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Simplified Expenses – Working From Home

Beautiful young woman with coffee using laptop in the kitchen

Most people working from home were claiming the £4 per week allowance based on HMRC guidance, but this has now been updated for the self employed.

You can now calculate your allowable expenses using a flat rate based on the hours you work from home each month.

This means you don’t have to work out the proportion of personal and business use for your home, eg how much of your utility bills are for business.

The flat rate doesn’t include telephone or internet expenses. You can claim the business proportion of these bills by working out the actual costs.

You can only use simplified expenses if you work for 25 hours or more a month from home.

Hours of business use per month Flat rate per month
25 to 50 £10
51 to 100 £18
101 and more £26

Example

You worked 40 hours from home for 10 months, but worked 60 hours during 2 particular months:

10 months x £10 = £100
2 months x £18 = £36

Total you can claim = £136

Use the simplified expenses checker to compare what you can claim using simplified expenses with what you can claim by working out the actual costs.

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

Alternatively you could claim you can claim a proportion (based on the number of rooms and hours of business use) of your household expenses

  • Mortgage interest or rent
  • Council tax
  • Water rates
  • Repairs and maintenance
  • Building and contents insurance
  • Electricity
  • Gas, oil or other heating costs
  • Cleaning
  • Telephone (based on usage)
  • Broadband

You can draw up a home rental agreement to reclaim these costs.

The Rental Agreement can be very basic, it just needs to show:

  • The Parties – Employee, Company, Home Office Address
  • The agreement is for use of the accommodation, furniture etc (‘the Home Office’)
  • The hours it will be used
  • The rental charge

or your could use an agreement like this one

https://www.rocketlawyer.co.uk/documents-and-forms/home-office-space-agreement.rl#

If the rental is only to cover costs (and not to make a profit) then it should not create any tax liability.

Some experts say that claiming Mortgage Interest and Council Tax can be queried but that would depend on circumstances.

There are also other isuues to consider such as VAT and Capital Gains and these are covered in the blog below.

http://stevejbicknell.com/2013/01/06/what-are-the-tax-issues-and-advantages-of-a-home-office/

steve@bicknells.net

Why working with accounting is about to get so much better

Entrepreneur startup business model????????????????????????

Anyone who works with businesses is fully aware of how important accounting is for the success of a company. Yet many business owners have a negative attitude towards accounting. A high percentage of entrepreneurs see accounting as a necessary evil and often a hindrance to starting a new company.

How is that possible? Wasn’t accounting invented to help companies manage their business?

The IT industry has brought us computers and the ability to create software to automate bookkeeping. While there is no doubt that accounting software has been a great help, when we look at the usage of it, something is wrong. More than half of the businesses in the UK keep track of their finances by using a combination of spreadsheets and word processors rather than using accounting software. In an age where computing power is ubiquitous and virtually never too far from our pocket, we should be able to do better than this.

In 2013, international accounting software provider e-conomic was considering what its next generation accounting software should look like. And decided to take a different approach. What would happen if we created a piece of accounting software for people who had no knowledge of accounting? And what if we made the basic functions free for people to use? We hoped that it would make accounting approachable by virtually anybody.

That’s how the Debitoor invoicing and accounting software was born.

Introducing simple accounting to the world

Today, more than 33,000 people in the UK and almost 300,000 people worldwide have signed up for Debitoor and have given us the privilege of approaching accounting in a different way. Debitoor is used in more than 30 countries, from the UK to South Africa, from Colombia to Australia and New Zealand.

Debitoor is an accounting package for very small businesses. It allows them to manage their customers, create quotes and invoices. It allows them to register their purchases, deal with bank and payments and helps them report their VAT directly to HMRC at the click of a button. Debitoor helps those small companies manage their assets and keep track of what’s on their balance sheet in a very simple manner. Finally, Debitoor helps business owners collaborate with their accountants by allowing them to share their data with them.

Debitoor’s mission is to make accounting cool to work with. Two years after we started, the typical reaction we get from accountants is: “Wow, convincing my clients to use this is going to be super easy!”. We have captured the essence of Debitoor in this video.

Letting users shape accounting software

But what have we done to make this possible? The most important ingredient has been a clear focus. Our mission has always been to make accounting easy for small business owners who know very little about accounting.

