Is there an online guide for self assesment deductions?
Discussion
Somewhere in the vast HMRC website I am sure there are some guidelines as to what can be claimed as expenses. However, please note that, in law, there is no hard and fast list of "business expenditure". The basic rule is that any expenses incurred "wholly and exclusively for the purpose of the trade" will be allowable. It's ariving at what constitutes "wholly and exclusively" that causes the problems.
A basic list of "normal" business expenses would be -
Direct purchases of materials for resale
Wages (and related PAYE/NIC) for staff
Business related motoring costs
Business related travel and subsitence costs
Business telephone
Business premesis costs (rent, business rates repairs etc) - if operating from home, then "Use of Home as Office" would normally replace thses "premises " type expenses
Light and heat
Business related interest charges
Business related bank and credit card charges
Business postage and stationery
Leasing and hiring of equipment for business purposes
Accountancy
Legal costs (within various restrictions)
Business Insurance
"Entertainment" is normally not allowable - even if it is a genuine business cost
Please don't forget that "Capital" items such as motor vehicles and other items of plant and machinery and office equipment cannot be written off in full against the profits of the business. Instead, a tax allowable deduction will be claimed under the Capital Allowance regulations - which vary based on the nature of the asset on which the claims are being made.
There are two ways of claiming motoring costs as an expense. The "old fashioned way" is to simply add up all the costs of running the business vehicle for the year (fuel, insurance, repairs tax etc) and claim the business related element. Capital Allowances can be claimed (within certain restrictions) on the capital value of the vehicle)
Alternatively, all the above can be ignored and a motoring cost based on 40p per mile for the first 10,0000 business miles and 25p per mile on the remaining business miles can be claimed instead.
In both scenarios, knowledge of your annual business/private mileage is needed to work the figures out.
Whether you should be preparing a business balance sheet as well as a simple Profit and Loss account normally depends on the size of your business, The Revenue actually expect to see balance sheets if the annual turnover exceeds £15,000. In reality, they tend not to mind unless the business is more substantial. I tend to prepare balance sheets for my clients with turnovers near to the VAT registration turnover threshold (£61,000).
I note you intend to complete the return "on line". Whatever you do, ensure that -
a) you keep a hard copy of what you submit
b) ensure you get the acknowledgement that the return has been received by the Revenue - I think they send an e-mail confirmation.
These are very important things to do as there is always the chance that they might investigate you and you need to know EXACTLY waht you submitted and how you arrived at the figures. The Revenue acknowledgement will ensure that they cannot claim they never received the return - it has been known to happen.
Finally, filing on line guarantees that you cannot submit all the details the Revenue might need to understand the return so it does increase the risk of a tax investigation. Accountants always submit typed accounts alongside the return together with detailed schedules and computations. The return itself (as designed by the Revenue) is not detailed enough in most cases to enable the taxpayer to fulfill their full legal requirements.
This has been a major stumbling block preventing professional accountants from using the e-filing system.
It has only been from 1 November 2006 (four weeks ago) that electronic versions of these additional schedules can now be submitted alongside the electronic return.
A basic list of "normal" business expenses would be -
Direct purchases of materials for resale
Wages (and related PAYE/NIC) for staff
Business related motoring costs
Business related travel and subsitence costs
Business telephone
Business premesis costs (rent, business rates repairs etc) - if operating from home, then "Use of Home as Office" would normally replace thses "premises " type expenses
Light and heat
Business related interest charges
Business related bank and credit card charges
Business postage and stationery
Leasing and hiring of equipment for business purposes
Accountancy
Legal costs (within various restrictions)
Business Insurance
"Entertainment" is normally not allowable - even if it is a genuine business cost
Please don't forget that "Capital" items such as motor vehicles and other items of plant and machinery and office equipment cannot be written off in full against the profits of the business. Instead, a tax allowable deduction will be claimed under the Capital Allowance regulations - which vary based on the nature of the asset on which the claims are being made.
There are two ways of claiming motoring costs as an expense. The "old fashioned way" is to simply add up all the costs of running the business vehicle for the year (fuel, insurance, repairs tax etc) and claim the business related element. Capital Allowances can be claimed (within certain restrictions) on the capital value of the vehicle)
Alternatively, all the above can be ignored and a motoring cost based on 40p per mile for the first 10,0000 business miles and 25p per mile on the remaining business miles can be claimed instead.
In both scenarios, knowledge of your annual business/private mileage is needed to work the figures out.
Whether you should be preparing a business balance sheet as well as a simple Profit and Loss account normally depends on the size of your business, The Revenue actually expect to see balance sheets if the annual turnover exceeds £15,000. In reality, they tend not to mind unless the business is more substantial. I tend to prepare balance sheets for my clients with turnovers near to the VAT registration turnover threshold (£61,000).
