Frequently Asked Questions
The Answers You Need
How long should I keep my tax records for?
You must keep your records for at least 5 years after the 31 January submission deadline of the relevant tax year. HM Revenue and Customs ( HMRC ) may check your records to make sure you're paying the right amount of tax.
What is making tax digital?
HMRC new initiative – Making Tax Digital
What is “Making Tax Digital”?
Making Tax Digital (MTD) is a government initiative to modernise HMRC’s tax system, with the aim of making the whole process of administrating tax simpler and more efcient. All of your tax information
will be in one place (your digital account) and you will be able to pay tax based on your business activity during the year, uploading and updating your tax account in real time.
Will it affect me?
If you own a business, or are self-employed and you pay income tax, national insurance, VAT or corporation tax then it is quite likely you will be affected. This means you could be required to keep track of your tax affairs digitally using MTD compatible software, and to update HMRC at least quarterly via your digital tax account. Eventually this will replace annual tax returns. It will be a legal requirement and there will be penalties for non- compliance.
What do I have to do?
Everyone will be allocated a digital account through the current Government Gateway. You’ll need to log into this and update your information every quarter, using digital accounting software. This
means a move away from desktop record keeping and onto a Cloud-based system.
As your accountant and tax agent, we can advise you on the software you will need and how to comply with the new quarterly reporting requirements.
When is all this happening?
MTD starts with businesses above the VAT threshold limits (currently £85,000) for accounting periods commencing on or after 6 April 2019. Those affected will be required to keep digital records for VAT purposes. It’s likely that all other businesses will have to comply by 2020.
What’s next?
We will be contacting all of our clients in 2018 to prepare you and get you ready for Digital Tax well in advance. In the meantime, if you want to discuss how this affects you and your business please
contact us.
What expenses can I claim tax back on?
If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.
Example
Your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 - known as your taxable profit.
Allowable expenses don’t include money taken from your business to pay for private purchases.
If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.
Costs you can claim as allowable expenses
These include:
Office costs, eg stationery or phone bills
Travel costs, eg fuel, parking, train or bus fares
Clothing expenses, eg uniforms
Staff costs, eg salaries or subcontractor costs
Things you buy to sell on, eg stock or raw materials
Financial costs, eg insurance or bank charges
Costs of your business premises, eg heating, lighting, business rates
Advertising or marketing, eg website costs
If you work from home
You may be able to claim a proportion of your costs for things like:
heating
electricity
Council Tax
mortgage interest or rent
internet and telephone use
You’ll need to find a reasonable method of dividing your costs, eg by the number of rooms you use for business or the amount of time you spend working from home.
Example
You have 4 rooms in your home, one of which you use only as an office.
Your electricity bill for the year is £400. Assuming all the rooms in your home use equal amounts of electricity, you can claim £100 as allowable expenses (£400 divided by 4).
If you worked only one day a week from home, you could claim £14.29 as allowable expenses (£100 divided by 7).
Is there a simply method for expenses
Yes, you can avoid using complex calculations to work out your business expenses by using simplified expenses. Simplified expenses are flat rates that can be used for:
vehicles
working from home
living on your business premise
VEHICLES
Calculate your car, van or motorcycle expenses using a flat rate for mileage instead of the actual costs of buying and running your vehicle, eg insurance, repairs, servicing, fuel.
You can’t claim simplified expenses for a vehicle you’ve already claimed capital allowances for, or you’ve included as an expense when you worked out your business profits.
Cars and goods vehicles first 10,000 miles 45p
Cars and goods vehicles after 10,000 miles 25p
Motorcycles 24p
Example
You’ve driven 11,000 business miles over the year.
Calculation:
10,000 miles x 45p = £4,500
1,000 miles x 25p = £250
Total you can claim = £4,750
You don’t have to use flat rates for all your vehicles. Once you use the flat rates for a vehicle, you must continue to do so as long as you use that vehicle for your business.
You can claim all other travel expenses (eg train journeys) and parking on top of your vehicle expenses.
Click the link below to go to HMRCs website for a calculator https://www.gov.uk/simplified-expenses-checker