The 123 Guides

Expenses - Detailed Guide P2

Business Structure Review

The 123 Way

What is included as standard for a fixed fee of £65.00 per month:

Business structure review - are you contracting in the best way for your needs.

- Free bookkeeping software

- Year end accounts

- Corporation tax return (Ltd)

- Payroll bureau

- Dividend administration (Ltd)

- HMRC compliance

- Companies House compliance (Ltd)

- Completion of VAT returns

- Completion of Annual return (Ltd)

- Personal taxation return

- Unlimited help and advice

Home Office Costs

Option 1:

The easiest method is to claim the flat allowance of £208 per annum, no receipts are required and this is allowed by HMRC if you use part of your house as an office. Simply claim £17.33 on your bookkeeping spreadsheet each month and it will be included in your accounts.

Option 2:

If a reasonable proportion of your fee earning work (i.e. not business administration but actual fee earning work for your business) is carried out at home, you can claim the actual expenses you incur relating to the running costs of your home office. Most commonly, this cost allocation is done by apportioning the costs based on the total number of rooms in your house / flat (excluding kitchen and bathroom), by the area available for business use.

Note: you will need to be able to show how you calculated the home office claims - i.e. you will need to keep your bills and a record of how you worked out the apportionment - see the example below.

Example One.

John and his girlfriend live in a two bedroom flat. One of the bedrooms is dedicated to John’s home office for his business. The proportion of housing costs that can be claimed as business-related expenses is 1 (the spare room) divided by 3 (two bedrooms and a lounge, kitchen and
bathroom are excluded from the calculation) which gives 0.333 of all costs that can be claimed. See below for costs allowed.

Example Two.

Katy lives in a shared 3 bedroom flat with 2 friends. Not having the luxury of a spare room for her business, she has dedicated half of her
bedroom as her home office. Because all living costs are split evenly between the 3 flatmates, the proportion of housing costs that can be claimed as business-related expenses is 0.5 (half of her bedroom) divided by 1.33 (Katy’s costs cover her bedroom, and shared 0.33 use of the lounge) which gives 0.375 of all costs that can be claimed.

The following home office costs can be claimed using the percentage worked out from above:

Rent
If the property is rented the amount of the rent reflects the existence of the room or portion of the room that is used for business. Therefore a deduction can be permitted for a proportion of the rent paid.

Mortgage interest
If the property is owned on a mortgage the amount of the mortgage interest reflects the existence of the room that is used for business. Therefore a deduction can be permitted for a proportion of the mortgage interest paid. You can not include the capital as this is a personal asset you are purchasing.

Gas/Electricity
If the room is to be used for work it must be lit and heated to the extent necessary to carry out the work.

Cleaning
If the room is for work it must be kept in a fit state for the work to be carried out. Unless a cleaner is employed there is unlikely to be any significant expense exclusively incurred in cleaning the room.

Council tax/rates
A room set aside exclusively for business contributes to the value of the house. Therefore a deduction can be given for a proportion of Council Tax.

Telephone & internet
The cost of business telephone calls made from home is deductible whether or not any part of the home is set aside exclusively for business use. The same is allowable for broadband internet. However if neither contract is in your business name, you may wish to apportion the business expense by using your home office percentage.

Water charges
In general, water charges cannot be claimed as a business expense.

Pension Contributions

Pension contributions reduce your overall tax liability. They are included on your Self-Assessment tax return so ensure you keep a record of the amounts.

Business Entertaining

Business entertaining is NOT an allowable expense. You SHOULD claim for any such entertaining in your bookkeeping spreadsheet however the cost will not be included when calculating the taxable profits of your company. It therefore does not reduce your company’s tax liability.

IMPORTANT

To avoid potential issues with items and services that you claim as business expenses, you must ensure that any contract is taken out in the business name and not your personal one (unless claimed under the home office expense calculation) You must also ensure that the payment comes from the business bank account and not your personal account.

Remember to always keep receipts and invoices, preferably in the company name.

Running a Limited Company

Being a Sole Trader

Responsibilities

Business Bank Account

Drawings

Bookkeeping & Records

Trading Accounts

Business Tax

VAT - The Basics

VAT - The Choices

Invoicing

Expenses

Expenses - Detailed Guide P1

Expenses - Detailed Guide P2

Personal Tax/Self Assessment

Importance of Information

123 Income Illustrator

The 123 Income Illustrator shows you what you can expect to take home from a given contract.

It also compares the differences between freelance contracting through your own Limited Company, through an Umbrella Company, as a Sole Trader or if you were to return to full time employment.

The123 Income Illustrator

Important Dates

Calculators

FAQs

Disclaimer:
This information is for general information only. No responsibility is taken for any action taken or refrained from in consequence of its contents. Always seek professional advice before acting.