I note you intend to complete the return "on line". Whatever you do, ensure that -
a) you keep a hard copy of what you submit
b) ensure you get the acknowledgement that the return has been received by the Revenue - I think they send an e-mail confirmation.
These are very important things to do as there is always the chance that they might investigate you and you need to know EXACTLY waht you submitted and how you arrived at the figures. The Revenue acknowledgement will ensure that they cannot claim they never received the return - it has been known to happen.
Finally, filing on line guarantees that you cannot submit all the details the Revenue might need to understand the return so it does increase the risk of a tax investigation. Accountants always submit typed accounts alongside the return together with detailed schedules and computations. The return itself (as designed by the Revenue) is not detailed enough in most cases to enable the taxpayer to fulfill their full legal requirements.
This has been a major stumbling block preventing professional accountants from using the e-filing system.
It has only been from 1 November 2006 (four weeks ago) that electronic versions of these additional schedules can now be submitted alongside the electronic return.
Edited by Eric Mc on Wednesday 29th November 08:10
Thanks Eric. You are, as always, going the extra yard!! The issue I have with some of the 'business related interest' expense relates to my property development. The problem I have is that I have more than one 'job'. My TV work is simple - I am a freelance (ie Schedule D) producer and so the income / expenditure stuff is easy. My property developmen tis tougher, as I have had a couple of years of paying out of fees and interest and the projects won't be completed until 2007. Similarly, i have costs associated with the publishing company (of which I am a director) but do note take an income from it.
Can I roll all the income and expenditure from the three distinct areas into one income/expenditure?
Can I roll all the income and expenditure from the three distinct areas into one income/expenditure?
Your affairs sound quite complicated.
You have a sole tradership for your feelance work.
You are into property development
You are the director of a company
They are all three separate and distinct activities and must be shown separately in the Self Assessment tax return
As you suggest, your freelance activities are probably relatively simple and you should be OK if you follow the guidelines I set out in the previous post.
The property development is more problematical. On the assumption that you are properly trading as a property developer, then you should be preparing separate accounts covering this activity. As the figures involved in this are lakely to be "large" (over £100,000 at the very least, it would be correct to complete fuill profit and loss/balance sheet accounts for this activity.
If you have actually bought the property/properties that are being developed, then the purchase of these will be treated as stock in trade, carried forward each year until the year the property/propetrties are sold. Costs incurred in developing these properties are added to the original cost, increasing the value of the stock carried forward until the sale takes place. It is only then that the cost of the property development can be offset against the income arising on the sale. The only costs that could be claimed on an annual basis would be business admin overheads.
Taking all these into account, business losses incurred in any given tax year can be offset against other income arising in the same tax year. Alternatively, the losses can be carried forwqard for offset agaianst future profits FROM THE SAME TRADE ONLY.
Any costs incurred as a director can only be claimed against your directorship income. As this is classed as emplyment income, the nature of the expenses that can be claimed are much more restricted than can be offset againts trading income.
Please note that the terminology "Schedule D" and "Schedule" are is no longer used, although the underlying principles applying to the old "Schedules" still apply.
You have a sole tradership for your feelance work.
You are into property development
You are the director of a company
They are all three separate and distinct activities and must be shown separately in the Self Assessment tax return
As you suggest, your freelance activities are probably relatively simple and you should be OK if you follow the guidelines I set out in the previous post.
The property development is more problematical. On the assumption that you are properly trading as a property developer, then you should be preparing separate accounts covering this activity. As the figures involved in this are lakely to be "large" (over £100,000 at the very least, it would be correct to complete fuill profit and loss/balance sheet accounts for this activity.
If you have actually bought the property/properties that are being developed, then the purchase of these will be treated as stock in trade, carried forward each year until the year the property/propetrties are sold. Costs incurred in developing these properties are added to the original cost, increasing the value of the stock carried forward until the sale takes place. It is only then that the cost of the property development can be offset against the income arising on the sale. The only costs that could be claimed on an annual basis would be business admin overheads.
Taking all these into account, business losses incurred in any given tax year can be offset against other income arising in the same tax year. Alternatively, the losses can be carried forwqard for offset agaianst future profits FROM THE SAME TRADE ONLY.
Any costs incurred as a director can only be claimed against your directorship income. As this is classed as emplyment income, the nature of the expenses that can be claimed are much more restricted than can be offset againts trading income.
Please note that the terminology "Schedule D" and "Schedule" are is no longer used, although the underlying principles applying to the old "Schedules" still apply.
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