Bookkeeping

The May 2021 Facebook live talked about how a bookkeper can help someone to understand where their business is at throughout the year and where they have room to grow so I wanted to add the information into a blog post for you.

Do I need a bookkeeper?

The first question you really need to ask yourself is “Do I need a bookkeeper?” and the answer to this is going to be different for everyone, and it will also be different depending on what point you are at with your business.

For example, if you’ve just started out with your business and haven’t yet got a lot of income coming in, and think you can manage things on your own, you may decide that at this point in time, you do not need a bookkeeper.  Six months down the line business is booming, you are trying to keep on top of orders, and deal with the marketing, and deal with the accounts, and deal with customer queries, and still have time for yourself and your family – you may decide that you need to start outsourcing some items and perhaps getting a bookkeeper is a good idea.

Another question is, “Do I really understand how to correctly record my financial information and am I meeting all of the legal obligations that I need to in terms of submitting information to HMRC or Companies House”?  If you aren’t sure whether what you are doing is correct, it’s time to seek out some help from a bookkeeper.  You will want to ensure that the bookkeeper you choose is someone you can work with, that they are experienced and knowledgeable about the software you would like to use, that they are registered with either a professional bookkeeping body like The Institute of Certified Bookkeepers or The International Association of Bookkeepers or even with HRMC for Anti-Money Laundering Regulations Supervision, and that they are properly insured.  Not everyone that claims to be a bookkeeper is registered for AML supervision and as a regulated profession it is an absolute must that they are.

How can a bookkeeper help me with my business?

By having a bookkeeper, you can be confident that they will be able to provide you with proper support and advice when it comes to how to keep your accounts, what your legal obligations are, and some bookkeepers can also provide you with tax and/or payroll advice.

Here are 5 ways a bookkeeper can help you with your business:

1. Frees up your time – A bookkeeper will be able to help free up the time you would have spent on the accounts meaning you can then put that time to better use by using it to promote your business, helping your customers, or even getting your weekends/evenings back so you can relax.
   
2. The accounts will be done correctly – A qualified bookkeeper will know exactly how the accounts will need to be done.  They will understand how to categorise the money coming in and out of the business, ensure that you have all the receipts attached to the accounts and that your bank accounts have been fully reconciled.  This will in turn help you to have a better understanding of the financial picture of your business but also means that if HMRC checks your accounts, they are less likely to find any mistakes and fine you.
   
3. Gives you a better idea of the financial picture of your business – As the bookkeeper will be ensuring that your accounts are kept up to date on a regular basis, you will have a more accurate picture of the financial situation of the business, meaning you can make important business decisions like whether you can afford to hire new staff or buy a new laptop, or if a marketing campaign worked.
   
4. Improve your cash flow – By keeping the accounts up to date, you will have an accurate picture of who owes you money, and who you owe money to.  This can really help you to have a better handle on your cash flow and ensure that you are being paid by your customers on time, but also that you are paying your suppliers on time.
   
5. Make sure you are meeting your legal obligations – Having a bookkeeper on hand who can help you to ensure your accounts are up to date on a regular basis, will also mean that they can help you with filing your VAT returns on time, which helps you to avoid any fines and can help with ensuring your year-end tax return is ready to be filed way before the deadline, and they can even help you to have an idea of what amount of tax you will owe throughout the year.  They will also be able to ensure that you are meeting your obligations in terms of Making Tax Digital.

Can a bookkeeper really help save me time and money?

The answer is absolutely!

Your time is very valuable, and you have a lot of demands on your time.  Not only do you need to fulfil customer orders and support your clients, but you have to grow your business, deal with ordering stock, managing employees if you have any, dealing with the day-to-day admin, and then you also have responsibilities outside of work!  In the evenings, you spend 30 minutes on your accounts trying to ensure it’s all entered correctly, ensuring every transaction has been accounted for, looking up online how to categorise something, maybe searching online for how to use the accounts software, by the end of the 30 minutes you feel more stressed out and unsure if things have been done right, and you are doing this every single day of the week.  By the end of the week, you have spent 3.5 hours on your accounts when you could have been using that time for something else – either for the business or personally.

