Self employed expenses

Phil_rich

Good evening,

I have a couple of questions.

I work self employed from home, with a bit of travelling to and from clients work places. This year I expect my income to be in the region of £55k, which means I will need to pay a fair bit at 40%. Now my questions are about reducing the amount of 40% tax i pay.

1. I know I can claim a portion of my house rent and bills as a business expense, but how much can I claim? I use 1 downstairs room soley for my business work. Do I take the footprint of the house in Sq/m and proportion my office size? or do i need to double the footprint (to allow for upstairs/)? Or do I just say its 1 of 9 rooms so its 1/9 of the costs?


2. My wife does not work, she is a stay at home mum to our 3 boys. However I now get her to do some invoicing and admin. Therefore can I start paying her? Would she need to register self employed? I assum I could pay her £500 per month to ensure she stays below the TAX threshold and it would 'save' me £6000 from the 40% barrier?

3. I am looking at leasing a new car throught the business, it would be 75% business and 25% personal use. How do I calculate the benefit in kind I would pay? The car would cost roughly £375 per month, list price of £35k.


Any advice would be greatly appreciated,

Regards,
Phil

alun4

Be careful about specific allocation of space in a domestic dwelling. Do you need a specifc workshop or office?

When you are out, your wife will take phone calls, answer queries and support the business in a real way ... if this is true there should be no problem with prooving real input into the business.

Phil_rich

I do need my own office space, which I have set up and isn't used for anything else. Secondly, yes she answers any calls, but only to say I am out and takes messages, most of her time is spent typing out letters and sorting invoices, What do you mean when you say 'no problem with prooving real input into the business'?

orangeslimes

Phil_rich wrote: »

Good evening,

I have a couple of questions.

I work self employed from home, with a bit of travelling to and from clients work places. This year I expect my income to be in the region of £55k, which means I will need to pay a fair bit at 40%. Now my questions are about reducing the amount of 40% tax i pay.

1. I know I can claim a portion of my house rent and bills as a business expense, but how much can I claim? I use 1 downstairs room soley for my business work. Do I take the footprint of the house in Sq/m and proportion my office size? or do i need to double the footprint (to allow for upstairs/)? Or do I just say its 1 of 9 rooms so its 1/9 of the costs?

I don't think there is a definite rule as such. It should reflect how much you use the room...1/9 might be a good way to do it.

2. My wife does not work, she is a stay at home mum to our 3 boys. However I now get her to do some invoicing and admin. Therefore can I start paying her? Would she need to register self employed? I assum I could pay her £500 per month to ensure she stays below the TAX threshold and it would 'save' me £6000 from the 40% barrier?

She shouldn't register self-employed. You should register as her employer.

3. I am looking at leasing a new car throught the business, it would be 75% business and 25% personal use. How do I calculate the benefit in kind I would pay? The car would cost roughly £375 per month, list price of £35k.

Cars can be complicated tax wise. Might be worth consulting an accountant - can probably save you money...

pleasedelete

Probably need to be a limited company not self employed. It's a bit swings and roundabouts but generally better off if over about 40 k in income. Look for a local business link course. Theyvare ending soon as gvt closed them.
The house can have capital gains tax , insurance and council tax implications which is why you need to find out more.

Basically if you set up a limited company- both earn up to personal tax limit (make sure it's enough to triggerNI). Tne company then pay corporation tax on any profit after salaries/expenses. If you are both shareholders you won't then pay any additional tax on the dividend earning unless it ends up at over 35ish k each (so company would need to make 70k After paying salaries, all expenses and it's corporation tax)

These are very rough figures. Look it up online but do go on a course. Very roughly I would guess that between you you will pay no personals tax and the company will pay 21per cent on the profits. So tne profit is 55k - £15k salaries- expenses. Can't see tax will be more than 7k ish max.

But you need professional advice.

pleasedelete

Plus as you won't be a higher tax payer you will get to keep child benefit in 2013. Which with. 3 children is over 2k a year.

As your wife doesn't work you would definately be better off as a limited company with you both as shareholders. Even if she did work you woukd be a bit better off but basically she has 40k ish of income tax and share dividend tax relief that younare not currently using.

chrismac1

I agree with the last post providing net PROFIT - as opposed to sales or income - is above £25k. A limited company offers a great deal more flexibility about many of the issues raised in this post.

Phil_rich

Ok thanks, I assume Business Link is the bet pace for advice on switching?

InsideInsurance

That or an accountant- most will give a 30 or 60 minute initial meeting for free with no obligation to sign up with them.

malc_b

Points to note:

1. No room in the house is "solely" for business. If it is then that portion of the house becomes liable to capital gains. So I'm sure you use the office/workshop/etc. for personal use as well

2. What you can claim for as a ltd co is less than self-employed. You are now an employee and employee rules apply. Where possible get invoices to have the company name on them. Makes it clearer that it was company purchase. You can rent a room + phone line + phone calls + heating + electric to ltd co. Aim for a slight profit after offsetting costs, mortgage, rates, etc. You'll put this on your tax return and pay tax on it. Apportion to area or some other suitable calculation method. Note the ltd co cannot pay the line rental, phone calls etc. that becomes a benefit in kind and you then have to declare that and pay tax and NI on it. You either have to have separate lines for home and business, or separate billing some how (i.e. you could use 18185 for home and 18866 for business for example). Charging the ltd co for a job lot is easier, as it puts you back in the self-employed rules. You just have to make sensible estimates of costs. You can't reclaim the VAT though.

alun4

InsideInsurance wrote: »

That or an accountant- most will give a 30 or 60 minute initial meeting for free with no obligation to sign up with them.

Indeed, most people are very reluctant to change accountants so do yourself a favour and shop around getting a good feel about how the partnership or individual accountant will help you and guide you. At this stage, they will be pleased to receive the opportunity to gain a new client. You will hopefully get the feel that they will be equally keen to hear from you in the next few years.