Sponsored content: Ten things to know before you file your tax return
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Self employed workers may believe they can claim tax relief against their home office but it is not all black and white, as Keith Senior, a director of west Suffolk-based Jacobs Allen Chartered Accountants and Chartered Tax Advisors explains.
Using a room solely for business means you could be liable for business rates and, in the future, capital gains tax
Each year Mr Senior and his colleagues offer advise to hundreds of Suffolk businesses, and individuals, on what is an acceptabl business expense and therefore tax deductable.
However, for those chosing to do their own returns, here are his top tips for getting your finances in order.
Keep up-to-date with your record keeping
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If you are a small trader, invest in some simple accounting software. As accountants, we provide advice and support to people using Xero and that is a cost-effective cloud-based package to use to keep records of your transactions.
Separate your personal and business spending
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It may sound simple, but ensure your personal finances are not tied into your business accounts – it will make it easier to decipher what is tax deductible if you have a bank account purely for business expenditure and income. Keeping a file of receipts will also make it easier to recall where funds were spent.
Have the right paperwork
Before you start to file your tax return, make sure you have all of the paperwork you will need to hand. This could include a P60 from your employers, a P11d showing the value of benefits in kind and a statement of interest received on bank and building society accounts for the financial year in question.
Savings and shares
Record your annual dividends received as cash or additional shares for any shares you may have and also the annual interest received on savings accounts. This could affect how much you have to pay in tax.
If for any reason you rent property, keep detailed records of any rent received, the tenancy agreement and any payments made in relation to that property that could be tax deductible. If you rent more than one property, keep each set of property records separate.
Keep a diary of any journeys made related to work and whether the expense was covered by you, an employer or a customer. Be aware that travel to and from your regular place of work is not tax deductible, as this is considered to be your commute. For home workers, some travel may be eligible but it depends on the specific nature.
Keep a record of any gifts or windfalls you may have had and mark these on your statements at the time so you can recall and easily explain where the funds came from.
Record any charitable donations including any items given to charity shops on which they claimed gift aid. For a couple, make sure all charitable gifts come from the higher rate tax payer – if there is one – rather than the person paying basic-rate tax in order to maximise the benefit of the tax relief you receive on gift aid donations.
The tax deductibility of costs for certain leased or HP items including home office equipment can vary but seek professional advice on how you may be able to claim tax relief on some items.
Home office, specialist clothing and cleaning
Using a room or part of your home for business purposes could entitle you to some form of tax relief but this could come back to haunt you. Mr Senior explained that using a room solely for business use could render you liable for capital gains tax on a percentage of any profit made from selling your home in the future. HM Revenue & Customs will allow a small standard amount for ‘home office use’ as a deduction against self-employed income but if you can show specific costs relating to that business use, you can claim those as an alternative if they are greater. Take care that business use of your home doesn’t make you liable for business rates in addition to Council Tax.
To speak to a chartered accountant at Jacobs Allen , who have offices in Bury St Edmunds and Haverhill, call 01284 704260 or visit their website