A bookkeeper can help you to claw back that time!  Think about how much more time you would have, if all you had to do was provide the receipts and information to the bookkeeper, and they dealt with ensuring that all the information was correctly entered into the accounts?  Think about not only the time you would have saved, but how much less stressed you would be.

This testimonial from a client demonstrates how a bookkeeper can help you. “I no longer need to read (and re-read, and re-read without understanding) all the HMRC regulations. I can clearly see how my business is doing, financially. I know where I am spending too much money for little return so I spend more wisely and effectively on advertising, marketing, training etc. Arianna has advised me on setting up savings accounts so that I can plan how to grow my business further. She has kept me up-to-date with changes in regulations and what it actually means for me personally, my business and my future plans in terms I can understand and apply to my business plan.”

Money – now that is something that all businesses need to be very careful about, especially if they are brand new and still growing.  What happens if you are doing your own accounts and instead of categorising a transaction the way it should, you categorise it wrong and it ends up causing you to have a huge tax bill?  I have had people come to me to do their accounts for them, and while I have been going through and tidying up the accounts, I have come across times where clients have actually categorised transfers of money from their main bank account to the savings account as income which is not correct at all.  If I hadn’t spotted that issue, it could have caused the client to be paying three times the amount of tax they should have due to the inflated income!  I was able to save that client from a huge tax bill.  Another example, a client hadn’t realised that they had paid for a VAT return twice because they hadn’t allocated the first payment correctly within their software.  When they asked me to reconcile their accounts and I realised what had happened, they were able to receive almost £2000 back from HMRC for the duplicate payment.

Bookkeepers often work closely with accountants and while you might think it would be more costly to have a bookkeeper and an accountant, in fact, it’s more efficient from a money perspective and here’s why. Please note that the names and amounts used in the following example are all fictional and just for illustration purposes:

Jane is a bookkeeper. She charges £20 per hour for her services. She gets financial records in order so that they can then be passed on to an accountant, saving the accountant hours of work.

James is an accountant. He works for £50 an hour. When he receives documents from a bookkeeper, his work takes half the time it otherwise would.

Fred is a business owner. He’s currently paying his accountant, James, £200 per month for four hours of his time. James is spending two of those hours doing bookkeeping tasks for £50 an hour, and the other two are spent doing his accountancy work. Fred could cut his costs by working with Jane. She would do those first two hours of work for a total of £40, and Fred would only have to pay £100 to James. Overall, he’d save himself £60 per month.

In summary, having a bookkeeper can be very beneficial for so many different reasons and they really can help you to grow your business.

If you do have an accountant, then make sure you are all working together as a team and collaborating so that every person on the team is able to bring their skills and knowledge to the table and really help you to grow your business.

I love working with my clients, and their accountants, as it allows me to focus on putting all of the bits of information together into a completed picture for the accountant to file the taxes, but also because it really does help my client to see exactly where their business stands and allows them to make those all-important business decisions and grow their business.

If you have any questions about how to enter the pension information into your accounts, feel free to e-mail me and I will get back to you!

The April 2021 Facebook live talked about being self-employed and how to deal with a private pension so I wanted to add the information into a blog post for you.

Do I need a pension?

The answer to this question is not an easy one and it is 100% a personal choice.  If you are self-employed and are paying the NI Class 2 contributions, you will qualify for the basic state pension or the new state pension (which came into play from April 2016), but the state pension may not be enough for you to live on.  The current value of the new State Pension is £179.60/week for the 2021/2022 tax year.

You could start paying into a private pension scheme or look at other ways to invest your money – for example, putting money into an ISA – which you can invest up to £20,000 for the current tax year.  These sorts of things can help you to be able to have an income once you have retired.

If I set up a personal pension, can this be claimed in my accounts?

As a self-employed person, any private pensions that are set up, are not able to be claimed on your accounts.  If you pay for the pension through your business account, it would need to be recorded as Owner’s Equity.  The reason for this is that the pension is not “wholly and exclusively” for business.

If you were an employer, and you had a pension scheme set up for your employees, the pension contributions paid on behalf of the employees would be an allowable business expense and would be recorded in your accounts.

Can I claim my pension contributions on my self-assessment tax return?

