I have a potential customer who is a friend of a neighbour. He's asked me if I could help with his Self Assessment. It's his first year as self employed and he started in October, prior to this he was employed through PAYE and has his P60.
He is an electrician and previously owned a car which he started to use for his business, got busier and traded the car in for a van. One person has told him he cannot claim for the van and another person has said he can. So question one is Can he claim AIA for his Van? He paid around £2.5k for the van.
He has since purchased a garden shed for £300 for which he has the receipt. This is to store his tools and other equipment that he uses for his job.Question two, can he claim for the shed?
Also he has a set of tools which he started to buy before he was self employed as he had already planned to go self employed so started to get a collection of tools ready for when self employment commenced. He says he doesn't have receipts for most of them but can he claim say a fixed amount of what he thinks they are worth?
Sounds like he is pretty well organised. He's told me he has got all other receipts in date order in a file for each month. I'm keeping my fingers crossed he has.
He just needs to sort out his proof of earnings and what other things he can claim for.
Elaine
-- Edited by Elaine R on Friday 7th of June 2013 05:27:34 PM
The van is allowable. If he (or his wife) has a car as well, claim 100%. If not, disallow for private usage (usually 10-15%), as he will never get away with saying he never uses it privately. Bear in mind the part exchange on the car will be capital introduced.. so if he PAID £2.5k but got £500 part ex, then you bring the van in at £3k
I would have no problem putting the shed through as a fixed asset. If he tells you it is only used for his tools and business items, then you should take him at his word. I always try to get these queries answered in an email, and if not, I put it in the accounts covering letter - bullet points of what he has told you. If he signs the return with that letter in tow, then you have done your job.
Personal tools are fine, but they should be brought in at the value at which he could sell them at on the day they are introduced. A rough estimate, that doesn't take the p*ss will be fine. Get HIM to write you a list with values, and keep that on file as evidence.
Not quite sure where food came from before, but only an overnight meal where there is also a hotel bill should be claimed. If he goes on the odd one off trip for a job (where he comes home afterwards), then a butty/coffee is fine. If he is always going on long trips (and coming home) then a butty isnt fine.
You can take the HMRC webinars on these subjects, they are really good.
EDIT: Personal assets he brought into the business cant be AIA, has to be 18%
-- Edited by FoxAccountancyServices on Friday 7th of June 2013 06:50:03 PM
Hi Elaine. To a greater or lesser extent he can claim for anything he uses in the business. I'm sure you're aware of dual purpose, such as food.
A good instruction to the client is to pay everything he uses during his activities through a dedicated bank account. Then you make a judgement as to how often and how much he is spending and where.
Keep in mind 'reasonable'. If he's dining out every day then have a look at the receipts. If it's the Tandle hill Tavern or the Sportsman then he could just as easily take a butty to work so there is nothing essential about eating there. Entertaining? Only for a contract bigger than half the rest of his yearly sales.
For the van. Same as above. To the extent he uses it in the business, it is allowable. Essential question is: does he have another vehicle available for private use? The personal vehicle may not be in his name but if it is in the household then the likelyhood is that he uses that one for Blackpool and Tesco's etc and not the van.
Re. the garden shed. I have doubts whether you should claim it. If you claim for one round here, aren't you pretty much saying the tools are valueless? If he insists, then that might put the brakes on a claim for capital allowances. Ask him if they are safe in there.
Don't know that you'll find proof of earnings. Basically, there isn't a carrot but there's a big stick if they're under-declaring income. The dedicated bank account helps you out here. If he's deposited monies in there, then unless otherwise stated, it is business income. If he's deposited trade income elsewhere and not provided a duplicate sales invoice, then he's only fooling himself.
He has told me he has a business account so imagine the proof of earnings are in there. Not sure what kind of invoice he gives to customers, i'll ask if he provides a proper invoice.
I'm guessing he can claim a nominal amount for his tools as if asked to prove they are there as evidence. That's how I just read it on HMRC site but correct me if i am wrong. He hasn't got the receipts but did buy them from B & Q so could get an estimate from there.
"The van is allowable. If he (or his wife) has a car as well, claim 100%."
Oh shoot. I'm doing 'good cop' and 'bad cop' with Michelle. Good though because my vague advice has provided ammuntion and I couldn't agree more about getting a list of tools introduced. Take what you can from it Elaine. Michelle is urging : "the van is allowable"; "never get away with saying"; "take him at his word"; "write you a list". It goes further and identifies a usual truth of 10-15%.
I advise caution. There is no usual. Never mind what you can get away with when you're starting out. Maybe I'm asking you to run before walking but always ask the questions; if only to yourself : How much are the shed contents insured for?
