The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills.

By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. But what does this phrase actually mean?

Certainly, if you are making claims based on your employment: subscriptions to professional bodies, travel costs, the cost of uniforms, all of which you have paid for, may qualify for a claim. Pound for pound these expenses will reduce your income subject to tax and your tax liabilities.

Obviously, if your employer or business has met the costs, you cannot make a further claim.

There are certain categories of expenditure that can be recovered in this way. For the self-employed they include:

• office costs, e.g. stationery or phone bills
• travel costs, e.g. fuel, parking, train or bus fares
• clothing expenses, e.g. uniforms
• staff costs, e.g. salaries or subcontractor costs
• things you buy to sell on, e.g. stock or raw materials
• financial costs, e.g. insurance or bank charges
• costs of your business premises, e.g. heating, lighting, business rates
• advertising or marketing, e.g. website costs

The test you need to apply is always: is the expenditure incurred wholly and exclusively for the purpose of your trade or employment.

HMRC recently published a list of the more outlandish claims they received as part of the 2014-15 tax returns. They included:

1. Holiday flights to the Caribbean
2. Luxury watches as Christmas gifts for staff – from a company with no employees
3. International flights for dental treatment ahead of business meetings
4. Pet food for a Shih Tzu ‘guard dog’
5. Armani jeans as protective clothing for painter and decorator
6. Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
7. Underwear – for personal use
8. A garden shed for private use – plus the costs of the space it takes up in the garden
9. Betting slips
10. Caravan rental for the Easter weekend.

Readers who are uncertain if the costs they have incurred can be included in their business accounts, or claimed by employees on their tax return, should call for advice. Although the wholly and exclusively rule applies in most cases, there are situations where the “exclusivity” part can be more of a grey area, for example where there is business and a private use element.

We have advised readers in previous postings that HMRC seem to be intent on digitising the upload of small business accounting data from April 2018. From this date, affected self-employed traders (including landlords) will be required to upload details of their trading activities on a quarterly basis.

On the 31 January, HMRC responded to the consultation with interested parties regarding the way in which the MTD process will work in practice.

Many of the initial features remain unchanged:

• The self-employed will be required to file from April 2018.
• The lower income limit above which filing will be compulsory remains at £10,000 – although we are likely to see an increase in this figure when the legislation enacting MTD is published in the Finance Bill March 2017.
• Traders will need to keep their accounting records in a format that can be uploaded to HMRC. Hopefully, spreadsheet templates and other small business software will be available, but traders will need to ensure that they are organised and ready to comply by the April 2018 start date.

Once the MTD process is activated, the need to file a self-assessment tax return each year will be discontinued. It will be replaced by the four quarterly uploads and an annual final check to ensure that all relevant reliefs and adjustments to accounts data are in place.

This is a huge change in the reporting of information to HMRC. As the April 2018 date approaches we will be working with clients to ensure they are fit for purpose. More than 600 accounting software providers are working with HMRC to ensure that their software will accommodate the uploads to HMRC.

Clients who are concerned by this change and want advice on the implications for their business are welcome to call for an update. Please bear in mind, that until we see formal legislation on this topic later in the year the precise details of who is affected, and how the upload process will work in practice, are still uncertain. What seems to the case, is that we have moved a step closer to Making Tax Digital.

At Slaters & Co, we take pride in delivering professional friendly accountancy services to all our clients. Through our founding principles of service excellence, integrity and friendliness backed by the best financial systems, we seek to ensure that all our clients have the best possible experience with us.
Each year, we carry out a client satisfaction survey so that we can be aware of how we are doing and where we might improve. We thought you may be interested to see the results from our latest survey:

· 91% of clients are satisfied or very satisfied with the services they receive from Slaters
· Over 90% of clients are very satisfied with our customer service, communication and staff knowledge and professionalism
· 100% of clients would be likely to recommend Slaters

In terms of where we might improve, some clients expressed an interest in electronic post via e mail and also on line book keeping and bank reconciliation. We have listened to this feedback and can confirm that these services are now available to any client who wishes to use them. Please get in touch with us for further details of how to register for these services a no extra cost.

Telephone 01782 566101 or email contact@SlatersAccountants.co.uk

These are the suggested reimbursement rates for employees’ private mileage using their company car from 1 December 2016. Where there has been a change the previous rate is shown in brackets.

As covered in the Autumn Statement newsletter a new VAT flat rate of 16.5% applies from 1 April 2017 for “limited cost traders”. This is being introduced as HMRC believe that the current system is being abused by some businesses providing their labour but who have very few costs.