Not all pension schemes work the same way.  Most of them work on the basis of the pension provider adding the additional tax relief to the pension contributions you make, meaning that the tax relief is taken care of straight away.  However, if you are paying a higher rate of tax, or have paid in more than the annual allowance, you will need to enter the pension contributions into a special section on the self-assessment tax return.

At the end of the tax year, your pension provider will send you a pension contributions certificate which tells you how much you have paid in contributions through the year where deductions were made after tax.  You then use this information to enter on your self-assessment tax return.  It will be entered in a separate section to your self-employed income. 

When you are filling out your tax return, before you even get to the sections where you start to fill out the numbers, you will be asked a series of questions so that the return can be tailored to the pages you need to submit.  You will need to say that you have made pension contributions and you will then be able to enter the information provided to you in the tax return.

How do I find the best pension?

As a bookkeeper, I am not qualified to provide financial advice in regards to pensions, so I would advise anyone that is looking to sort out a pension scheme – either for themselves or for their employees – to contact a Financial Advisor and speak with them to ensure that the pension is the right one for them.  While I am not able to advise on the pension scheme, I am able to help with how to enter the information into your accounts.

If you have any questions about how to enter the pension information into your accounts, feel free to e-mail me and I will get back to you!

The March 2021 Facebook live talked about Paper Receipts and I wanted to add the information into a blog post for you.

How long do I need to keep my receipts for?

If you are a sole trader, you need to keep your receipts for 5 years.  If you are a limited company, you need to keep them for 6 years.

It is important to note that the date you need to keep your receipts from is not the date your financial year ends, but it is actually January 31^st after the tax year ends.  This takes into consideration that the end of year tax return must be filed by January 31^st of the next year.  For example, for the 2019-2020 tax year, your tax return doesn’t need to be filed until 31/01/2021.  In that instance, you would then be required to keep your records for 5 or 6 years from 31/01/2021.

You might need to keep your receipts for a longer period of time if you filed your return late, have been investigated before by HMRC or are currently under investigation.

There is no guarantee that HMRC won’t ask to see records that go back further as they can investigate any time period over the previous 2 decades – so you may want to store the receipts for a longer period of time.

Do I need to keep paper receipts, or can I digitise them?

It is relatively new that HMRC are now accepting digitised receipts for most items, which means you won’t need to store the paper copies as long as you have got a digitised copy.

With the various cloud-based software, and in line with Making Tax Digital, you can attach the digital copies of all receipts and invoices to the transactions in the accounts meaning that all of your digitised receipts are in one place.

In line with MTD, there are some special items that must be stored digitally in compatible software, but there are some items that HMRC say must still be stored in paper format and they include links like your C79 (Import VAT certificate).

You can read about the rules around MTD and digital record-keeping by reading VAT Notice 700/22 which you can find here. The relevant section you are looking for is section 4 and more specifically section 4.3. However, this does just relate to keeping records in terms of VAT and digital record keeping. As more information is released about MTD for Self-Assessment Income Tax, I will share that information as well.

When do I have to follow MTD?

Currently, in terms of MTD, only those who have had to register for VAT due to reaching the VAT threshold need to follow MTD, but from April 2022 all VAT registered businesses will be required to follow MTD with those businesses who are self employed or landlords that meet the requirements from April 6, 2023.

It would be a good idea to start getting into the habit now in regard to attaching your receipts in a digital format so that by the time you are required to follow MTD you already have all of your processes in place.

You can refer to an earlier blog post I wrote in July 2020 about the updates on Making Tax Digital here.

What else do I need to know?

There are different ways you can digitise your receipts and attach them to your accounts, especially if you are using cloud-based accounts software.  Some software, like QuickBooks Online, has in-built receipt capture software but I do find it quite basic and not as efficient.

You can just scan/photograph your invoices and receipts and attach them to each transaction manually or you could use 3^rd party software like AutoEntry or Receipt Bank to capture your receipts and send them to your accounts software.  My personal favourite is AutoEntry, and I use this with all of my VAT clients.  It makes capturing the various purchase invoices and receipts and getting them entered into the accounts software more efficient.  Especially the auto scrape feature which can be used to automatically retrieve invoices from many different suppliers.

