Claiming for use of office and related costs

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The self-employed are often concerned regarding expenses they can claim. In this article, we will briefly look at the rules for claiming expenses relating to office, property and equipment. You cannot claim for any non-business use of premises, phones or other office equipment.

As a general rule, you can claim for items you’d normally use for less than 2 years as allowable expenses such as stationery and other office sundries as well as rent, rates, power and insurance costs.

HMRC lists the following office expenses which can be claimed:

  • phone, mobile, fax and internet bills
  • postage
  • stationery
  • printing
  • printer ink and cartridges
  • computer software your business uses for less than 2 years
  • computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)

Planning note

You can also claim the applicable part of rent, rates, power and insurance costs for any part of your home used as an office.

Equipment you buy to use in your business that you would expect to last for more than 2 years e.g. computers are treated as allowable expenses, if you use cash basis accounting or you can claim capital allowances if you use traditional accounting.

Fish and chip shop directors banned

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A recent investigation by the Insolvency Service has seen two married restaurant directors disqualified for a total of 5 years each. The Directors of Gambino Fish Ltd trading as Quality Fish, were the subject of an in-depth investigation by HMRC.

The investigation found that the directors caused or allowed the company to submit inaccurate statutory VAT returns. The company had failed to record all its cash takings and had therefore under-declared the VAT due to HMRC. As a result, HMRC raised a VAT assessment of £53,332. At liquidation, the company owed HMRC in excess of £164,000 in relation to VAT, PAYE and national insurance contributions and corporation tax.

The two company directors were disqualified after the Secretary of State for Business Energy and Industrial Strategy accepted the disqualification undertakings. The disqualification means that the directors cannot promote, manage, or be a director of a limited company for five years from 10 December 2017.

Commenting on this case Lawrence Zussman, Deputy Head of Investigations with the Insolvency Service, said:

‘Much of the public service is funded by the correct amount of taxes being paid. By not declaring and paying the correct amount of taxes, the public has been deprived from receiving the services it deserves from the public sector. The Insolvency Service will not hesitate to take action against directors so they cannot abuse limited liability provided by trading through a company.’

Sign up for email alerts from Companies House

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A new email alerts service has been launched by Companies House. The new alert service covers a range of subscription topics and should not be confused with the email reminder service, which advises when accounts and confirmation statement are due for filing.

If you are interested in receiving email reminders about your accounts and confirmation statement, you need to sign up using the Companies House online filing service.

The new email alerts service can be used by new or existing businesses and the alerts will include information on the benefits of running a limited company, and how to incorporate as well as important updates about the Companies House Service.

Companies House is using Granicus (a digital platform used by public sector organisations) to send emails to subscribers.

You can subscribe for alerts on a variety of topics, including:

  • Companies House blogs
  • Webinars and podcasts
  • Legislative news and updates
  • Twitter

Why the cash basis may not suit your business

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The cash basis scheme helps many sole traders and other unincorporated businesses benefit from a simpler way of managing their financial affairs. The scheme is not open to limited companies and limited liability partnerships. It allows qualifying businesses to use the cash basis when recording income and expenditure. However, some small businesses are more suited to using the cash basis than others.

If you fall within any of the following categories, the cash basis may not be your best option:

  • want to claim interest or bank charges of more than £500 as an expense
  • run a business that’s more complex, e.g. you have high levels of stock
  • need to get finance for your business – a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
  • have losses that you want to offset against other taxable income (‘sideways loss relief’)

In a nutshell, the scheme is most suitable for straight forward businesses especially those that provide services. You must have a turnover of £150,000 or less to join the scheme, and you can continue using the scheme until your turnover reaches £300,000.

Planning note

If you are thinking of using the scheme, we would be happy to help you consider your options and to crunch the numbers to see if the cash basis scheme is a suitable option.

Aliens, vertigo and other excuses

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A recent press release by HMRC revealed some of the oddest excuses for submitting a late tax return. The excuses ranged from the sublime to the ridiculous and included:

  1. I couldn’t file my return on time as my wife has been seeing aliens and won’t let me enter the house.
  2. I’ve been far too busy touring the country with my one-man play.
  3. My ex-wife left my tax return upstairs, but I suffer from vertigo and can’t go upstairs to retrieve it.
  4. My business doesn’t really do anything.
  5. I spilt coffee on it.

HMRC also revealed that taxpayers have tried to make expense claims for such random items as a three-piece suite for my partner to sit on when I’m doing my accounts, and £4.50 for sausage and chips meal expenses for 250 days.

HMRC’s Director General of Customer Services, Angela MacDonald, said:

‘Each year we’re making it easier and more intuitive for our customers to complete their tax return, but each year we still come across some questionable excuses, whether that’s blaming a busy touring schedule or seeing aliens. However, help will always be provided for those who have a genuine excuse for not submitting their return on time.’

