What is Business Turnover? Sales turnover is the amount the
business earns before deducting business expenses including
receipts of any kind for goods sold or work done such as
commission, tips, payments in kind, fees and insurance
proceeds. The turnover to be included in your financial
accounts is the date it was invoiced or earned and not the
date it was received.
What is excluded from Business Turnover? Sales turnover
excludes sales of fixed assets such as premises, vehicles
and plant and equipment. Also exclude business start up
allowances which are entered separately on the self
assessment tax return. Money introduced to the business is
excluded being capital introduced and not sales turnover.
What business expenses are allowable? All running costs
incurred solely for the purpose of the business may be
deducted as allowable business expenses including goods
bought for resale, employee wages, premises rent and
overheads, administration costs, vehicle running costs.
Interest on loans and overdrafts can be claimed as business
expenses excluding the capital element of repayments.
Higher business expense levels accurately recorded can keep
taxable profit below the higher tax rate.
Can the cost of buying and repairing plant and machinery be
claimed? Repairs and maintenance costs are allowable
business expenses. The purchase cost including improvements
and replacement costs are not allowable business expenses,
these costs being subject instead to capital allowances.
Depreciation is not allowed and replaced by Capital
Allowances for the purposes of calculating the tax payable.
What are Capital Allowances? Capital allowances are
designed to write off the cost of purchasing a fixed asset
over the life of the asset rather than in the financial
year in which it was purchased. Capital allowances on the
majority of assets are based upon a higher rate of
allowance in the year of purchase, First Year Allowance
with the balance of the cost being written off at a lower
rate, Writing Down Allowance. The full cost of any asset
may be claimed as an expense in the year it is sold or
scrapped less the total of accumulated capital allowances
that have been claimed against taxable profits. Any sales
proceeds over and above the written down value after
Capital Allowances is added back to net profits and becomes
taxable. Cars are subject to writing down allowances but
not First Year Allowances unless they are classed as
commercial vehicles. DIY Accounting has accounting software
templates that automate the calculation of capital tax
allowances.
Can expenses incurred for both business and personal
purposes be claimed? No. HMRC only allow such expenses if
the business expenses element of the cost can be separated
from the personal element. If you claim the travelling
expenses to buy business goods they can be claimed for tax
purposes but would be disallowed if you also showed
evidence of personal items being purchased on the same
journey. Using your home phone is an allowable business
expense if you claim specific identified business calls in
which case you would also be able to claim a similar
proportion of the rental cost.
Can vehicle costs be claimed when that vehicle is also used
for personal use? Vehicle running costs and expenses such
as fuel, excise duty, insurance, repairs and breakdown
membership may be claimed as business expenses if the
vehicle is used solely for business purposes. Travel from
home to work is not business use and disallowed. Vehicle
running costs, and capital allowances on vehicles, are
split between claimable costs and a disallowed cost
depending on the proportion the vehicle is used for
business and personal use. Parking fees for business
purposes may be claimed, parking fines and penalties for
motoring expenses are not claimable as business expenses
for tax purposes. An alternative to claiming vehicle
running costs and vehicle capital allowances would be to
claim mileage allowances which at the time of writing are
40p for the first 10,000 miles and 25p per mile thereafter.
Can Business trips be claimed? Travelling expenses and
modest lunch expenses may be claimed. Hotel and reasonable
costs of subsistence may also be claimed. A subsistence
allowance can be claimed if staying with friends or family
as an alternative to an hotel. The cost of lunch may not be
allowed when staying away overnight. Lunch with clients is
regarded as entertainment and is not allowed. If you are
accompanied on a business trip by family only your cost is
allowable and specifically only if the trip was purely for
business purposes. Expenses on combined business and
personal trips are not allowed to be deducted as business
expenses on tax returns.
Can home costs be claimed? If part of your home is
identifiable as solely for business purposes then running
costs can be claimed. The cost allowed is the proportion of
the total area of the home the business area occupies. For
example, excluding shared facilities of kitchen and toilet
if the home has three bedrooms, living and dining room and
one bedroom is used solely as an office then 1/5 of home
costs could be claimed. The costs to claim would be heat
and light, insurance, general and water rates and mortgage
interest excluding repayment amounts. Where mortgage
interest is claimed the revenue might also claim as a
capital gain the increase in value of that proportion of
the home, such Capital Gains Tax being subject to tapering
relief over time.
How do I treat business goods taken for my own use? Any
business goods taken for personal use should be added to
sales at normal selling prices including items supplied to
family and friends at less than normal prices. He cost of
providing services for family and friends is not allowable
as a business expense.
Can I deduct my salary or drawings as a business expense?
You cannot deduct your own wages, personal national
insurance or drawings from the business as a business
expense as these are distributions of the business income
after net taxable profit has been calculated and not
allowable expenses before tax..
Can I deduct my partner's wages? Yes partner's wages can be
deducted as a business expense although there are rules
which would be applied in such circumstances to ensure the
amount paid is both real and reasonable. The business would
need to operate a PAYE scheme for that employee, deducting
income tax and national insurance, the work carried out
must be real not invented and the rate paid reasonable for
the nature of the work and the time spent. Evidence may
also be required that the amounts were actually physically
paid to that partner, for example in the form of a cheque.
Should Tax Credits be included? No these are excluded from
business profits although the level of credit received may
subsequently be changed in the light of the actual business
profit earned compared with the amount declared when the
Tax Credit was applied for. HMRC do check that the net
taxable profit shown on the tax return is the same as that
declared when the Tax Credit was claimed.
Can I claim expenditure incurred prior to trading
commencing? Yes business expenses incurred up to seven
years prior to trading commencing can be claimed. The
actual date of the expenditure should be recorded although
all pre-trading expenditure is treated as having been
incurred on the first day of trading.
Are pool cars taxable? Company cars are taxable as a
taxable benefit while pool cars are not taxable. To qualify
as a pool car, private use should be incidental to business
use, the vehicle should not normally be kept at the
employee's home and the vehicle must be available and used
by more than one employee.
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Terry Cartwright provides Accounting Software and Payroll
Software packages at
http://www.diyaccounting.co.uk/index.htm
for both self
employed at http://www.diyaccounting.co.uk/selfemployed.htm
and limited companies at
http://www.diyaccounting.co.uk/companyaccounts.htm
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