If you have any questions about what to do with your receipts or about your accounts, feel free to e-mail me and I will get back to you!

On Wednesday, March 3rd, 2021, Rishi Sunak, Chancellor for the UK unveiled the budget for this year. Continued support for businesses dealing with the effects of Covid was the main focus, with plans for the recovery of the economy. I won’t be going through every aspect of the budget but will highlight some of the key points that affect businesses. As always, as further information is related I will provide more updates both on the blog and the Ihelm Enterprises FB Page.

1) Coronavirus Job Support Scheme

The Job Retention Scheme that has helped employers throughout the pandemic is being extended to Sept 30, 2021 and employees will continue to receive 80% of their unworked wages (up to £2,500) but the amount employers must contribute will change.

From July 1st, 2021 the amount the scheme covers will be reduced and the amount employers contribute will increase.

July 2021 – 70% of wages (up to £2187.50) covered
– employers must pay 10% (up to £312.50) of hours not worked

August and Sept 2021 – 60% of wages (up to £1875) covered
– employers must pay 20% (up to £625) of hours not worked

Employees will continue to receive 80% of the wages for hours not worked until the end of the scheme.

Any employees that were employed and on your payroll as of March 2nd, 2021 (ie you have made an RTI Submission for them between March 20, 2020 and March 2nd, 2021) can be included in any claims from May 1st, 2021 onwards.

Read here for changes to the scheme: https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme

This is the main page for the JRS: https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme

2) Self-Employed Income Support Scheme

Further information about the fourth grant has now been published as well as news of a fifth grant being made available, bringing the support inline with the Job Retention Scheme.

The fourth grant will pay out 80% of 3 months’ average trading profits up to £7,500. The grant will also take into consideration the 2019/2020 tax return, meaning those who became self-employed during the 2019/2020 tax year are now eligible for this grant! The rest of the eligibility criteria is still the same.

This means that HMRC will now include your 2019/2020 tax return when calculating your average trading profits, so if you received the other grants it could mean you receive a different amount compared to before.

You will need to have traded in both the 2019/2020 and 2020/2021 tax years and submitted your 2019/2020 tax return by March 2nd, 2021. The grant will be available from late April 2021 to May 31, 2021 and if you are eligible, HMRC will contact you in mid-April.

The fifth grant will cover the period May 2021 to September 2021 and it will be based on how much your turnover has reduced in the year April 2020 to April 2021. It will be worth 80% of 3 months average trading profits up to £7,500 for any business with a reduction in turnover of 30% or more and 30% of 3 months average trading profits up to £2,850 for those with a turnover reduction of less than 30%.

For more information read here: https://www.gov.uk/government/publications/self-employment-income-support-scheme-grant-extension/self-employment-income-support-scheme-grant-extension

3) New Restart Grant

A scheme that will help businesses to restart after being in lockdown has been announced. It will be a one-off grant of up to £18,000 and only available to those businesses that have not been allowed to trade normally due to lockdown restrictions. This includes non-essential retail shops, restaurants, hotels, personal care businesses, the leisure sector and other businesses that were forced to close.

Non-essential retailers will receive up to £6,000 while those in the hospitality, personal care and leisure sectors will receive up to £18,000.

The grant will be provided by local authorities. The new scheme replaces two other local support schemes that had been set up and that close at the end of March 2021.

At the time of writing, I haven’t been able to find any additional information about these grants on the UK Government website, but I will share it as soon as I do.

4) Recovery Loan Scheme

This is a new loan scheme that will be accessible to any business within the UK, no matter their size. The loans will be for between £25,001 and £10 million, and asset and invoice finance between £1,000 and £10 million. The new loan scheme will launch in April 2021 and replace the current BBL and CBIL schemes. Further details are supposed to be released in the next few weeks and as this information is made available I will share it.

5) VAT Cut Extended

The VAT cut to 5% for hospitality, accommodation and attractions will now continue until the end of September 2021. The rate will then be increased to 12.5% until March 31, 2022.

6) Business Rate Relief

The business rates relief has been extended until the end of June 2021. At that point in time, rates will be discounted to 1/3 of the normal charge for a further 6 months up to a value of £2 million for all businesses that have been forced to close this year.

