You may deduct the running costs you incur to earn your profit (for example the cost of your stock, rent, motoring and so on). But if the expense is not wholly & exclusively for business use then it may not be allowable.
Where a definite part of an expense is incurred solely for your business the cost of that part is allowable. For example a telephone bill can be split between business and private calls and the proportion of the costs including line rentals relating to business calls is allowable.
The proportion of your motor expenses relating to business use is allowable. The cost of travel between your home and your work is not business use and is not allowable. If your total motor expenses are £1,500 but only one-third of your mileage is business you can only claim one-third of that total (£500). Capital allowances are apportioned in the same way. You cannot deduct the cost of parking or speeding fines. Many small businesses find a fixed rate allowance easier.
Trading stock you take for your own use (or of family and friends) is treated for tax as sold at the normal selling price. If you pay nothing for the goods you will need to enter a figure on your Tax Return Form. In other cases enter the difference between the selling price and what you paid. The cost of providing any business services to you, family or friends is not allowable. If you operate a hotel or restaurant the cost of meals taken by you or your family is also not allowable.
If your spouse is an employee (not a partner) in your business you can deduct their salary. You will need to operate Pay as You Earn and account for the tax and National Insurance Contributions. The Inland Revenue may ask you for evidence that you pay the wages to your spouse and that the amount is reasonable for the work they do.
If a business trip requires you to stay away overnight from your home reasonable costs of subsistence including lunches are allowable. Except when you are away overnight on business the cost of lunches is not normally allowable. If you habitually travel on business (for example as a commercial traveller) or make occasional business trips outside your normal pattern of travel you can deduct modest lunch expenses. Where your family accompanies you on a business trip their costs are not allowable.
If you set aside an identifiable part of your home and use it solely for business (for example you use a room or part of a room solely as an office) then a proportion of running costs is allowable. These might include insurance, heat & light and mortgage interest. If the part of the property used for business purposes is also used for some other purpose at the same time then no deduction is due. If the part of the property used for business purposes is so used, exclusively, for only part of the time you can claim part of the running costs, apportioned by reference to the time it is so used. NB. If you use part of your home exclusively for business purposes you may be liable to Capital Gains Tax when you come to sell it. You should also check whether other Capital Gains Tax rules apply.
Incorporation to a limited company from a sole trader or a partnership can avoid the payment of Class 4 NIC charged on business profits for the self employed and can reduce personal tax liabilities by controlling the amount of money drawn from the company in the form of dividends and salary. However, each case is different. Please contact us if you wish to investigate this opportunity further.
We can offer an insurance policy for a small fee to protect clients against additional costs incurred in fighting the Inland Revenue or HM Customs & Excise whilst under investigation. Whilst we cannot insure against the additional liabilities of tax that can arise from such investigations, at least you will have the peace of mind that you can, with our help, put the best case of defence together.
Keep all invoices relating to any capital expenditure spent on the investment property during its lifetime which would reduce any capital gain arising on its disposal. Look to include spouse on the deeds of the investment property to take advantage of both annual exemptions against capital gains.
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