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An optional system of fixed rate expenses applies for unincorporated businesses. We consider the optional rules which allow the use of a 'simplified' fixed rate deduction instead of actual costs.
The use of fixed rates is available to anyone who is self-employed. Partnerships can also use them as long as all the members of the partnership are individuals.
Principally they apply to the following:
We consider the rules for calculating the fixed rates and when these are available.
Rather than claiming the actual deductions for purchasing, maintaining and running a motor vehicle or motorcycle, businesses can calculate allowable expenditure using a fixed rate based on mileage. The rates are:
It is important to note that once the fixed rate is used for a particular vehicle, the same method must continue to be used for as long as the vehicle remains in the business. It will therefore be important to keep a detailed mileage log/diary. Additional business costs that are journey specific, such as parking fees and congestion charges will still need to be recorded and claimed. If capital allowances have been claimed the fixed rate cannot be used. Additionally, where for example a van has been claimed as an allowable payment under the cash basis, then the fixed rate cannot be used.
It is very common for self-employed individuals to work at least some of the time from home. Some tax relief is available if part of a home is used solely for the purpose of the business for a specified time. It is important however to ensure that part of the home is not exclusively used for business purposes unless absolutely necessary as this restricts the capital gains tax main residence exemption on the eventual sale of the home. Instead of recording actual costs on running a home (e.g. utilities, telephone and internet charges) and claiming a business proportion, a fixed rate deduction can be claimed. If you decide to adopt the fixed rate then the following rates apply:
Hours worked is the number of hours spent wholly and exclusively on work done by yourself or an employee in your home wholly and exclusively for the purposes of the business. You can revert to actual costs in another year after choosing to use the fixed rate for one year.
If you use premises both as a home and as business premises (for example, a pub), the total expenses of the property need to be adjusted for private use. A fixed scale can be used to adjust for the private use which will increase taxable profits. Only premises which are used mainly for the purposes of carrying on a trade will qualify.
The fixed scale is as below and is for each month (or part month) falling within the period:
The 'number of relevant occupants' is based on how many people (including children) use the business premises each month (or part of a month) as a private home.
HMRC have advised that the flat rate includes all household goods and services, food and non-alcoholic drinks and utilities but not mortgage interest, rent, council tax or rates. This appears to make the rates above expensive add backs as a further adjustment is therefore required for these other expenses.
This factsheet focuses on the current tax position of business motoring, a core consideration of many businesses. The aim is to provide a clear explanation of the tax deductions available on different types of vehicle expenditure in a variety of business scenarios.
The cost of purchasing capital equipment in a business is not a tax deductible expense. However tax relief is available on certain capital expenditure in the form of capital allowances.
Small unincorporated businesses can calculate their profits for tax purposes on a cash basis rather than the normal accruals basis. We look at the optional rules that allow for this, while also taking in the key tax points.
Pre-year end tax planning is an important consideration and this factsheet outlines some of the key areas. Topics covered include corporation tax, capital allowances, dividends payments and capital gains.
Under corporation tax self assessment large companies are required to pay their corporation tax in four quarterly instalment payments. This factsheet considers the rules regarding these payments.
This factsheet explains the procedures for filing your company’s tax return and paying the tax due.
If you are self employed and work from home this factsheet will summarise what homeworking costs you can claim for tax purposes.
Considerations when operating as a company on incorporation.
The 'IR35' rules are designed to prevent the avoidance of tax and national insurance contributions through the use of personal service companies and partnerships. This factsheet summarises what situations are caught by the rules and the implications of the rules.
Research and development (R&D) by companies is being actively encouraged through a range of tax incentives, which we consider in the points below.
The Construction Industry Scheme sets out special rules for tax and national insurance for those working in the construction industry. This factsheet considers the workings of the scheme.
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