Here are some of the key principles we followed to build the Debitoor invoicing and accounting software:
Approachable: We have removed any obstacles to getting started. There is no setup needed, we do not ask questions, users can start on the free package, the program is ready to go.
Natural: We have eliminated all technical lingo. You will not find the words “debit” and “credit” in Debitoor. The workflows in the program follow the natural flows of a user with no accounting knowledge and the program uses the typical words he’d use.
Forgiving: People make mistakes; and accounting systems typically make it quite complicated to correct mistakes. In Debitoor, actions can be undone and mistakes can easily be corrected.
Instructive: We assume people do not know much about accounting, so we have structured the entire program to let users learn along the way. This is not just functionality but it encompasses the entire packaging of the product.
User-driven: In an open forum, users can give their feedback and suggest new features, vote for their own or others’ suggestions and influence the further development of the software. This transparency is super important for us to develop a truly user-driven program.
Collaborative: Most of our users share their data with their accountants in order to get help with taxes, reporting and ensuring quality.

We also had the privilege of building the product with the technology which was available in 2013. This has huge benefits for our users because it allows us to provide them with a service which is reliable, improving at a fast pace and very secure. Having a modern architecture also ensures that Debitoor is very easy to connect to other popular cloud services.

Debitoor’s user base is very diverse as its appeal is quite broad. Many of our users are freelancers, artists, consultants, designers or other creative people, but we have also small artisans and shop keepers or owners of clinics and small distributors. They all have missions and purposes in their lives and we try to help them with their accounting.

Check out the stories of Felicia Matheson from Prohibition Drinks in Newscastle, Northern Ireland and the story of Esther from The Roasting Shed in London.

Changing how an industry works

As with any change in technology, this brings great opportunities to the industry it affects. The introduction of new technology, however, takes a bit of time to mature. When television started to gain mass adoption in the 1950s, broadcasters used it as it was radio. The first shows had older men with glasses reading papers in front of a microphone. This was how it used to be with radio programs.

The availability of cloud software has created a set of providers who simply made traditional accounting software available on the internet. This, we believe, will change and we will see more and more software which is transformational in nature. That is what we are trying to do with Debitoor.

We are only at the beginning of this journey. The roadmap for Debitoor will focus on three main aspects:

1. Continue to add simple flows to support what today are very difficult accounting scenarios
2. Introduce more and more automation and intelligence to enable our users to do more with less knowledge
3. Strengthen the collaboration between users and their accountants by facilitating the sharing of data between them.

What will this mean for accountants and the accounting industry? This is what our users are telling us: They love doing their invoices and keeping track of their costs in Debitoor. It gives the nice feeling of being in control, it keeps them organized and allows them to focus on their business going forward.

At the same time, they also tell us that they need help from their accountants. They need help with taxes, they need help with reporting to authorities and a lot of them need a quality check from the experts. In addition, most of them need legal and financial advice on ad hoc issues they encounter in their life as entrepreneurs.

The biggest change for accountants is to be prepared to embrace the possibilities that technology gives us. Things like cloud storage and online applications will substitute manual processes, paper and data disks. Everything is now available via a web browser on your computer or on your phone.

In order to be successful, accountants will have focus on services that draw on their knowledge and experience and they will need to be prepared to serve their customers as they move towards those new technologies.

Increased access will not be limited to technology but also to services. This will also mean increased competition. The best thing an accountant can do is embrace change and be ahead of the curve, start small but start early. The customers are already going there.

 

What is the Foster Care Allowance?

Mother and daughter with piggy bank

All Foster Carers are classed as Self Employed and can choose whether to be taxed using one of two methods – the Simplified or Profit methods.

Simplified Method

This is the most common method.

Your ‘qualifying amount’ for a tax year consists of two parts:

  1. Your Annual Fixed Amount per household of £10,000
  2. Plus your Weekly/Part Week Amount of £200 (under 11 years old) or £250 (over 11 years old)

If your income exceeds this level under the Simplified Method your are taxed on the difference.

Profit Method

This method works best if you have high expenses, to use this method you need to keep detailed records of all your expenses including capital expenditure.

Using the Profit Method you don’t use the allowances but prepare detailed accounts on which you are taxed.

National Insurance

Foster Carers are subject to Class 2 and Class 4 National Insurance.

Further details are in HMRC Helpsheet 236

steve@bicknells.net

Can you claim a tax allowance for clothing?

You need to follow the code

Employees may be able to get tax relief if they – and not their employer – spend money on any tools or specialist clothing they need to be able to do your job. Employees can go back several years to get the relief – the time you’ve got depends on whether you’ve previously sent in a Self Assessment tax return.

