SA Expenses questions

Grade_A_Reject

I've been working freelance since January this year and have a few queries regarding expenses for my self-assessment.

My work requires the use of a laptop for which I paid £369 and as I will be visiting many client sites I also bought a sat nav at a cost of £180. These will be used exclusively for work purposes.

Can I put the cost of these on a single SA return or should they be treated as capital costs and split over multiple returns as I am likely to be using them in future years?

I will be using the mileage method for claiming of business mileage. I understand this covers the cost/depreciation of the vehicle as well as fuel costs but what other vehicle related costs does/doesn't this cover. I've transferred the loan I took out on the car to a 0% credit card so there are currently no finance costs.

My main vehicle costs would be servicing/repairs and insurance but there are other non-direct expenses such as breakdown cover and the subscription to TomTom traffic that I'm not sure are inside or outside of the 40/25ppm.

olivetti

The mileage at 40p/25p per mile cover all expenses related to running of a car; finance, servicing, insurance, road tax, petrol and repairs. The only other expenses you can claim for are such things as parking, tolls, and congestion charges. You cannot claim for parking fines as they are specifically excluded as are all fines and penalties.

You will be able to claim your laptop and TomTom as a 100% deduction using your Annual investment allowance of £50,000. This is on the assumption that you can prove they are both used wholly and exclusively for business purposes. If they have any personal use you can limit this by a just and reasonable basis i.e. a percentage of its total use for the business e.g. 75%.

Not 100% SURE about the Tom Tom subscription but I would consider it to be an allowable expense against income in proportion to its business use. and outside of the approved mileage rate.

PlutoinCapricorn

I think that the AIA is now £100,000. Does it apply to Sole Traders or just companies?

There is a grey area for low-cost 'capital items': very expensive durable equipment certainly does need to be depreciated over some years, but as laptop prices are dropping, I know that some people claim them as expenses not capital items if they cost just a few hundred, especially if their profit is low enough for them to submit totals only not itemised lists.

Grade_A_Reject

Thanks.

I thought interest costs on vehicle finance were an allowable expense outside of the 40/25ppm. I've moved the finance on my car onto a 0% credit card but there is a small amount of interest I paid during the first few months of this year.

http://www.hmrc.gov.uk/manuals/bimmanual/bim47701.htm

The taxpayer can claim the business proportion of the interest on a loan used to purchase the vehicle or the finance element of a hire purchase or finance lease.

This should be an easy calculation:- business miles/total miles * 100 to get the allowable percentage of the interest costs.


Do HMRC ever ask for evidence of 100% business use of items such as laptops and how would I go about proving it was solely used for business use (which it is) ?

(I have 5 desktop PCs and another 4 laptops at home so they're welcome to come and check!)

olivetti

PlutoinCapricorn wrote: »

I think that the AIA is now £100,000. Does it apply to Sole Traders or just companies?

There is a grey area for low-cost 'capital items': very expensive durable equipment certainly does need to be depreciated over some years, but as laptop prices are dropping, I know that some people claim them as expenses not capital items if they cost just a few hundred, especially if their profit is low enough for them to submit totals only not itemised lists.

Yes you are correct currently £100,000 although dropping to £25,000 in 2012. :undecided wish they would leave these things static for a while :mad:

AIA can be claimed by all businesses not just incorporated ones.

With AIA unless you are spending loads and over the limit if you treat small capital expenses as revenue it is a moot point as while not correct it does not really matter.

PlutoinCapricorn

Are you likely to earn more than £30,000 each year? If not, HMRC just want total income and total expenses. If the expense amount seems reasonable, they will just accept it. (I recommend filing your return online).

If they do decide to investigate you, they may ask for an itemised expense list. You could add an explanation of why you needed a new laptop and state that it is exclusively for business use - that is why you bought a new one, to keep your affairs separate.

Apparently filing the return very early or very late, unusually low income and high expenses for the type of work done are red flags that alert HMRC. Just be prepared to justify everything and keep good records.

Have you looked at https://www.businesslink.gov.uk?

olivetti

Grade_A_Reject wrote: »

Thanks.

I thought interest costs on vehicle finance were an allowable expense outside of the 40/25ppm. I've moved the finance on my car onto a 0% credit card but there is a small amount of interest I paid during the first few months of this year.

http://www.hmrc.gov.uk/manuals/bimmanual/bim47701.htm

The taxpayer can claim the business proportion of the interest on a loan used to purchase the vehicle or the finance element of a hire purchase or finance lease.

This should be an easy calculation:- business miles/total miles * 100 to get the allowable percentage of the interest costs.


Do HMRC ever ask for evidence of 100% business use of items such as laptops and how would I go about proving it was solely used for business use (which it is) ?

(I have 5 desktop PCs and another 4 laptops at home so they're welcome to come and check!)

Yes sorry, finance was not meant to be there in my last reply, its not a cost of running the car.

They may well ask for a receipt and ask questions about its use but I doubt they would look at the thing.

If you only had the one computer then it is likely that you would need to make a personal use adjustment but in reality these figure are small enough to ignore personal use as any adjustment would be even smaller, but given your situation it would be pointless, lol.

I don't know how you could prove you do not use the Tom Tom for personal use as if you had one and wanted to drive somewhere you had not been before could you really say you would not use it and it is pointless having two; one for personal and one for business? Again having said that due to the amounts we are speaking about I doubt they would be an issue one way or the other.

Best advice regarding this is keep a mileage log with odometer reading at start and finish of business trip, date and brief reason for trip and do this for each trip at the time, then HMRC will not really be able to question you unless they are not wholly and exclusive for business.

Grade_A_Reject

PlutoinCapricorn wrote: »

Are you likely to earn more than £30,000 each year? If not, HMRC just want total income and total expenses. If the expense amount seems reasonable, they will just accept it. (I recommend filing your return online).

If they do decide to investigate you, they may ask for an itemised expense list. You could add an explanation of why you needed a new laptop and state that it is exclusively for business use - that is why you bought a new one, to keep your affairs separate.

Apparently filing the return very early or very late, unusually low income and high expenses for the type of work done are red flags that alert HMRC. Just be prepared to justify everything and keep good records.

Have you looked at www.businesslink.gov.uk?

I will be earning over £30,000. I have meticulous records of every expense with each receipt cross-referenced to my accounts and detailed mileage reports.

The reason you stated is precisely why I bought the laptop, to keep my personal affairs separate from work ones. My previous employer used to provide a laptop as it is an essential tool in my line of work.

I've looked at businesslink before but will have another look thanks.

freelancePM

Sorry to labour this (I know it should be obvious) but about the laptop: I'm setting aside 25% of my SE income for tax and eventualities (total annual income should be about £25000 from a combination of employment and self employment). I put this money into a separate account. I have to buy a laptop. If I spend £400 on the computer does that mean I reduce my INCOME figure by £400, and therefore don't have to put the £100 into my tax account?

pjclar02

Yes - the theory is sound. You will reduce your taxable profit by £400, therefore if you are budgeting for 25% tax that will indeed be £100 less you need