Accounts & Tax Return Help

supermonkey

Hi All,

I hope I could get some advice on my accounts & tax return:

Capital Allowances
HMRC state that if capital allowances are less than £50,000 you can claim 100% of them. This suggests that you can choose to claim less than 100%?

Eg – accounts up to 5th April, first year accounting period only 3 months and not significant income. Spent £1000 on computer. It would be more beneficial for this allowance to be used in year 2.

Also, would a domain name & stock images be an allowable expense (eg under office or possible just other) as I've seen somewhere it shown as capital allowance.

Calculating Taxable Profits
There is a box for Start Up Allowances. I presume this would be for business start up grants? For example, grant used against computer above.

Personal / Business Expenses
I use a personal mobile for business calls. I understand I can claim the business proportion. However this becomes complicated. Personal calls / texts are covered in my free allowance, so any chargeable calls are for business. I am unsure of how I can equate this to a percentage so as to also claim a percentage of the line rental.

I am planning on claiming £3 a week to cover business premesis costs (rent, power etc).

Internet access is used for personal and business. Difficult to proportion a percentage. I guess I can simply take 50% as a reasonable estimate and use that?

Another problem is that items that are split between personal & business are paid from my personal account. I currently have a my accounts in a spreadsheet split into Income & Expenses. Ideally I would like to have created a cashflow sheet which would combine the two and also accurately reflect the business bank account. My thought is to have a spreadsheet for both bank accounts and it all link together? Does this sound the way to go or am I just complicating things?


Thanks for reading!

Gertie_Walker

Capital allowances: If you choose not to claim 100%, the standard allowance is 20%. I assume you are making your accounts up to the first anniversary of starting and are apportioning the profit for that year? Yes, the other expenses you mention must be included in your accounts other wise they will be incorrect.
Start up allowqances: yes
Personal business: just apportion the whole bill between private and personal and add back the personal proportion. That way both you and the business get the benefit of free calls. Make sure the £3 covers all your costs. Internet, again, you add back the proportion you see fit - its down to you.
If you are paying some business expenses out of personal income, you are making things too complicated. Just compile your accounts on the basis of income received less expenditure and then add back your personal items on the SA.

supermonkey

Thanks for your reply.

Capital Allowances: Started up in Feb and accounts are made up to Apr 5th. So the 20% will go in the Annual Investment Allowance? Does it have to be 20% each year and I presume it would be as follows... eg 09/10 £200 (20% of £1000), 10/11 £160 (20% of £800), 11/12 £128 (20% of £640).

So the other expenses I mentioned are defiantely not capital allowances?

Personal Allowances: So I can make a reasonable estimate of 50% business use of mobile and apply that to the entire bill? And same for internet? The complication here is that its a phone, broadband & tv bundle. The £3 a week (was to cover a proportion of rent/mortgage, council tax, elec, gas, water, home insurance) & was based on a figure from an HMRC example but it does seem a bit low. I've also read that HMRC don't expect such costs to be more than £800 - so perhaps £12.50 a week is a closer estimate.

Personal Business: I agree I've made it too complicated. But when claiming part of mobile / broadband isnt this inevitable? My accounts are compiled as you suggest, but I am concerned that if HMRC have a query it will be difficult to reconcile the accounts with my bank accounts.

Can you confirm where the personal items should be added back on the SA. Looks like box 26 - "Goods or services for your own use – read page SESN 7 of
the notes". The notes state "If you have included gross expenses in boxes 10 to 18, that is, you did not take off any disallowable expenses there, enter those disallowable amounts here in box 26"

Gertie_Walker

If you started on 5 Feb your accounts should be made up to 31 Jan and you apportion the profit between the two tax years. AIA is always 100% and capital allowances are always 20%, this is the law and you cannot claim anything different. Ist years capital allowances would be 200, the 200 is deducted from 100 to give a base cost of 800 for the second year of which you claim 20% and so on. The other items are revenue.
Yes, you make your own estimate of the business use of the items of which you speak. There are no set rules as everyone's business is different. HMRC are only looking for reasonable and as long as you can justify the amount, no Inspector would ask for adjustments jsut on private use. The £3pw for use of room was previously for employees wokring from home but it seems HMRC has recently said they will accept £3 for self employed people. Fine if you are using the back bedroom for a few hours a day, but way off the amrk if you are using your lounge to see clients and have a spare room full of IT kit to run the business from.
If HMRC want to investigate you, they will have the task of reconciling your accounts to the bank, not your job! As long as you know you have done it correctly, then dont make it too harsh for you.

