I have agreed to do the books for my childminder. She and her daughter are a self-employed partnership. It's relatively straightforward but I have a couple of questions as I would hate to make a mistake and I've not come across these before.
1. She has given me petrol receipts. I know that if you are self-employed and use a car for business and personal you add up the total cost of running the car and work out the % that is for business use. The thing is, she has no idea how much it costs to run her car! She basically just kept petrol receipts and thought she could expense it. Any advice on how to deal with this?
2. When she started out 2 years ago (no books or returns have been done so far) she spent approx £3000 on making her outbuilding into a nursery - new floors, loo, kitchen etc. I assume I capitalise this £3000 and depreciate it with straight line method over 10 years?
3. The nursery is in her garden but separate to the house. I have informed her that legally she should have told the council she is running a business from home and be paying business rates but she hasn't. Do I still claim a proportion of utilities on square footage of the whole house? Or is this just flagging up the fact that she isn't paying business rates? I know a lot of businesses run from home don't pay business rates. Have I covered myself by informing her of the legal position and then it's up to her? My feeling is that it's her decision but if she isn't paying business rates then I shouldn't claim utilities. Would you guys agree?
You are a total star, I had no idea there was a specific HMRC agreement for childminders with the NCMA. This answers my question about the petrol. Even though she uses an 'outhouse' as the nursery I'm going to assume it's all part of her home under the agreement as this avoids all the problems of registering for business rates.
So the only thing I would still like some advice on is whether you guys agree I should capitalisation of the £3000 improvements and depreciate on the straight line method over 10 years or not. It's quite a lot to just expense in the first year...does that matter?
I would agree that the outhouse forms part of her home, as long as there is some personal use of it. If it is only ever used for business use then yes technically it would be a commercial building subject to business rates etc, and capital gains due on part of the house sale should that occur at any point.
Having a read of all the pages in this section of the BIM will give you more info on household expenses etc. http://www.hmrc.gov.uk/manuals/bimmanual/BIM47800.htm
I think that the £3000 is going to depend on each individual receipt, some you will find the answers to in the above, some is likely to be toys, equipment etc which if individually are small amounts I would expense them personally as they are not likely to have too long a shelf life with kids around.
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Jenny
Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Sorry, I didn't make myself clear about the £3000. It is all improvements to the room, basically turning a room into a nursery. i.e. flooring, putting in a toilet and shower, putting in a kitchen, putting in central heating etc. It is one payment to a builder for parts, labour etc. to make the room into the nursery. It was a garage/ outhouse before. I have treated smaller purchases like toys, books etc. as expenses in the usual way.
