Need help with what I can claim on tax return

monkeychops

I am about to fill in my husband's tax return online. This is the first time we have had to do this and I am rather confused to say the least!

He is self employed but sub contracted to a company. He paid 20% tax on his earnings (did not go above 40,000 pounds). I have kept his books for him and that is all in order.

He does terrific mileage a year and I know he can claim 40p a mile for the first 10,000 miles and then 25p a mile so that claim alone will be over 4,000 pounds.

If I am reading the HMRC website right he can also claim for purchase of his van (1,000 pounds), repairs of his van (800 pounds) and because his van was off the road for a couple of months whilst being repaired, the cost of hiring a van (this is extortionate 2,400 pounds).

He also uses a room as an office, a computer, has to print out roughly 100 forms a week out (I understand printing can be charged at 6p a sheet), has to fax them to his employer (I think I can charge for this?). He also has to buy tools.

Now I am not even going to think about claiming electric etc although I am pretty sure I could but even on the legitimate items it comes to over 7,000 pounds! He paid almost 8,000 in tax so most of it he would be reclaiming. Does this seem right and are the tax office likely to question it?

If he claimed for everything he seems to be entitled to claim for the figure would be more than he actually paid in tax which I know obviously cannot happen but is it common to get almost all the tax that you have paid back?

As I say, the claims are all legit but it seems high to me and I don't particularly want the tax man being funny.

CLAPTON

you do understand that these expenses are deducted from his income and so reduce his profit.

so for example, if his income was 30,000 then these 7,000 worth of expenses would be ducted from the 30,000 so leaving 23,000 to be taxed

they do not come directly off the tax he has paid so in your example he would get 7,000 x 20% i.e. 1,400 back from the 8,000 in tax he has paid

KiKi

I don't have the experience to say how they'll react, but this was the case with me last year. My expenses, on top of my tax-free allowance meant there were hardly any earnings on which I had to pay tax. But they were all legitimate, and all backed up by the receipts, all documented in a spreadsheet with all bank records as back up!

I wasn't questioned in 2009-10 nor 2010-11 on this. My earnings are small (only around £12K), but even so, I felt bad for submitting it, but it is what it is. If you've spent it, can prove it, and it's tax deductible, there's nothing wrong with that.

KiKi

pipscot

There will also be Class 4 NIC due (he should be paying class 2 NIC already) - so the amount he receives back is not a direct proportion of the expenses. You need to calculate his net profit (as CLAPTON said this is his earnings less expenses) but then you need to calculate both his tax due and his Class 4 NIC due. (there are calculators online that will do this). You can then subtract this from the amount you have already paid to work out his refund more exactly.

pipscot

monkeychops wrote: »

He does terrific mileage a year and I know he can claim 40p a mile for the first 10,000 miles and then 25p a mile so that claim alone will be over 4,000 pounds.

If I am reading the HMRC website right he can also claim for purchase of his van (1,000 pounds), repairs of his van (800 pounds) and because his van was off the road for a couple of months whilst being repaired, the cost of hiring a van (this is extortionate 2,400 pounds).

As far as I am aware - if you use the mileage basis for calculating motor expenses - you cannot claim any other motor expenses as well.

The purchase of the van, repairs of his van would not be included if you are using the mileage method of calculation.

I am not 100% sure about the hiring of a second vehicle - you would need to check that one with HMRC.

I do self-employed accounts for someone who does a high mileage so we don't use the mileage method - we account for the actual diesel, repairs etc as this works out better but for someone with a low mileage it can be better to use HMRC's mileage costs.

taxing

Not wishing to be 'funny' nor rude but reading postings here fill me with fear...

While HMRCs notes and the manual are all very helpful, it is obvious there is still a lot of misconcetion and misunderstanding around which comes from looking at 'bits' of tax 'law' here and there and not applying that in light of additional and broader knowledge.

It's the old adgage: a little bit of knowledge is dangerous.

The lady here (forgive me) for instance thinks that because the expenses equal the tax deductions, then the tax is refundable. Bizarre.

While I commend the desire to understand, at least a little, of the system - when you are in business it really is worth the few hundred pounds it would cost for you to employ a professional - who will have spent years building up a very broad knowledge of tax law and practice and who will have extensive experience in dealing with HMRC on a day to day basis. It will have cost that professional a lot in terms of time and money to build up this knowledge but it is what you pay for when you hire a professional.

Doing your own tax etc is a bit like doing your own plumbing or painting & decorating: it's only as good as your own basic skills can achieve, however, you won't be charged interest and penalties for a bad paint job: you will for an incorrectly completed tax return.

Also, don't be too complacent where HMRC seem to have accepted your home produced tax return without question: if they have a problem or find an error in a later tax return then they have very extensive powers which allow them to go back and look at earlier year returns - even if those years are 'technically' closed.

Also, the help on HMRC web, and the manuals are all HMRC's interpretation of tax law: not necessarily always agreed by the Courts.

These forums are quite useful sounding blocks too, but you shouldn't really be using it as a way to know what to put on a tax return. On here, we are only given that 'glimpse' of the problem you give to us and any reply is biased to that extent and probably then incomplete.

I am not saying all tax advisers are 'perfect' and don't make mistakes but at least then you could sue them for damages at worst, or at best get off HMRC penalties by blaming the adviser for negligence.

pipscot

taxing wrote: »

thinks that because the expenses equal the tax deductions, then the tax is refundable. Bizarre.

I think it may be due to the commonly heard phrase "you can claim it back against your tax" or "it lowers your tax bill" - I hear this all the time and spend ages trying to explain that all this means is that the cost of the expense is reduced by a percentage approximately equal to their tax rate. It seems to be a very strange concept for some people to grasp at first until they are used to the self-employed system.

John_Pierpoint

The "self employed costs of car travel" have been explained recently here:

https://forums.moneysavingexpert.com/discussion/comment/43240840#Comment_43240840

It is particularly confusing for those on the construction industry scheme, because they are in effect claiming back tax already paid; as against other self employed workers, who have to pay some tax on account in January and July but at his time are working out how much extra they owe.

Class 4 National Insurance is just another tax on the yearly profit to confuse the calculation.

http://www.hmrc.gov.uk/rates/nic.htm

catkins

pipscot wrote: »

As far as I am aware - if you use the mileage basis for calculating motor expenses - you cannot claim any other motor expenses as well.

The purchase of the van, repairs of his van would not be included if you are using the mileage method of calculation.

I am not 100% sure about the hiring of a second vehicle - you would need to check that one with HMRC.

I do self-employed accounts for someone who does a high mileage so we don't use the mileage method - we account for the actual diesel, repairs etc as this works out better but for someone with a low mileage it can be better to use HMRC's mileage costs.

Can you not only claim for fuel if using a company car?

pipscot

catkins wrote: »

Can you not only claim for fuel if using a company car?

I'm not really sure what you mean by that - the OP is self-employed and driving a van and therefore when preparing his business accounts, fuel is counted as a business expense.

payless

He also uses a room as an office, a computer, has to print out roughly 100 forms a week out (I understand printing can be charged at 6p a sheet), has to fax them to his employer (I think I can charge for this?). He also has to buy tools.

anyone see the major fault here, and again then the £7000 expenses mean a roughly £2000 less in tax/NI ( not the full £7000)