As a general rule an employee can’t get tax relief for the cost of clothing they wear to work – but there are some exceptions. For example, if you work in a sector like the building trade or the metal working industry you’ll have to wear protective clothing like:

  • overalls
  • gloves
  • boots
  • helmets

If you must pay for the cost of repairing, cleaning or replacing this type of specialist clothing yourself and your employer doesn’t reimburse you, then you are entitled to tax relief. However, you cannot claim for the initial cost of buying this clothing.

EIM32712 sets out some flat rate expenses that can be claimed and EIM32485 allows £60 per year for laundry.

If you are an employee who wants to claim the laundry allowance you should send HMRC a letter as follows:

Re: Uniform Tax Rebate

I have been employed at……… since….. My job title is ……. and I wear a company uniform.

I am obliged to launder the uniform, which is supplied to me by the company. I therefor wish to claim any payment to cover the laundry costs.

The uniform provided is not suitable to be worn outside of the work environment due to having the company logo on it.

I would like to receive the rebate in the form of a cheque….

Self Employed workers have tried to claim for clothes but whilst HMRC have allowed claims for ‘Uniforms’ and ‘Costumes’ they have rejected claims for everyday clothes.

BIM37910 explains to HMRC Inspectors…

You should disallow expenditure on ordinary clothing worn by a trader during the course of their trade. This remains so even where particular standards of dress are required by, for example, the rules of a professional body.

The case of Mallalieu v Drummond [1983] 57 TC 330 (which is discussed in detail below) established that no deduction is available from trading profits for the costs of clothing which forms part of an ‘everyday’ wardrobe. This remains so even where the taxpayer can show that they only wear such clothing in the course of their profession. It is irrelevant that the person chooses not to wear the clothing in question on non-business occasions, the only question is whether the clothing might suitably be worn as part of a hypothetical person’s ‘everyday’ wardrobe.

Most professionals have to keep up appearances but their clothing costs are not allowable (even where they amount to a quasi uniform as in Mallalieu v Drummond).

The cost of clothing that is not part of an ‘everyday’ wardrobe (for example a nurse’s uniform or evening dress (‘tails’) worn by a professional waiter) faces no such bar to deduction.

You should therefore allow a deduction for protective clothing and uniforms.

This was recently tested by Sian Williams who claimed, unsuccessfully…

In her 2004/05 tax return, a newsreader claimed certain deductions from employment income with the BBC for “travel and subsistence costs”, and “other expenses and capital allowances”.

Of these, the following were in dispute:

  • Professional hairdo and colouring £975
  • Professional clothing for studio    £3,231
  • Laundry of professional clothes   £325

She also claimed that as a taxpayer she had the right to be treated fairly, HMRC should offer up details of the amounts which had been agreed as allowable expenses for other news readers and entertainers.

See article in the Guardian

 

steve@bicknells.net

Tax Efficiency Is Part Of A Board’s Duty To Shareholders.

MCS Corp Logo

by Greville Warwick

It is the case that we see a lot of Large and Small companies whose directors and advisers seem unaware of the availability and value of research and development tax credits and patent box. These two schemes to assist companies are actively encouraged by agencies of Government to stimulate innovation, research and development at all times.

Companies qualify, but remain unaware of qualifying criteria, which are quite simple: you must be a UK registered entity (Ltd or Plc) and a going concern for the periods claimed. If you can tick these two boxes, contact us.

mcs-corporate.com

How do you handle Input VAT on Insurance Claims?

insurance design

This often causes confusion, firstly because many people wrongly assume that IPT (Insurance Premium Tax) is VAT, it isn’t! and then when they make a claim they may get a VAT only invoice.

HMRC VIT13500 has the answer…

Insurers cannot recover any VAT incurred in obtaining replacement goods or having repairs carried out for a policy holder. The supply of goods (or services in the case of repairs) is considered to be made to the policy holder. This is so even when payment is made directly to the supplier by the insurer.

Subject to the normal rules a VAT registered policy holder may treat any VAT incurred on the supply as input tax. The insurer will normally pay the policy holder compensation exclusive of VAT. The policy holder will pay the supplier the tax and recover it as input tax.

If an insurance claim is for loss or damage at a domestic property you should make sure that any VAT claimed as input tax relates only to goods used for a business purpose.

Insurance and reinsurance is exempt from VAT under article 135 of the Sixth VAT Directive.