Support for Carillion subcontractors

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HMRC has published a press release following the financial collapse of Carillion. Given the current uncertainty for subcontractors, HMRC understands that some businesses will be experiencing problems paying their tax bill.

HMRC is reminding affected taxpayers that the Business Payment Support Service (BPSS), is available to help provide practical advice and guidance. The BPSS was first launched back in 2008 and is still available to taxpayers. The purpose of the service is to provide support for viable businesses experiencing a wide range of tax problems.

HMRC has said that the BPSS can:

  • agree instalment arrangements if you’re unable to pay your tax on time following the Carillion collapse
  • suspend any debt collection proceedings
  • review penalties for missing statutory deadlines
  • reduce any payments on account
  • agree to defer payments due to short-term cash flow difficulties

Any businesses that are having difficulties making VAT, income tax, national insurance contributions, corporation tax, and pay as you earn payments can contact the BPSS helpline on 0300 200 3835.

The BPSS will review the issues raised and look sympathetically at providing a practical solution. HMRC will usually not charge additional late payment surcharges in relation to any specific arrangements made using the BPSS. Separately, HMRC can also provide employees affected by the Carillion collapse with cash support through the tax credits system.

Planning note

If you are affected by this issue please call to discuss your options. It may not be possible to recover monies owed but we may be able to help you reduce your exposure to tax by offsetting Carillion losses in the most tax and VAT effective way.

Tax Diary February/March 2018

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1 February 2018 – Due date for corporation tax payable for the year ended 30 April 2017.

19 February 2018 – PAYE and NIC deductions due for month ended 5 February 2018. (If you pay your tax electronically the due date is 22 February 2018)

19 February 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2018.

19 February 2018 – CIS tax deducted for the month ended 5 February 2018 is payable by today.

1 March 2018 – Due date for corporation tax due for the year ended 31 May 2017.

2 March 2018 – Self assessment tax for 2016/17 paid after this date will incur a 5% surcharge.

19 March 2018 – PAYE and NIC deductions due for month ended 5 March 2018. (If you pay your tax electronically the due date is 22 March 2018)

19 March 2018 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2018.

19 March 2018 – CIS tax deducted for the month ended 5 March 2018 is payable by today.

Statutory payment rates for tax year 2018/19 confirmed

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Following the written ministerial statement published in November 2017 announcing the proposed new rates for statutory maternity pay (SMP), statutory adoption pay (SAP), statutory paternity pay (SPP), statutory shared parental pay (ShPP) and statutory sick pay (SSP) for tax year 2018/19, the government has now published the draft Social Security Benefits Up-rating Order 2018 which confirms the figures.

 

The standard weekly rates of SMP, SAP, SPP and ShPP will increase from £140.98 to £145.18 from 1 April 2018 and the weekly rate of SSP will increase from £89.35 to £92.05 from 6 April 2018.

 

The draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2018 confirms that the lower earnings limit, below which employees are not entitled to SMP, SAP, SPP, ShPP and SSP, will increase from £113.00 to £116.00 per week from 6 April 2018.

New DBS basic disclosure service goes live

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From 17 January 2018, individuals who need to obtain a basic disclosure check for a job in England and Wales should apply to the Disclosure and Barring Service (DBS), not to Disclosure Scotland. The DBS now provides the service for England and Wales. Individuals who wish to apply for their own basic check can use the new online service provided by the DBS.

 

Individuals who need a basic disclosure check for a job in Scotland should still apply to Disclosure Scotland.

 

If anyone wants a check for personal reasons rather than work purposes, they should apply to the relevant organisation for the area where they live, i.e. DBS if they live in England or Wales or Disclosure Scotland if they live in Scotland.

 

It is important that individuals apply to the right organisation for their basic disclosure check, so that the correct Rehabilitation of Offenders Act rules are applied.

What is the herd basis?

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There are special rules which can apply to farmers and market gardeners that prepare their accounts on an accruals basis. This includes special rules for farmers’ averaging relief, dealing with losses and the treatment of compensation for compulsory slaughter.

The special rules also refer to the use of the herd basis. The herd basis is a special method of working out profits or losses which may be used by people who keep production livestock. Usually, farm animals are treated as trading stock. However, under the herd basis a herd or flock of production animals is excluded from trading stock and treated, in most but not all circumstances, like a capital asset.

Any farmer that wishes to use the herd basis must elect to do so. Where a herd basis election is in force, the treatment for the purpose of calculating farming profits of the herd or herds covered by the election is governed by special rules. The herd basis rule can also apply where animals are jointly owned, for example, in some share-farming arrangements.

Planning note

These special rules do not apply to farmers and market gardeners who work out their profits using the cash basis of accounting rather than the accruals basis. If you would like more information about this scheme, and how it may benefit your tax position, please call for a consultation.