Help me decide if simplified expenses are for me?

thenewbee

Hello - looking for some help.

I'm a sole trader started business in Aug 2014 doing my first tax return. I bought my vehicle that I use exclusively for the business for £1,800 and have since spent almost the same amount on maintenance, parts and tyres. I also spend a minimum of £60/week on petrol costs (but only have receipts for petrol from late Sept onwards due to my other half binning them!)

Would I be better off using the simplified expenses system or claiming my actual costs? I have all the receipts relating to my vehicle maintenance, petrol and running costs, aside from the 7-8 weeks of missing petrol receipts. My mileage from Aug 14 - April 15 is approx 5,000.

If I don't use simplified, do I need to keep the original vehicle receipts for 7 years? I am going to be selling the vehicle in the next few weeks to upgrade to a bigger car, and it's likely the new owners will want the receipts. Do I give them the originals and keep copies or vice versa?

Also if I choose not to use simplified expenses for my vehicle how does that impact on claiming expenses relating to my home? I.e. I have one room I use as my office and understand if I use simplified I can claim £10/month expenses for this room.

Many thanks in advance!

jimmo

Based on simple sums it’s a bit of a no-brainer. The simplified expenses system is not for you.
5000 miles @ 45 ppm = £2250.
That is nowhere near to covering the £1800 you have spent on maintenance and £60/week on petrol, never mind depreciation (in the form of capital allowances), insurance, road fund licence, breakdown cover etc, etc.
Having said that your actual expenditure figures will stand out like a sore thumb to HMRC.
Spending £1800 on a car is not a lot nowadays but spending the same amount on maintenance in a few months is.
Using a car 100% for business purposes would be incredibly rare unless your declared income suggest you have the means to run another car for private purposes.
I won’t bother to do the precise maths but petrol at £60/week for 7 months to do 5000 miles wouldn’t even compute in my 17yo Mondeo.
If your figures are accurate then, by all means, go ahead and claim tax relief on the traditional (non-simplified) basis but, seriously, expect HMRC to come looking.

thenewbee

Is it really that rare to have a business vehicle & only use it for business? It's a focus 2ltr petrol estate concerted to a dog van (so only 2 seats) hence not using it for anything other than business - it's impractical, guzzles gas & it stinks! I appreciate I've spent way too much on maintenance - obviously with hindsight I would never have bought the damn thing but once I bought it I needed it to keep running so I could keep working. Sick of it being unreliable though which is why I'm getting a newer car soon.

Thanks for your input.

jimmo wrote: »

Based on simple sums it’s a bit of a no-brainer. The simplified expenses system is not for you.
5000 miles @ 45 ppm = £2250.
That is nowhere near to covering the £1800 you have spent on maintenance and £60/week on petrol, never mind depreciation (in the form of capital allowances), insurance, road fund licence, breakdown cover etc, etc.
Having said that your actual expenditure figures will stand out like a sore thumb to HMRC.
Spending £1800 on a car is not a lot nowadays but spending the same amount on maintenance in a few months is.
Using a car 100% for business purposes would be incredibly rare unless your declared income suggest you have the means to run another car for private purposes.
I won’t bother to do the precise maths but petrol at £60/week for 7 months to do 5000 miles wouldn’t even compute in my 17yo Mondeo.
If your figures are accurate then, by all means, go ahead and claim tax relief on the traditional (non-simplified) basis but, seriously, expect HMRC to come looking.

HappyMJ

thenewbee wrote: »

Is it really that rare to have a business vehicle & only use it for business? It's a focus 2ltr petrol estate concerted to a dog van (so only 2 seats) hence not using it for anything other than business - it's impractical, guzzles gas & it stinks! I appreciate I've spent way too much on maintenance - obviously with hindsight I would never have bought the damn thing but once I bought it I needed it to keep running so I could keep working. Sick of it being unreliable though which is why I'm getting a newer car soon.

Thanks for your input.

You technically can't stop off at a shop on the way back from a job and pick up a pint of milk for your own personal use at home. That then turns the remainder of the journey into a private journey. No one would actually declare that they stopped but my example just shows that a business vehicle can be used privately and simply stopping for any number of reasons happens quite often. You're supposed to come home, change cars then go back to the shop that you just passed minutes ago in the business vehicle and pick up the pint of milk.

jimmo

thenewbee wrote: »

Is it really that rare to have a business vehicle & only use it for business?

It may not be that rare but it certainly is rare for HMRC to accept a claim for 100% business use without at least looking into it. Your reasons for using that particular vehicle solely for your business seem quite strong.
Having said that the world and his wife seem to claim that their vehicle is only ever used for business purposes but wherever I go shopping there are quite a number of vans, pick-ups and rep-mobiles in the car parks and they can’t all have business dealings with Tesco.
The point here is that if you claim that your vehicle usage is 100% business it is relatively easy for an experienced taxman to catch you out at interview and, if that happens, it is not so much the tax for the odd “clandestine” shopping trip it is the, now, established fact that you are a liar that enables the taxman to assume that every other figure in your Tax Return is also a lie and make his own estimate of what your profits were.
It is, I think, quite common for professional tax advisers to advocate claiming no more than 90% business use just to keep the taxman off your back. That may be worth thinking about.
As regards your Focus the taxman won’t punish you for buying a lemon. It happens to us all and, as long as you have the receipts, that won’t be a problem.
Similarly your missing petrol receipts shouldn’t be a problem. The receipts you have really should be enough to establish a pattern of regular expenditure to enable a reasonable estimate of what you spent in the missing 7 to 8 weeks.
When you sell the Focus I would say that it is entirely reasonable for you to pass on the original receipts to your buyer and for you to keep copies for tax purposes but that’s just me. There is no official line. If I was a buyer I am not too sure I would be impressed with your receipts for £1800 in less than a year. Depending on what you paid for it could mean that all the ageing problems of your particular car have been sorted but I would suspect that the car is a lemon and choose not to buy from you.
On non car matters if you use a room in your home exclusively for business purposes it is probable that a properly constructed claim would be far better for you than using the simplified HMRC rates but, similarly to your car issues, you need to be absolutely confident that the use is 100% business.
I am not in business so it doesn’t really matter for me but my home “office” includes the boiler, tumble drier and computer where I do my banking and watch live sports whilst my wife is watching Corrie etc in the living room.