7) Corporation Tax

An increase of corporation tax up to 25% will be put in place from 2023 and affect businesses with profits of £250,000 or more. Businesses with profits of £50,000 or less will continue to be taxed at 19% while businesses with profits between £50,000 and £250,000 will be taxed using a tapered rate. As more information is released, I will share it with you.

8) Income Tax Personal Allowance

After the increase of the personal allowance in April 2021 to £12,570 per year, the rates will be frozen until April 2026. This will mean that as people’s income increases, more people will move into the higher tax brackets.

The 2021-2022 National Insurance Contributions threshold will increase – the primary threshold/lower profits limit to £9,568 and the upper earnings limit to £50,270. The UEL will then stay the same until April 2026.

There are many other items that have been announced with the budget, but I am not going to cover them. You can read the announcements made yesterday here: https://www.gov.uk/government/news/budget-2021-what-you-need-to-know.

As more information is released, I will continue to share it within the blog posts and on the Ihelm Social Media platforms.

This post has been updated and the new post can be found here: https://www.ihelm-enterprises.co.uk/vat-and-your-business/

This blog post is going to talk about VAT – what the threshold is, the basics of it and how it affects your tax returns. It won’t cover how to use the different VAT codes, go into detail about the different VAT schemes or how to file your VAT return.

What is VAT?

It is value-added tax and it’s charged on pretty much everything you buy within the UK.  Most prices will be displayed including VAT, or it will state whether it is excluding VAT.  Different products/services can have different rates of VAT.  For the consumer, it will only affect you in terms of the price you pay.  However, if you are a business, you might have to register for VAT, track the VAT you charge and pay, submit your returns to HMRC on a regular basis, and then pay them the VAT that is owed.  The VAT that is charged on your sales does not belong to you – it is a tax that you are collecting on behalf of HMRC.

When do I need to register for VAT?

For the majority of businesses, you won’t need to register for VAT unless your income (your sales) reaches the threshold set by HMRC.  The current threshold as of 31/01/2021 is £85,000.  It is calculated on a rolling 12-month period, so you need to be aware of what value your sales are at continuously so you can register if you need to.  Once you reach the threshold, you will have 30 days after the end of the month in which you reached that threshold, to register with HMRC.

What happens once I register?

As I mentioned in the introduction, there are several different schemes, but the main ones are the Accrual scheme where you would record the VAT for all your sales and purchases as of the invoice date, the Cash VAT scheme where you would record the VAT for all of your sales and purchases as of the date they were paid, and the Flat Rate Scheme which is where the amount of VAT a business pays is a fixed rate and is only based on your sales.

After you are registered, you will receive your VAT registration number from HMRC and you must display this on all your invoices and sales receipts that you issue to your customers, record the VAT on your sales and purchases, add VAT to your prices, file your VAT returns as instructed and pay any VAT due to HMRC, keep digital VAT records and a VAT account.

The amount of VAT you will pay to HMRC each time you submit your VAT return will depend on which scheme you are using and whether you charged more VAT on your sales than you reclaimed on your purchases.

It is advisable that when you register for VAT, you set up a business savings account so that you are holding back 10-15% of the amount you are paid for sales, and you will then be able to pay any VAT you owe to HMRC.  This is because the amount of VAT you are paid by your customers doesn’t belong to you, it is money that is owed to HMRC that you are collecting on their behalf.  Normally, you would charge your customers 20% VAT which is the standard rate, but you would also have purchases that you have paid VAT on, so by setting aside 10-15% of the amount you are paid for sales, you won’t then be scrambling at the end of each quarter to find the money to pay HMRC as you will have saved at least some of what you may owe to them.

How often you have to file your VAT return and when by will depend upon the scheme you are using and when you registered, usually it is once every quarter and you will have 1 month plus 7 days to file and pay your return.  For example, if you had to file a VAT return that covered April to June, you would have until August 7^th to file the return and pay any amount due to HMRC.

How do I record the VAT on sales and purchases?

