Expenses guide 2013/2014. Unlimited accountant support and online software

Transcription

1 Expenses guide 2013/2014 Unlimited accountant support and online software

2 Expenses guide 2013/2014 Contents: It s no small feat running a company and one that is going to inevitably rack up expenses, from paperclips to salaries. As a director you need to know what you have to account for, how to do it, and what expenditure you re entitled to claim back. When claiming back expenses, any business expenditure which was paid for personally can be reimbursed by your company as and when you choose. For all the other business expenses which your company incurs it may receive tax relief. You may now find yourself asking what exactly is tax relief? Before you re entitled to take a dividend from your company, you are required to apply Corporation Tax at 20% on its profits. Your allowable business expenses then reduce the amount of profit which is liable for Corporation Tax. So for every 100 of legitimate business expenditure you save your company 20 in Corporation Tax. More allowable expenses mean less taxable profit. For example, if your company achieved a turnover of 10,000 with 1,500 pounds in allowable expenses, you would only pay Corporation Tax on 8,500. This is an isolated example to demonstrate how expenses receive tax relief, whereas, your dividends would also be affected by PAYE salaries, Flat Rate VAT and income thresholds. Most common allowable expenses Accountancy fees Accommodation whilst on travel Business mileage Charitable donations Childcare vouchers Christmas party / Events Company formation fees Entertainment Equipment Eyesight test & glasses General office purchases Gifts Medical insurance Pensions Professional subscriptions Salaries Telephones & internet The use of your home as an office Travel & subsistence Training p.03 p.03 p.03 p.04 p.04 p.05 p.05 p.05 p.07 p.07 p.08 p.09 p.10 p.10 When expenses aren t properly documented they can become problematic, so to avoid coming unstuck you need to keep accurate records of everything. Bear in mind that you re legally bound to keep company records for 6 years after their respective financial year-end, and are therefore still liable to incur a possible 3,000 fine during this period. p.01

3 Expenses Claiming limited company expenses Your company s expenses can be paid in two ways, directly from the company account or as a reimbursed expense when paid for out of your own pocket. With regards to reimbursed expenses, directors are able to refund themselves at any time from the company account, but must keep receipts to justify the expenditure. The rule of thumb when claiming for expenses is that you can only claim within HMRC s parameters, which define allowable expenses as being Wholly and exclusively incurred in the performance of your duties. HMRC will allow your claim if you meet these conditions. When there s a dual purpose to your claim it s unlikely to be accepted, because the expense would be needed regardless of the business, for instance, clothes. However, if the dual purpose is only incidental because of a business necessity the claim may still be valid, such as protective work clothes or uniforms that could also be used for personal use. The Snap App A quick and practical way to record receipts on-the-go is with our smartphone app Snap. Take a picture and let Crunch do the rest! p.02

4 Accountancy fees Business mileage You can claim relief for the full cost of your company s accountancy fee, providing their professional time is spent working on your company, and not your personal accounts. If they do provide paid advice or time working on your personal accounts this will be personally taxable on your Self- Assessment and need to be recorded as a Benefit in Kind on your P11d. Accommodation whilst on business travel If you use your personal vehicle for business travel you can claim the following rates. Ensure that you keep receipts of everything and a mileage log. Also take into consideration that HMRC are hesitant towards accepting excessive use of taxis. Planes, trains and ferries can also be covered under business mileage. Tolls, congestion charges and parking fees are all allowable expenses. However, parking fines receive no tax relief. Full tax relief can be claimed on accommodation used when travelling for business-related purposes, providing the expense is reasonable and not excessive. HMRC will likely question the necessary need for you to stay at the Ritz, conversely, this doesn t mean you have to travel on the breadline. Lunch is reclaimable whilst on business travel if you exceed five working hours, this cover extends to dinner if you are working for ten hours. Notice: We provide a mobile app to simplify recording your mileage. Mile Cruncher streamlines the process of claiming by recording mileage. Rate Per Mile (On first Rate Per Mile (On each Vehicle 10,000 miles in tax year) mile over 10,000 miles) Cars & Vans 45p 25p Notice: We have developed a mobile app to simplify recording expenses. Motorbikes 24p 24p Through Snap you can take a photo and have the details automatically uploaded to your account. Bicycle 20p 20p p.03

