allowances for depreciation in the tax computations when arriving at the actual taxable profit of the business.
HMRC also expects a business to apportion motoring costs between business and private usage in the tax computation ensuring that only the business element is actually cl;aimed as a deduction for tax purposes.
The private/business use split is arrived at by comparing annual business mileage versus annual private mileage.
To make life simpler for smaller sole traders, HMRC will accept a 45p per mile claim to cover business miles. This removes the need to keep detailed motor related expense details - although an accurate mileage record will still need to be maintained so that the correct amount is claimed.
The 45p rate is based on discussions and agreements with motoring bodies and is accepted as being correct for current motoring costs. It's actually a few years old and should really be raised.
10p per mile would be looked on as too low really - but as I said earlier, if you want to pay too much tax, that's your choice.
the 45p per mile rate applies to business miles up to 10,000. Miles exceeding 10,000 are claimed at 25p.
Accounts are not just a tax exercise. They are part of business management.
Regarding your specific questions -
If you are not VAT registered, then the costs your business incurs are the full VAT inclusive value of those costs and therefore the VAT inclusive cost is what you must show in the accounts.
Regarding motoring costs. Normal procedure for a business is to claim the actual costs of business motoring i.e the actual cost of fuel, maintenance, repairs, tax, insurance etc.
Businesses also claim depreciation on the vehicles in the accounts. HMRC substitute Capital Allowances for depreciation in the tax computations when arriving at the actual taxable profit of the business.
HMRC also expects a business to apportion motoring costs between business and private usage in the tax computation ensuring that only the business element is actually cl;aimed as a deduction for tax purposes.
The private/business use split is arrived at by comparing annual business mileage versus annual private mileage.
To make life simpler for smaller sole traders, HMRC will accept a 45p per mile claim to cover business miles. This removes the need to keep detailed motor related expense details - although an accurate mileage record will still need to be maintained so that the correct amount is claimed.
The 45p rate is based on discussions and agreements with motoring bodies and is accepted as being correct for current motoring costs. It's actually a few years old and should really be raised.
10p per mile would be looked on as too low really - but as I said earlier, if you want to pay too much tax, that's your choice.
the 45p per mile rate applies to business miles up to 10,000. Miles exceeding 10,000 are claimed at 25p.
Surely continuity and consistency comes in somewhere?
ie this year you should be accounting for things in the same way you did last year and the same way you will next year.
I would have thought that you're more likely to raise HMRC questions if last year you made £20k, this year £50k ( mortgage co application) and next year £25k.
IANAA BTW
ie this year you should be accounting for things in the same way you did last year and the same way you will next year.
I would have thought that you're more likely to raise HMRC questions if last year you made £20k, this year £50k ( mortgage co application) and next year £25k.
IANAA BTW
Marcellus said:
Surely continuity and consistency comes in somewhere?
ie this year you should be accounting for things in the same way you did last year and the same way you will next year.
I would have thought that you're more likely to raise HMRC questions if last year you made £20k, this year £50k ( mortgage co application) and next year £25k.
IANAA BTW
True. We applied exactly the same process when we did the 2015-2016 tax return back in January.ie this year you should be accounting for things in the same way you did last year and the same way you will next year.
I would have thought that you're more likely to raise HMRC questions if last year you made £20k, this year £50k ( mortgage co application) and next year £25k.
IANAA BTW
This year is going to show a substantial increase, but that's largely because last year was my first year of trading and I started a couple of months into the tax year.
Fortunately 'said accountant discovered the documents he'd meant to send me in his outbox, so it's all been sorted professionally now. Panic over.
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