chrismac1

The question I ask clients who claim 100% business use of a vehicle is "What vehicle do you use for personal journeys?" If they have a car available then prima facie 100% is at least a viable argument. If not I recommend that 97.5% is the maximum business use which should be claimed.

There are drawbacks of simplified expenses, especially if this proves to be a successful business. That's because accounts prepared like this do not conform to International Accounting Standards. Hence banks and other organisations such as tenancy agencies may not accept them in support of loans and guarantees.

zygurat789

jimmo wrote: »

It may not be that rare but it certainly is rare for HMRC to accept a claim for 100% business use without at least looking into it. Your reasons for using that particular vehicle solely for your business seem quite strong.
Having said that the world and his wife seem to claim that their vehicle is only ever used for business purposes but wherever I go shopping there are quite a number of vans, pick-ups and rep-mobiles in the car parks and they can’t all have business dealings with Tesco.

Spoken like a true taxman, Levi would have been proud of you.
You have grossly exaggerated your target population "the world and his wife".
You have absolutely no evidence at all that any vehicle you have seen in a Tesco car park is the subject of any expenses claim for tax relief, let alone one for 100%. Your IR paranoia is still with you.
These statements may not be libellous because they are not against any named person, however, they are typical of the [STRIKE]lies[/STRIKE] misinformation used by HMRC in their interviews.
Since you are innocent until proved guilty the vast majority of taxpayers are honest and I'm sure most only make an honest mistake and suffer unduly for it.

thenewbee

Thanks everyone I've done my first tax return on cash basis claiming actual figures for expenses & car as capital allowance.

purdyoaten

zygurat789 wrote: »

Spoken like a true taxman, Levi would have been proud of you.
You have grossly exaggerated your target population "the world and his wife".
You have absolutely no evidence at all that any vehicle you have seen in a Tesco car park is the subject of any expenses claim for tax relief, let alone one for 100%. Your IR paranoia is still with you.
These statements may not be libellous because they are not against any named person, however, they are typical of the [STRIKE]lies[/STRIKE] misinformation used by HMRC in their interviews.
Since you are innocent until proved guilty the vast majority of taxpayers are honest and I'm sure most only make an honest mistake and suffer unduly for it.

I think that this is a little unfair. Even though I am an ex taxman also, I did spend considerably longer working 'on the other side'. A claim for motor expenses with no add back for private use is always more liable to attract attention than even a small add back ( as chrismac says) - at least the taxpayer or agent has considered the option. I also tended to exclude at least 5% of a mobile unless persuaded otherwise. Sometimes it really is not worth encouraging an investigation for something so trivial.
No doubt you will disagree and come back with some form of response which, rather than provide assistance or advice, will directly attack those who offer a different opinion - as you tend to do. I certainly will not be responding.

zygurat789

purdyoaten wrote: »

I think that this is a little unfair. Even though I am an ex taxman also, I did spend considerably longer working 'on the other side'. A claim for motor expenses with no add back for private use is always more liable to attract attention than even a small add back ( as chrismac says) - at least the taxpayer or agent has considered the option. I also tended to exclude at least 5% of a mobile unless persuaded otherwise. Sometimes it really is not worth encouraging an investigation for something so trivial.
No doubt you will disagree and come back with some form of response which, rather than provide assistance or advice, will directly attack those who offer a different opinion - as you tend to do. I certainly will not be responding.

Purdy, you've missed the point.
I have no doubt that I was not being unfair, Jimmo made the following statement.

Having said that the world and his wife seem to claim that their vehicle is only ever used for business purposes but wherever I go shopping there are quite a number of vans, pick-ups and rep-mobiles in the car parks and they can’t all have business dealings with Tesco.

He has no evidence for the outlandish assertions he made which, in my experience, is typical of taxmen's tactics. The statement above is similar to the claim for 100% business use which he says is OTT.
I made no comment about any reaction by HMRC staff to a particular claim
or the best way for an agent to broach such a claim.

How can anyone now believe anything Jimmo says after he has made claims like that

quietriot

zygurat789 wrote: »

He has no evidence for the outlandish assertions he made

zygurat789 wrote:

These statements may not be libellous because they are not against any named person, however, they are typical of the lies misinformation used by HMRC in their interviews.

Pot, meet kettle. Unless you've any evidence to support your disparaging claims?

FYI, you are far and away the least respected of the tax professionals that post here.

Chrismac's anti-HMRC agenda is grating, but his technical advice is always spot on.
Ditto Pennywise, although it's more despair against HMRC than hatred.
Purdy makes mistakes, but will always admit to them and stand corrected rather than just leaving the conversation or digging in and continuing to insist he's right.
Jimmo's technical advice is based on years of experience and he always seems to post with the intent of helping others get it right, rather than showing off how right he is himself.

You have all the negative aspects of the above, and none of the positives. You're the cutting tax board's appendix - serves no discernible purpose other than to cause occasional discomfort, and could be removed with no negative effects.