The easiest way to record your VAT and to be able to submit your returns is to use MTD compliant software like QuickBooks Online to help you to track the amount of VAT you owe to HMRC and to submit the return.  All VAT returns must be submitted online using MTD compliant software.  This will also help you with recording your transactions digitally as you will be able to attach proof of what each transaction is for.  You can do this within QBO or use third-party software like AutoEntry to help with entering the information into QBO and storing your digital receipts.

How does VAT affect my self-assessment and corporation tax returns?

As VAT is money you are collecting on behalf of HMRC and it is owed to them, if you are VAT registered the VAT portion of your sales and purchases are not included within your tax returns and are not included in the calculations of how much tax you owe.  These figures are actually shown on the balance sheet as money owed to a creditor.

What else do I need to know?

The majority of products and services will have the standard VAT rate charged, but there are also items that are zero-rated or even exempt, which you will need to be aware of.  You will also need to be aware of how to record any items that are bought or sold to people who live outside of the UK, as the way they are treated is different – especially now that Brexit has happened.  HMRC have many pages about the different VAT rates and how to treat items, so you can read about the different rules on there. However, if you are VAT registered, it is a good idea to have an accountant who can help you to know how to deal with anything that does not follow the standard VAT rules, especially if you are dealing with importing/exporting products with the EU.

While I am a bookkeeper and understand the fundamentals of VAT and how it is to be dealt with, some areas like dealing with importing/exporting products with the EU are quite specialist areas, so I always work closely with a client’s accountant to make sure we are recording the information within the accounts correctly.

If you would like further information on VAT and whether you need to register, feel free to e-mail me.

Things have been a bit quiet about Making Tax Digital and the timescales that had been announced have been delayed and even paused due to the Covid-19 pandemic. However, the government made an announcement on July 21, 2020, and provided some new timelines for going forward with MTD.

What is Making Tax Digital?

Making Tax Digital (MTD) is the government’s plan to make it easier for individuals and businesses to know what tax they have to pay before the end of the year. Businesses will need to submit their tax information to HMRC digitally.

What’s the latest on MTD?

Currently, only those businesses that have had to register for VAT due to reaching the £85,000 turnover threshold, have had to file their VAT returns through MTD. Live pilots have been continuing to be run to help HMRC get the system in place for the remaining taxes.

HMRC are going to be ready to continue with getting all businesses and individuals filing their taxes through MTD starting with those businesses who have voluntarily registered for VAT. From April 2022 all VAT registered businesses will need to file their returns through MTD. In April 2023, all self-employed businesses and landlords with business turnover above £10,000, will need to follow MTD for filing tax returns and they will need to do this quarterly.

How can I get ready for MTD?

Even if you don’t need to file your taxes with HMRC through MTD yet, you can start to get prepared so that when you do need to follow the guidelines, you are already up and running.

1) Start using MTD Compliant software like QuickBooks Online – now.

Keep your accounts on MTD compliant software so that you know the software will be able to file your tax information with HMRC without needing to use bridging software, or change how you do your accounts. This will help to reduce your stress and panic, because by the time you need to file your taxes with HMRC through MTD, you are confident in using the software and already all set up.

2) Get into the habit now of attaching copies of invoices/receipts to your transactions within the accounts software.

Part of following MTD and filing your accounts, is ensuring that you are sending digital information to HMRC – they will no longer accept paper records. You need to have all of your transactions digitally, and have an audit trail for what those items are. You can do this by ensuring that you attach a copy of any invoices/receipts to each transaction in the software. Depending on your accounts software, you can often take photos with the app on your phone/tablet, enter a small amount of information and save it – this then puts the transaction into your accounts and attaches a physical copy of the invoice/receipt to it. You can also use a third party software like AutoEntry which will not only attach a physical copy of the invoice/receipt to your transactions, but it also stores your paperwork digitally for you! By ensuring you are attaching a physical copy of the invoices/receipts to your transactions, you won’t need to store the paperwork, because you will have a copy stored digitally.

3) Keep watching for announcements!

This is probably the simplest of the steps, and the easiest one to do. Keep an eye on our Facebook page and our blog as we will share any further updates about Making Tax Digital so that you know when you need to start following the guidelines. You can find our Facebook page here: https://www.facebook.com/ihelmenterprises.

