Whether you’re a new start-up or an experienced trader with the 31st January tax return deadline fast approaching, there’s no time like the present to ensure your tax affairs are in order.
Early preparation is the key to getting through the process with as little stress, and as little tax to pay, as possible. Here at Sutton McGrath Hartley we have a dedicated team of professionals who can help guide you through all aspects of compliance and tax planning.
With that in mind please find below our guide to five often missed business tax deductions:
1. Home Office Costs – If you are carrying on a business from home, a portion of your rent, interest, repairs, house and contents insurance, rates and property taxes may be deductible. Deductible expenses are calculated as a percentage of the square footage the home office is occupying. For example, if 100 square feet of a 1,000 square foot house is being used for a home office, the taxpayer is entitled to deduct 10% of their total expenses.
2. Interest and Finance Charges – Any interest incurred exclusively for business purposes can be claimed. This can include mortgage interest, credit card interest, personal loans, etc: as long as the funds were used for business purposes. Interest on the loans is allowable in full – even where capital is withdrawn from the business – provided that the loan does not exceed the amount of the capital employed in the business. (Please note: from 2017/18, relief for interest paid by an individual on a loan to purchase a residential property which is let out will be restricted). Company owners and business partners who borrow money to lend to their business can also claim a deduction for interest through their tax return.
3. Motor Expenses – If you ever use your car for business purposes, you can claim part of your running costs. If you’re a sole trader (or partnership) and not VAT registered, there are two main methods of claiming motor expenses. 1) The Full cost method where all costs are included with a deduction for the private use element, and 2) The Mileage method which allows a deduction for each business mile travelled at the HMRC predetermined rates. For VAT registered sole traders you’ll need to use the full cost method. Please get in touch if you’d like help determining which method is right for you.
4. Gift Aid – If you’re a higher rate taxpayer gift aid payments can save you tax, but only if they are included on your tax return! Gift Aid payments are made net of 20% basic rate tax, with the charity able to claim the tax back from HMRC if the gift aid box is ticked. For basic rate taxpayers no further adjustment is needed. However, for higher rate taxpayers the basic rate and higher rate tax bands are extended by gross gift aid total. This effectively gives the taxpayer an extra 20% worth of tax relief on the gross payment amount. It’s also worth noting you can make an election for a gift aid donation to be treated as having been made in the previous tax year. Therefore a Gift Aid donation made in 2017/18 could have the effect of extending the basic rate band for 2016/17.
5. Payments to family members – If you paid your spouse, partner or children for some work in your business, this is deductible for tax. If you didn’t pay them last year it may be something you should consider this year.
Sutton McGrath Hartley is a multi-disciplinary firm of Accounting & Business Advisory, financial advisers and lawyers offering comprehensive financial expertise for all business, personal and family interests. Please get in touch if you’d like to discuss any of the areas raised above or any other issues regarding the completion or submission of your tax return.
To discuss your requirements, please contact Richard Evans on 01142 664 432 or at revans@smh.group
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