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Sam
Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I am having an interesting year, having quit my PAYE job and

Resolved Question:

Hi. I am having an interesting year, having quit my PAYE job and I am now contracting, plus running a holiday letting business. I have a few questions to help me prepare for my tax return next year:
1. I am doing both independent consulting work (strategy and IT consulting) - do I need to register now as a sole trader, or can I do this at the point of submitting my tax return for this FY?
2. Same question but regards ***** ***** lettings business, which comprises of one property let through Airbnb?
3. For both businesses I use my car and mobile phone to support my efforts and I work from home. What can I expense from my home costs I.e. Energy bills, water, council tax, broadband and mobile bills?
4. What of my car costs can I expense - servicing? Repairs? Mileage? Fuel? I bought my car years ago before becoming self employed - but it is an expensive two seater sports car?!
5. Any other obvious expenses I should be assigning to either business?
6. Should I preference assigning expenses to consulting or holiday let more frequently where this is defensible?
7. I am spending quite a bit of money drumming up business I.e. Lunch, dinner, coffees etc with clients all over the place. I have kept the receipts - is this sufficient or should I be recording any other info like who I met and what we talked out?
Submitted: 10 months ago.
Category: Tax
Expert:  Sam replied 10 months ago.

Hi

Thanks for your questions - I am Sam and I am one of the UK tax experts here on Just Answer.

1) You must have registered with HMRc within 3 months of this consulting work having commenced

2) Rental income is not treated as trade income, so this is ok just to add in as income without the need to register within a 3 month period

3) For business costs a ratio that represents a true cost for each source of income - but only home costs if you have a room set aside for the consulting work which should be heating and lighting bills x hours actually worked/total hours in period - if no actual room for business then £3 a week but NO council tax allowed -

For broadband again a ratio that represents business/total use

Mobile bills if contract then ratio of business/total use if no contract and PAYG - then if not just business than NIL

4) Car you have a choice of mileage method which is 45p a mile for the first 10,000 miles and then 25p a mile thereafter OR the actual method which requires you to keep a note of total miles and business miles to establish the business percentage which you can then apply against the costs to run the car and also the car can then be treated as an allowable claim for capital allowances.

5) Advertising - public or professional liability, laptop, printer and stationary might be furtehr allowable expenses - maybe stamps

6) I have no idea what this means - the costs should always be justifibale in proportion to the source of income against which they arise

7) None of these costs are allowable as we all have to eat and drink to live and this is entertainment costs and not a business expense

If you have any follow up questions, then I will respond tomorow if that is acceptable, as I am off to bed as its been a long day

Thanks

Sam

Customer: replied 10 months ago.
Thanks for responding so quickly! I clarifying question for tomorrow regards ***** ***** - I am really confused now. I worked in a consulting business previously and client lunches and drinks were all treated as cost of sale i.e. The cost of drumming up new business - and these costs eat into your profit. So surely just because I am now self employed it can't be the case that all the big 5 consultancies treat these costs as an expense 'cost of sale' and yet I cannot?
Regards ***** ***** you have not explained how car repairs and servicing should be treated?
Many thanks
Expert:  Sam replied 10 months ago.

HI

Thanks for your response

Wooing/maintaining clients through the supply of food and drink has never been an allowable business cost see link here re Business Income Manual from HMRC

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45012

Only when incurred through advertising (so a business launch) or through you incurring costs due to business trips (so overnight with subsistence) is it ever allowable

I cannot comment on what your employers may have claimed - I can only advsie you what the elgislation states and what is and is not allowable for business expenses

Re point 4 - If you use the mileage method then car repiars and serving are already taken into account with the pence per mile, if you claim the actual method, then this is costs to run the car so added in with the other costs and the % relating to business mileage claimed.

Thanks

Sam

Customer: replied 10 months ago.
that I am really clear. If I take a potential client out to lunch I CANNOT claim this as an expense I.e. It is a cost I incur AFTER I pay tax on profits?
What about travel to a meeting to present a proposal for work that I end up not winning - so in the end there is no revenue to assign the expense to? Is this considered an expense before or after tax?
Many thanks
Sian
Expert:  Sam replied 10 months ago.