5 Charitable donations Donations made to a registered charity, providing they are wholly and exclusively for the purpose of trade, will grant you tax relief on your company s taxable income. You can still receive some relief even if the purpose is not trade related. Childcare vouchers If you fall under the Basic Rate tax bracket you may be able to supply each employee with up to 243 per month in childcare vouchers, providing the employee meets certain conditions (listed below). For Higher Rate tax earner you may be able to supply 124 per month. Additional Rate tax earners may be able to supply 110 per month. There are two ways in which you can allocate payment, by direct agreement with a childcare provider or through a voucher scheme. If you decide to go through a direct channel, you will need a letter between you and the provider confirming the amount you intend on paying. A child is eligible up to his or her 15 th birthday (16 th if disabled). In order to qualify for childcare you or your employer must meet the subsequent conditions: Must have the child/stepchild living with you. Be the one providing the maintenance costs for the child. Use a registered carer. You cannot use a relative as a carer unless they run a childcare business and are looking after other children also. p.04

6 Christmas party/events This is the most likely field to come under scrutiny by HMRC, as it carries the biggest potential to be abused by businesses. You are entitled to host an annual event as a tax free benefit, most commonly a Christmas party, providing you meet certain conditions. You may invite a partner but you must not exceed expenditure of 150 per head (including VAT). You and your partner count as one and this budget is limited to once a year. The 150 budget remains the same for multiple events and is a collective cost. Company formation fees Any necessary preliminary costs to running your company can be claimed back the same as if they were incurred now you re trading. This covers all the relevant expenses, anything from printing to supplying the necessary equipment for your company. Any accountancy fees or mandatory formations costs you paid can also be claimed. Entertainment for customers/suppliers Business entertainment is not an allowable expense and all claims for entertainment will be taxed. The company can still cover the costs but this will be added back to its profit s before Corporation Tax is calculated. Bear in mind that it may still be more financially beneficial to pay for it through your company then out of your own pocket. p.05

7 Equipment Gifts The cost of anything that is necessary and essential for your duties as a director receives tax relief. This covers computers, printers and software. You may also claim reasonable relief towards the cost of equipping/furnishing an office, e.g. chairs, bookcase. This may appear to hold a dual purpose but as it is a consequence of a business necessity it is allowed. As long as the personal use is insignificant it will not be treated as a Benefit in Kind and you will not have to pay National Insurance and tax on it. Eyesight tests & glasses You can claim for vision tests providing it is necessary for the initial or continued use of visual display equipment in your duties. However, you are unable to claim for glasses as they offer a dual purpose and are not exclusively related to business use, unless they are prescribed during your time at work for visual display. General office purchases Minor purchases with receipts that are used wholly and exclusively and necessarily in the performance of your duties are claimable. This includes postage, computer consumables and office stationery. A gift to an employee may be treated as a Benefit in Kind and taxed accordingly unless it is considered trivial. Refer to our Help Centre for more information on Benefits in Kind. A gift to someone outside of the company that doesn t consist of food, drink, tobacco or vouchers and is under 50 per annum qualifies for tax relief. Medical insurance Your company may provide financial support towards medical insurance for employees. However, unless it is part of their one free check a year, it will be regarded as a benefit in kind and your company will be liable to NIC tax at 13.8%. Pensions Once your company has set up a contract with a pension provider it can provide payments to your pension and receive 100% tax relief as an allowable business expense. There is no tax relief cap to how much you can contribute to pensions through your company.

