I have a new sole-trader client who would like me to bring his books up-to-date to his latest year end of 31st March 2008. He would also like me to produce his final accounts and to complete his 2007-08 SA tax return. No problem. However, his business involves offering his consultancy services on a UK-wide basis, consequently his travelling expenditure is his main overhead. He has asked me to consider whether or not it would be advantageous to claim mileage allowances instead of putting all of his motor expenses through his accounts. He has kept an impeccable mileage log for the whole year, I will certainly do a comparison for him and advise him accordingly. However, I have never made a mileage claim for any client, am I correct in saying that this is not done as part of the SA100 but on a P11D as a claim for mileage expenses at the prevailing rate not paid by an employer?
If your client decides to claim a mileage allowance this can go through his accounts. You simply multiply the mileage allowance, say 40p, by the number of business miles in the period. You then debit motor expenses and credit funds introduced, thereby reducing his taxable profit.
Thank you. I didn't realise that this could actually be processed through the accounts as an allowable expense. However, sorry to be dim but I'm not sure why I should credit the Capital Introduced account? Could I not credit the Drawings account to offset private expenditure or would that just not be correct?
Ah, yes I see. In effect, if the client has actually paid for all of his motor expenses through the business but then wishes to claim mileage allowances instead then all of that moter expenditure would have to go to drawings. The mileage allowance claim is then effectively being paid from private funds, am I sort of in the right area?
Yes thats right Tim. If the motor expenses are paid using business funds but your client decide's to claim a mileage allowance, then the motor expenses should be treated as personal drawings.
