….unless of course you have better things to do with your time than read through the pages and pages of manuals, help sheets, leaflets and guidance notes on the HM Revenue & Customs website. The help sheets on completing your tax return alone stand at more than a thousand pages and they include nothing about VAT, National Insurance, PAYE or any of the other tax issues that small businesses face. That said, if you know where to look, there can be some very useful gems on the website and I have outlined some of the better ones below:
Working from Home:
Just because you rent a studio it does not mean that you cannot claim for business use of your own home. Many studios are not suitable for storing all the important financial paperwork which means the business is effectively operated from home. In the good old days accountants, like myself, used to advise clients to estimate the additional costs they incur from having to operate their businesses from home. This may have been an extra £5 or £10 per week, depending on the type of business, but relatively small amounts in terms of tax savings. However, when HMRC were forced to publish all their internal guidance manuals, we discovered a list of examples that are much more generous. HMRC have inadvertently confirmed that all businesses operating from home should claim a proportion of their rent, rates, service charges, mortgage interest, council tax, gas, electric, repairs and insurances. Some accountants to this day argue over whether council tax should be included but it is listed in black and white within HMRC’s own guidance and anyone not claiming is paying too much tax. Make sure you make that claim.
The Employment Status Indicator Tool:
Rather than take on members of staff and deal with the administrative burden that comes with being an employer, many small businesses will use freelancers and sub-contractors to take up the slack when things are busy. This is all well and good but what happens if HMRC come along and say that you should have put them on the books and deducted tax and national insurance contributions at source. Well, if you are unsure whether someone should be treated as an employee or a freelancer then use HMRC’s Employment Status Indicator Tool. You work through a series of questions and the tool then tells you whether they should be an employee or whether they can be paid as a freelancer. Nothing gets sent to HMRC and you do not give any personal details. However, a reference number is generated so if HMRC ever question your decision then you can state that you used their ESI Tool and present them with the reference number as evidence. Further point: The ESI Tool is not 100% accurate so if you disagree with its outcome then it is best to discuss your concerns with an accountant.
Read more tax advice in part two published soon…
About the author: Dean is an accountant and founder of Tax By Design, a firm specialising in helping small businesses in the creative sector. He is a member of the Chartered Institute of Taxation and holds a 1st class honours degree in Multimedia Design. He will be running Free Tax Surgeries over the summer in both Holborn and Deptford studios and will be giving a Tax Return Made Easy seminar in January for anybody that has left their Tax Return to the last minute!