Hi Sian

No sadly not, as none of these expenses are deemed to be business expenses as we all have to live to eat and drink. I have also provided you with the legislation to support this -

I too (like you) have to woo clients and buy lunches or coffees and cannot claim these as they are merely tools to try and win clients in the first instance - not expenses incurred through actually performing the work for the client (plus food and drink is rarely available - and those occasional instances I have advised you on)

I am sure you wish me to advsie the correct legislation rather than what you want to hear and appreciate I would not be doing my job correctly if I provided you with anything other than the facts and the law.

Please do let me know if I can assist further

Thanks

Sam

Customer: replied 10 months ago.
It is true though isn't it that I can clim food and drink costs while travelling to and from meetings. I work from home and so all of this travel is outside and away from my normal place of work? Its not entertainment if the the expense is just mine and its a result of a meeting surely?
Expert:  Sam replied 10 months ago.

HI

Thanks for your response

If there is an overnight stay involved, then yes subsistence can be claimed. But not if you are just out and about throughout a day

Thanks

Sam

Customer: replied 10 months ago.
I still don't understand the working lunch thing. I have just been to one for a company i work for and I will expense the cost. I have done this with every company I have ever worked for and so don't understand why i wouldn't be able to do it for myself on my own books. Sorry to be persistent, but you are effectively telling me that every FTSE 100 company I have worked for is behaving fraudulently which is really hard to accept.
Expert:  Sam replied 10 months ago.

Hi

When you work for a company that is entirely different - they are paying you from the time you day starts to the time your day ends, so any meetings or lunches or drinks you have during that working day is all work related and the company foot the bill and they decide where you meet and for what purpose and even in the course of wooing new clients - its all part of the job you are paid to do.

If you are reimbursed by the company - it will be because you are conducting business from your normal place of work but as you are aware normally your employer will not fund your lunch on a normal day to day basis - only when you are on, in essence a "working lunch" but most expenses covered should actually be charged tax and National Insurance on - unless a business trip away for the day or overnight - then there are set daily substance rates that HMRC accept as not liable to tax.

As a self employed person you incur business expenses through the work you actually provide, and are obtaining business for yourself and therefore for your own business expense purpose, can only claim that which is incurred through the course of providing business.

If you had a business trip that saw you with an overnight stay then the travel plus the evening meal and breakfast the next day would all be contained within these business cost but if you head out for a 2 hour meeting during which you have lunch and pay for your client - this is NOT business expenses - the travel to and from is but food has never been allowable as its not incurred as part of your duties in the way those costs through employment arise.

I have provided you with links re the business income manual why food and drink as general rule is NOT allowable so I cannot see what you do not understand as you cannot compare what an employer allows you to incur when you are committed through a contract of employment to provide set services and costs to provide those services are reimbursed (though should be charged tax on through a P11d expense and benefit) or paid back through your salary with tax and National Insurance charged,

I cannot offer you more explanations then I already have and I promise you if these costs were allowable I would insist/encourage you to claim them and even if you type food and drink when self employed into google - all the reputable accountants state the same (so you can steer from HMRC and me as ex HMRC and see the viewpoint of other accountants)

Thanks

Sam

Customer: replied 10 months ago.
Sorry last question I think! Thank you for being so patient. Perhaps my misunderstanding is related to being a limited company versus a sole trader. If I set up a limited company could I expense all the costs that I see as 'being in the line of duty' and described thus far? In this context would the vehicle repair costs be treated any differently in a limited company context?
Customer: replied 10 months ago.
P.S. If I set up a limited company now - can I claim all the expenses for the previous 6 months into that entity? Or does it all start from scratch on day 1 of becoming a limited company? Just FYI I fully understand the difference between sole trader and being limited in terms of tax obligations - my weak point is understanding how to expense items.Many thanks
Expert:  Sam replied 10 months ago.

Hi

Thanks for your response

No you could not claim the costs of you were a limited company as its still your company and you are incurring the costs, only staff could be treated as cots due (but this would apply whether a sole trader, a partnership or a limited company)

And you certainly could not back date start as a limited company - which if you are suggesting this just to claim back food and drink to woo clients - then would be a fruitless exercise.

I hope that you have all that you need, and if you do, it would be appreciated if you could rate me for the level of service and time I have provided (or click accept)

Thank you

Sam

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