Now that you have registered as self-employed and your business is up and running, it is very important that you ensure you are keeping track of your sales and expenses.  However, it isn’t as straight forward as keeping track of all the money coming in and going out of the business.  You need to make sure that you are only claiming for those expenses that HMRC recognise as allowable expenses, as otherwise, you could end up with unexpected fines.

There is a lot of information out there about what expenses a self-employed person can claim through the business and the HMRC website does have a pretty comprehensive set of articles on this topic.  I wanted to be able to give business owners an overview of what can be claimed to get them started.  If you are unsure as to whether something can be claimed as an allowable business expense or not, contact HMRC or your accountant or bookkeeper.

For the most part, the majority of business expenses can be claimed on your self-assessment.  There may be some expenses that you enter into the accounts for accounting purposes but then need to discount for tax purposes – ie. Depreciation of assets, entertainment costs relating to clients/suppliers/customers or charitable donations.  The main thing you need to keep in mind is that the expense is “wholly and exclusively” for business use.

Some of the expenses are straightforward to deal with.  You simply enter them straight into your accounts as long as they are for the business.  They include:

• Stationery
• Printing costs
• Postage
• Advertising
• Computer software
• Business premises expenses: rent, utility bills, insurance
• Staff costs: salaries, NI contributions, PAYE, pension contributions
• Legal and professional costs: accountants, solicitors
• Purchase of stock or raw materials and other associated costs
• Business insurance
• Membership to trade/professional bodies relevant to your business

There are then some types of expenses that aren’t as straight forward.

Travel:

While you can claim for business-related car/van costs like insurance, fuel and repairs – you would only be able to claim for the business portion and no personal use at all, so you would need to work out exactly what your business use is, which can be difficult to calculate.

Instead, you can use the simplified vehicle expenses from HMRC which is a flat rate per mile.  This would cover your costs for your vehicle.  If you use this method, you do need to keep using it until you have stopped using the vehicle.  In order to claim the fate rate, you will need to track your business mileage and have a record of it.

The current rates are (as of 06/04/2020):
Cars and Goods Vehicles (first 10,000 miles) £0.45p/mile
Cars and Goods Vehicles (over 10,000 miles) £0.25p/mile
Motorcycles £0.24p/mile

You can claim for all public transport costs – but only for the business portion, so if you take a journey that is not “wholly and exclusively” for business, you will need to separate out the business portion.

The same applies to hotels and meals.

It is very important to note that you cannot claim for travel between home and your main place of work.

Clothing:

There are very strict rules when it comes to claiming for clothing and this is down to the “wholly and exclusively” rule.  You can claim for uniforms, protective clothing needed for work, and costumes for actors or entertainers.  If the clothes are not branded with your logo or they could be worn outside of work, you cannot claim these costs on your self-assessment.

Use of Home:

The majority of sole traders work from home and therefore will want to be able to claim for a portion of the household bills.  The easiest way to do this is to use the simplified expenses that HMRC have set-up.  This method can only be used for those who work at least 25 hours or more a month from home.

Hours of business use/month	Rate/month
25-50	£10
51-100	£18
101 and up	£26

The other method is more complicated and you would need to calculate out the proportion of business use for your home.

These methods only cover things like gas, electricity, mortgage and council tax.

Telephone and Internet:

There are quite strict rules when it comes to claiming for the telephone and internet use when you are self-employed and work from home.

If the telephone/mobile is used for both personal and business purposes, you can’t claim for line rental and can only claim for business calls if they are identifiable on the bill.  With the way phone packages work nowadays it can be quite difficult to prove what is a legitimate business expense.  A way around it would be to get a completely separate phone line for the business so you are able to claim 100% of the costs.

The same applies to the internet – you need to work out the proportion of the business use and only claim that percentage of the bill. One way is to work out how many hours per month you work from home.  Ie. Monday to Friday 9 am to 5 pm – so 8 hours a day, 5 days a week which is 40 hours/week and 160 hours/month (in a 4-week month).  There are 672 hours in a month, so the percentage of the internet bill you could claim would be 23.81%.

This is only a brief guide to help get you on-track.  If you are unsure about whether an expense is tax allowable, I would encourage you to speak to HMRC or your accountant/bookkeeper.