Premier_2

supermonkey wrote: »

...Started up in Feb and accounts are made up to Apr 5th. ...

Gertie_Walker wrote: »

If you started on 5 Feb your accounts should be made up to 31 Jan ...

The OP is able to choose any accounting date desired for the initial period; it is then usually every 12 months.

We did this when we started (albeit as a limited company), to align our financial/accounting period to the tax year.

As a limited company we could only shorten the accounting period, but as a sole trader it appears they can either shorten or lengthen the period.
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073792234&type=RESOURCES

no-oneknowsme

supermonkey wrote: »

Thanks for your reply.

Capital Allowances: Started up in Feb and accounts are made up to Apr 5th. So the 20% will go in the Annual Investment Allowance? Does it have to be 20% each year and I presume it would be as follows... eg 09/10 £200 (20% of £1000), 10/11 £160 (20% of £800), 11/12 £128 (20% of £640).

So the other expenses I mentioned are defiantely not capital allowances?

Personal Allowances: So I can make a reasonable estimate of 50% business use of mobile and apply that to the entire bill? And same for internet? The complication here is that its a phone, broadband & tv bundle. The £3 a week (was to cover a proportion of rent/mortgage, council tax, elec, gas, water, home insurance) & was based on a figure from an HMRC example but it does seem a bit low. I've also read that HMRC don't expect such costs to be more than £800 - so perhaps £12.50 a week is a closer estimate.

Personal Business: I agree I've made it too complicated. But when claiming part of mobile / broadband isnt this inevitable? My accounts are compiled as you suggest, but I am concerned that if HMRC have a query it will be difficult to reconcile the accounts with my bank accounts.

Can you confirm where the personal items should be added back on the SA. Looks like box 26 - "Goods or services for your own use – read page SESN 7 of
the notes". The notes state "If you have included gross expenses in boxes 10 to 18, that is, you did not take off any disallowable expenses there, enter those disallowable amounts here in box 26"

Im just in the middle of helping with my OH's online tax return , i read the above question by the OP and noticed that no-one has yet offered any advice , is box 26 the correct place on the return to add back personal use ?

Thanks

supermonkey

Thanks for all the replies.

Accounting period - HMRC confirmed I could do a shortened first year as it simplifies things.

Capital Allowance - I'm confused. I thougth AIA was part of capital allowances? Or do you mean I could use the "other capital allowances box"? So if it's 20% per year, since the pool carried forward is less each year, so will the amount? Eg £200, £160, £128 as per my earlier post?

£3pw - I use 1 room in my house daily from 9-5. It does store some other thigns, but is rarely used other than for business. I would like to claim more, but you suggest they will accept £3pw. Is £12.50 a week going to look "unreasonable" to them?

Reconciling Accounts - Thanks for the advice there - I guess I've been complicating things & over researching things!

Adding back personal items - Is anyone able to confirm box 26 is correct?

Premier_2

supermonkey wrote: »

...
£3pw - I use 1 room in my house daily from 9-5. It does store some other thigns, but is rarely used other than for business. I would like to claim more, but you suggest they will accept £3pw. Is £12.50 a week going to look "unreasonable" to them?...

Be careful over this, as you are admitting part of your property is used exclusively for business purposes.
As a result, you could find yourself liable for business rates.

It may also affect your total exemption to capital gains tax should you come to sell the property.

grey_lady

Why not save yourself the time and money and get an accountant to do it?

supermonkey

Premier wrote: »

Be careful over this, as you are admitting part of your property is used exclusively for business purposes.
As a result, you could find yourself liable for business rates.

It may also affect your total exemption to capital gains tax should you come to sell the property.

yes - come to think of it, this was another reason I was going to go with the £3 a week!

grey_lady wrote: »

Why not save yourself the time and money and get an accountant to do it?

because I don't understand how that would save me money?

jexygirl

An accountant will save you money... trust me
They are good at what they do, they are trained to do what they do, they know what stuff to put in what boxes!
Also, how many hours have you already spent reading, looking up, trying to fill in forms yourself? All hours you could perhaps spend on building your buisness up?
An accountant would probably have this all sorted for you within an hour or 2 ...