Get a mileage record. I'm not doing the job for you but I did bring in the matter of a private vehicle. With AIA, the percentages are changed quite often and yes, that year you can claim 100% of the business proportion. You're sure to be asked for nonsense food claims at some point.
I think caution is always advisable, but so is common sense.
Caution is getting written answers to queries, asking them to value items, making sure the accountants reports says "these figures have been created based on the information and explanations you have provided"
Common sense is thinking about the situation and whether the picture you have created within the accounts is fair and realistic - dare I say... at least to HMRC! Its not an audit, and its not for us to pre-empt/investigate everything the client says - because the fees are usually low and don't warrant the work - and HMRC fully understand this.
If this man has a van, and also has a car, the revenue will accept that he probably uses his car over the weekend and in evenings.
If his wife has a car, HMRC will accept that he probably spends time with his wife over the weekend and evenings, and that they will use her car when out for private journeys. Maybe he will make the odd personal trip in the van, but they wont waste their time proving what could be peanuts.
If there is no other vehicle, then of course, there has to be some disallowance. An email to the client asking for the business percentage is all that is required.
You can advise them to keep a mileage log, you can also look at the fuel costs and whether their business is local or national. What do you think it says to you? Does it look like he is driving all over the place but only working down the street? If so, up the private usage. Chat with him, and yes, if he tells you he only uses it 10% of the time, accept it, and note it in your letter "The motor expenses have been included per your information on the business percentage of 90%" The letter of engagement backs up his responsibility to be honest, the accountants report declaration clearly tells him the figures are based on his answers.
Same for the shed - The covering letter says "Fixed Assets include £X for the shed, which you have stated is only for business use"
Is it a £200 shed? Is it a £4000 shed? Look at the invoice - does it looks like a summer house? What level of effort do you feel this item needs? Common sense and Caution - the higher the value, the more caution. BUT still, its if the client wants it to be shown in the accounts, even at £4k, its reasonable for you to accept that he may be using the shed for all bits tools and nothing else. Its then his job to prove that, to HMRC in an investigation. As long as your questions, advice and his replies are in writing, you cant do anymore.
I know there are tons of text on the HMRC website saying the intricacies of it all, but at the end of the day, in reality, this is enough for a job of the type that I know Elaine will be doing. HMRC HAVE to be very very precise on the website (you will note most of it is called "guidance") If you don't follow the precise details, it doesn't mean they will throw it out in an investigation. They're not going to say "oh well, you have no mileage log for the van, so you cant have any business usage on it" They will listen to the explanations and apply common sense too. "Do they think that's a reasonable answer"... cos in reality NONE OF US can really know what the client has actually done for sure!?
That's my opinion, its general and I know certain factors can change this answer, and if Elaine mentions any of those factors, I can re-advice but for a bog standard simple self assessment by a small sole trader, the above is what, I think, is fair and widely practiced, for that matter.
Not sure I like the way that site lays out its replies? Very confusing to read! And how punchy are some of the members? Glad everyone here is a bit more civillised!
This is the part that I see sense with....
"But on the other hand, if something like a filing cabinet or a tool cupboard, which would normally be housed inside a room in a building, would qualify as plant, I dare say one could classify the storage shed as a (larger than usual) "tool cupboard" which just happens to be located outside because it won't fit inside."
I read the structures guidance to be more about agricultural sheds, or contracting type efforts. That's my personal interpretation.
I think this is also a fair comment being made
"That said, I can't really see HMRC getting too excited over 200 being wrongly classified, given your t/o."
Everyone will have a different decision in this, and the only time you can know if you are right or wrong is when HMRC look and say "not having that".. and I'll bet you one inspector would say different to the other (seen that before!) SO, again it really goes back to you looking at the invoice, and thinking about what you see as being reasonable. Like Wella says - have your reasoning ready... and of course - warn the client in your letter, and let him decide. He will be happy you are putting his need for a low tax bill first, impressed by your knowledge of the law, and IF an inspection arises and IF gets kicked out, he will know you warned him, and that he signed knowing there might be a small chance of come back.
HTH :)
-- Edited by FoxAccountancyServices on Sunday 9th of June 2013 10:05:57 AM
My client has occasional extra men working with him. One is self employed and 2 are at college. How should I record this as presumably they should all be taxed even the ones at college and then claim the tax back through self assessment. The other one is self employed so hopefully has already registered for self assessment but I will double check. For the 2 college boys is there any other way or do they have to go though self assessment?
Presumably the college boys have no other income so can sign a P46. If neither has wages that create a liability, then there's no need for a PAYE scheme.
The self employed casual... make sure they work for other people so cant be caught by IR35. If they do work for others, just get an invoice like you would for anything else.
Also, is there a CIS issue with this business? You haven't mentioned the field he works in.