This also explains why an insurer may ask a contractor engaged in repair work not to invoice them VAT, its simply that they want the VAT only element to be invoiced to the insured.

steve@bicknells.net

Is it a Van or a Car?

black large pickup

It makes a big difference whether a double cab pick up is treated as Car or a Van for tax purposes, in summary:

  1. Benefit in Kind on Cars is linked to CO2 where as on a Van its Flat Rate (and could be zero if your private use is insignificant)
  2. Vans qualify for the Annual Investment Allowance, Cars have restricted Capital Allowances
  3. You can reclaim VAT on Vans but its much harder to reclaim VAT on cars

HMRC have some guidance in EIM23150….

Under this measure, a double cab pick-up that has a payload of 1 tonne (1,000kg) or more is accepted as a van for benefits purposes. Payload means gross vehicle weight (or design weight) less unoccupied kerb weight (care is needed when looking at manufacturers’ brochures as they sometimes define payload differently).

Under a separate agreement between Customs and the Society of Motor Manufacturers and Traders (SMMT), a hard top consisting of metal, fibre glass or similar material, with or without windows, is accorded a generic weight of 45kg. Therefore the addition of a hard top to a double cab pick-up with an ex-works payload of 1,010 kg will convert the vehicle into a car (net payload reduced to 965 kg). Under this agreement, the weight of all other optional accessories is disregarded. HMRC has also adopted this treatment.

http://www.hmrc.gov.uk/manuals/eimanual/eim23150.htm

A double cab with a payload in excess of 1000kg can still be classified as a car if the taxman dealing with the case decides it is a car. You may have to justify a genuine business need for the vehicle.

steve@bicknells.net

How do you prove ‘No Private Use’ of a company car?

Blue White Red Cars

I spotted this case on the HMRC website the other day…

Elm Milk Ltd 2006 STC 792

A business bought a car for its managing director. It recorded a resolution that the car was for business use only. The managing director had another car that was used for private journeys.

The Court held that there was no reason why a car could not be made unavailable for private use by suitable contractual restraints, and that a company could enter into a binding employment contract with its sole director. Therefore, on the facts of the case, the car was available for business use only and input tax could be reclaimed.

The court held that HMRC had given too much weight to the physical constraints and insurance and should have focused on contractual constraints, the employment contract and board minutes.

The following case is also very interesting…

The ‘Shaw’ case

In the Shaw case the taxpayer bought two BMW X5 vehicles together, one for use in his farm business, the other for use privately. Mr Shaw also owned two other cars privately as well. HMRC [again] argued the case based on the social and domestic cover on the insurance policy, but Mr Shaw rebutted this by showing how the insurance policy for his combine harvester had ‘social, domestic and pleasure’ cover too! He added that the premiums for both the X5s and the harvester were lower as a result.

If there is No Private Use then there is no benefit in kind and no fuel scale charges.

So what should you do to prove there is no private use:

  1. Keep the car on the company’s business premises
  2. Keep the keys at the company’s business premises
  3. Prepare a Board Minute
  4. Makesure your contract of employment bans private use
  5. Keep a mileage log
  6. Insure the car principally for business use

Unlike Pool Cars you don’t have to prove it was available to other employees

steve@bicknells.net

You could employ your spouse to help you do your job

junge frau lernt für eine prüfung

Many micro business owners employ their spouse and as long as they perform a role in the business that’s fine and it can be very tax efficient.

But there are circumstances in larger businesses with several owners/directors where it isn’t practical to directly employ your spouse.

However, it could be possible to claim an expense for using your spouse as an assistant, take a look at EIM32415

A deduction can be given in the following circumstances:

  • where the employee is paid solely by results so that, in taking on assistance, the employee can maximise his or her earnings from the employment.
  • where it is actually part of the duties of the employment to engage and remunerate assistants to do some of the work.

So it may be possible to amend your employment contract to identify parts of your job that could be done by someone else and you could add a clause which says that you must ensure the work specified is done and that its your duty to employ an assistant to do it.

The duties could be anything – Admin, Secretarial, Market Research, Telesales…..

Depending on how much you pay your assistant you may need to account for PAYE and NI.

steve@bicknells.net

15 Benefits that won’t be on your P11D

trim

It’s P11D time, but have you considered giving your employees benefits in kind that are tax free, here are some to choose from:

  1. Pensions – Up to £40k can be paid in to you pension schemem by your employer (2014/15)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115)
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog

steve@bicknells.net

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