The flat rate scheme was originally introduced as a simplification measure for small business as they merely pay a percentage depending on the type of business to their VAT inclusive turnover. For many businesses this process takes about 5 minutes but in future they may have to add up all the input tax on their expenses and deduct that from the output tax on their sales which will often take a lot longer!

Take for example a training consultant who bills his clients £100,000 a year, £120,000 inclusive of VAT. Using the flat rate scheme he currently pays 12% to HMRC = £14,400. If the VAT inclusive cost of his goods for the year is less than £2,400 (2%) excluding capital expenditure, food, fuel, vehicle costs then he would have to pay £19,800 to HMRC! It would almost certainly be beneficial for him to stop using the flat rate scheme.

If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.

One of the features of the new inheritance tax rules for passing on the family home is that the relief is protected even when you downsize to a smaller property.

For example if a married couple currently live In a large house worth £800,000 and downsize to a flat worth £300,000 they could give away some of the proceeds during their lifetime and yet still benefit from inheritance tax relief based on the higher valued property. They could even sell up completely and move into a rental property and get the inheritance tax relief!

This would very much depend on the timing of such planning and, as mentioned above, the rules are very complicated so contact us to discuss how this can apply in your family circumstances.

New inheritance tax rules for passing on the family home start on 6 April 2017 and many people have a New Year’s Resolution to either make a Will or update their Wills. This new relief should be taken into consideration when drafting your Will and we can work with your solicitor to make sure it is tax efficient.

From 6 April 2017 a new nil rate band of £100,000 will be available on death where your residence is left to direct descendants. This is in addition to the normal £325,000 nil rate band and will increase over the next 4 years to £175,000 in 2020. You may recall that when this was originally announced in summer 2015 the chancellor said that a married couple should be able to pass on their family home worth up to £1 million free of Inheritance tax. The rules are fairly complicated and HMRC have recently issued guidance on how the new relief will operate. We can review your personal circumstances to ensure that you take advantage of all relief that you are entitled to.

New tax-free childcare accounts were announced in 2014 to replace the employer-provided childcare voucher scheme. Introduction has been delayed by legal disputes with organisations involved in administering the existing scheme, but the new accounts will at last be introduced on a trial basis in early 2017.

The new scheme will then be rolled out across the country based on the results of the trial. The rules are complex, but where both parents work and earn at least £115 per week, they will be able to put up to £8,000 a year into a special account which the Government will top up with 20p for every 80p contributed by the parents. This account can only be used to pay for childcare such as nursery fees.

It is anticipated that the new scheme will eventually replace the existing childcare voucher scheme which is only available to employees who work for organisations that offer such schemes. The new system will benefit the self-employed as well as those workers in organisations that currently do not provide childcare vouchers.

In addition to the current £5,000 tax free dividend allowance and the personal savings allowance of up to £1,000 there will be two further tax free allowances starting from 6 April 2017. These will be a new £1,000 tax free allowance for self-employed income and a £1,000 rental income allowance.

These new allowances mean that individuals doing a small amount of self-employed work or receiving a small amount of rental Income will not need to report such income and consequently may fall outside self-assessment.

Note that the £1,000 allowances are the gross amounts that will be tax free each year. Where the gross income exceeds £1,000 there will be the choice of paying tax on the excess over £1,000 or deducting allowable expenses in the normal way.

For example Mr Nikon has a full time employment but also has a part – time photography business earning £1,500 a year with £800 of business expenses. Rather than paying tax on the net profit of £700 the new system will mean that he will only be taxed on £500 (£1,500 less the £1,000 allowance). If his gross income was below £1,000 it would be tax free and would not need to be reported to HMRC, probably keeping him outside of self-assessment.

Mark has been with Slaters since 2008.

Mark takes pride in working closely with clients acting as their Finance Director, so that he really gets to know their business and can help them tackle any issues. One of Mark’s specialisms is supporting/implementing accounting systems in particular SAGE, as well as assisting clients who are experiencing financial difficulty; or who wish to develop their business and require specialist financial advice.

Mark’s role at Slaters developed to become Practice Manager in 2016, supporting the work flow through the practice, implementing the new electronic post system, supporting clients with the sale and acquisition of businesses, and providing business and accounts advice.

Mark has 2 beautiful girls, Sophie and Lucy and a dedicated wife Gemma. He enjoys keeping fit, in particular running and weight training. Mark is an avid supporter of the Douglas MacMillan hospice, having completed the 3 Peaks twice and Potters Arf Marathon.