8 Professional subscriptions Claims to certain HMRC approved professional bodies which are relevant to your employment are allowed. If it is not directly relevant then it is strictly prohibited. Salaries To put it simply, IR35 is used to determine whether you are employed by your client or providing self-employed contracting services through your limited company. For more information on IR35 visit our article in the Help Centre. You may pay a recommended salary up to the National Insurance threshold, i.e. before you become liable to start paying contributions, which stands at 7,696 for 2013/14 tax year. You will save money by paying the lower monthly salary as after 7,696 you will have to begin paying NIC. A salary paid to you as an employee or as the director of your company is regarded as an allowable expense, as are any National Insurance Contributions. Providing you fall outside of IR35 legislation and have no contract of employment between yourself as the director and your company, you may choose the level of your salary. IR35 Help If you re worried about your IR35 position we can arrange for an expert to assess your situation. p.07

9 Telephone & internet If you are using a home or mobile phone line for the dual purposes of both business and personal calls, then you cannot claim for line rental, because echoing what was said earlier there exists a dual purpose, and it is not exclusively for business use. You can claim expenses for the business phone calls used on that line, or alternatively, you could set up a separate line in the company s name, funded by the company and charge line rental for sole business use. If personal calls are used on this line the company will incur a Benefit in Kind and you will be taxed accordingly. Your business can provide a mobile phone for work use and any personal calls do not need to be recorded as benefits. With regards to the Internet, if the rental is set up in the company s name and there is no significant personal use then there are no taxable benefits. However, if the line is set up under your personal name then you can only charge a portion of the cost to business use. Help Centre Our help centre provides a wealth of additional information including how to record all these expenses in the Crunch system. p.08

10 The use of your home as an office If it is necessary for you to work at home and it is not just for the purpose of additional work being conducted there, then you are entitled to 4 a week cover without having to report it on your P11D. When you exceed the prescribed limit, your claim may come under suspicion from HMRC, and should consequently only be claimed for if it s absolutely necessary and a significant cost. When claiming you will need to provide a fully functional and exclusively designated work space, not just a kitchen worktop! You also need to actually use this work space for your business. Due to the dual function of your house as a business and personal space, it s difficult, nigh on impossible, to calculate how much gas, electricity and insurance cover your business area consumes. You have to make a genuine and proportionate estimate with regards to what s actually being used. For example, a four roomed house in which one room is designated to your work, will usually allow you to claim a quarter of the total relevant expenses. Providing a lease agreement has been arranged between you and your company for your company to rent the office from you. If you work from home and are the company s only staff member, you can claim a proportion of your council tax cost. However, depending on how much you use your home for business, you may have to pay business rates rather than council tax. Refer to our blog for a more in-depth review: p.09

11 Travel & subsistence When claiming travel as an expense you should consider that HMRC provides allowances only for employees who move between destinations during work, and not for those journeying to and from work. If you have previously worked under an umbrella company you may be familiar with the 5 allowance. This unreceipted, fixed allowance, does not apply when you re working through a limited company. Instead, you must claim for your actual costs. It is regarded as an allowable expense if you are travelling to a temporary workplace. Essentially, this is a place you are travelling to perform a transient task or for a limited duration. It ceases to be a temporary workplace if it is known it will be, or develops to be a place of continuous work for over 24 months. Understand that it stops qualifying as an expense from the moment you know the workplace will exceed 24 months (as is a common pitfall), when the duration of work reaches 24 months. Meals, tolls, congestion charges and parking fees can all be claimed for under travel and subsistence. Training If the training is aimed at improving your current skills which you apply in your work, then your company can claim for these. Additionally, you can claim travel and accommodation. HMRC are particularly averse to courses like MBA s, as they offer new skills and knowledge rather than building on existing skills. In certain situations they are allowed but only if you rigorously demonstrate that they are reinforcing/ improving your existing knowledge/skills. This document contains guidance only and is not a substitute for tailored advice from a Crunch accountant. Contact your Crunch Account Manager for advice pertaining to your specific business and situation. All content is copyright E-Crunch Ltd p.10