A Guide to Travelling Expenses for the Limited Company

Travelling expenses are generally part and parcel of life when you run a limited company. The good news is that a lot of these costs can be paid by or claimed back from your company. Let’s take a closer look at what you can and can’t claim for when it comes to travelling expenses.

Claiming for travelling expenses

Travel expenses can only be claimed back if they have been incurred during the course of business activities. It is not possible to claim for home to work travel.

All types of business travel costs can be paid for by a limited company. This includes public transport, taxis and airfares. Always keep a record of your journeys, and maintain receipts.

Claiming mileage costs

If you use your own vehicle for business purposes, it is possible to claim back fixed mileage costs. This is done under AMAPs legislation which provides allowances that cover all fuel and vehicle running cost.

Currently, company employees can claim back 45p per mile for the first 10,000 miles, and 25p per mile after that. For motorbikes the rate is 24p per mile, and for bicycles it’s 20p per mile. Passengers in vehicles who are travelling for business purposes can claim 5p per mile.

 

Parking-related expenses

As a limited company owner you are able to claim for the cost of parking your vehicle, congestion charges and tolls. Limited company employees can also claim for the cost of parking close to the workplace. The cost of parking tickets or fines however is not covered.

The '24 month rule’ and travel expenses

If you are providing professional services to a client then you may travel to a ‘temporary workplace’ for a period of time. Once you have worked at this temporary workplace for 24 months, or from the moment you are aware that the assignment will last 24 months or more, you have to stop reclaiming the travelling expenses to that workplace. To further complicate matters, there is also the 40 per cent rule, which dictates that if you return to a temporary workplace that you have been to before and you spent more than 40 per cent of your time there over the past 24 months, then you cannot reclaim for the subsequent cost of travel.

Company Owned Vehicles

The advantages and disadvantages of buying a vehicle through your limited company are complex and so are the tax rules relating to company car ownership.

Making good use of the services of a professional bookkeeper will benefit you enormously as they will be able to draw maximum savings for you and ensure you are operating as efficiently as possible for tax purposes when it comes to travelling expenses for your limited company, especially with Making Tax Digital on the horizon.

Proud to Achieve Xero Silver Partner Status

We are proud to announce that we have recently been awarded Silver Partner status by Xero, one of the leading online accounting systems used by businesses worldwide.

Online accounting systems have been revolutionising bookkeeping efficiency for some years and are known for making it more straightforward for time poor business owners to remain in control of their everyday finances, payroll and cashflow. Furthermore, with the introduction of Making Tax Digital looming, the importance of online accounting software has become even more significant.

It is of concern to us that many businesses may not be ready for Making Tax Digital as it becomes compulsory from 1 April 2019 for most businesses with turnover at or above the VAT threshold.

We learnt at a recent conference that HMRC believes up to 40 per cent of businesses currently submit their VAT returns through the HMRC website having made their calculations using spreadsheets or even paper formats. A lot of business owners are of the opinion that ‘digital’ means online filing, but this is not so. From 1 April, VAT registered businesses will be required to use MTD-compatible software to file their VAT returns.

Xero, our preferred online accounting software, is MTD compliant, which means we are ready to ensure all our bookkeeping clients are compliant as of 1 April 2019.

In order to gain our Silver Partner status, we were required to meet the criteria set down by Xero. These included achieving a minimum of two Xero certifications including an advisor certification, all of which proves our expertise in the software.

Xero is a total financial solution, offering helpful advantages to every business. It is the platform we prefer to use to manage all our clients’ bookkeeping tasks, and it also makes it possible for them to collaborate with us in real time, allowing us to share data and provide timely advice as soon as it is needed. We highly recommend Xero to any business looking to ready itself for Making Tax Digital.

For more information about Xero visit https://www.xero.com, and to discover how we can help you become MTD compliant, please get in touch.

The MTD Guide to Digital Record Keeping

At a recent conference we learnt that HMRC believes up to 40 per cent of businesses currently submit their VAT returns through the HMRC website having made their calculations using spreadsheets or even paper formats. Any VAT registered business that continues to do this after 1 April 2019 will be considered non-compliant with Making Tax Digital for VAT.

The problem is that many business owners believe that ‘digital’ means online filing, but this is not the case. From 1 April, VAT registered businesses will need to use MTD-compatible software to submit their VAT returns. Making Tax Digital is all about keeping digital tax records.

Last month we looked at Making Tax Digital for VAT and what VAT registered businesses must do to prepare for its introduction on 1 April 2019.

In this article we will be taking a closer look at what digital record keeping actually means, and how HMRC is expecting businesses to comply with the new regime.

What is digital record keeping?

Using spreadsheets to keep track of your income and expenditure and then submitting your tax returns through HMRC’s online portal is NOT considered digital record keeping.

What is considered digital record keeping is keeping and preserving records and accounts within ‘functional compatible software’.

Whilst some software will record all the necessary VAT and accounts records, some records must still be kept and preserved in their original format for either VAT or tax purposes. An import VAT certificate (C79) for example must always be kept it its original form.

Most software allows for invoices and receipts to be scanned in to support digitally raised versions. In such cases, the original invoices and receipts do not need to be kept as all the details required for VAT purposes is preserved via the scanned document. However, if you do not scan in your supporting documents, then you must keep hard copies of them.

What is ‘functional compatible software’?

Any software, product or application that is able to record and preserve digital records; that can provide information and returns to HMRC using data held in its digital records and that can receive information from HMRC is considered functional compatible software, providing it can carry out ALL of these tasks.

If you use a system that only carries out some of these tasks, but you use a further program or platform to complete the necessary function, then this will be considered acceptable. You do not have to hold the complete set of digital records in a single place or program.

If you are already using online accounting software and are unsure as to whether your system will be MTD compatible, take a look at this list compiled by HMRC. The list shows all the software providers that are currently compliant, together with further providers with MTD compatible products in development.

If you use a bookkeeper, accountant or other tax agent to submit your tax returns and either email them your spreadsheet or provide them with a portable device containing your digital records so that they can import the data into their software ready to calculate and submit your return, then this is considered acceptable.

How can we help you?

Xero, our preferred online accounting software, is MTD compliant, which means we are ready to ensure all our bookkeeping clients are compliant from 1 April 2019.

As Xero Silver Partners we are able to offer you extended expertise in this software.

To learn more about how we can assist you with Making Tax Digital compliance, please get in touch.

A Guide to Making Tax Digital for VAT

Making Tax Digital (MTD) is the government’s scheme that makes online tax filing and payment ad digital record keeping mandatory. Whilst all types of business related tax will be included in the scheme, only Making Tax Digital for VAT has so far been given a roll-out date.

The government’s aim with MTD is to reduce tax errors and generate over £600 million in additional revenue. There are however benefits for businesses says the government, namely more straightforward record-keeping.

The MTD for VAT pilot programme is already in operation. Having started in October, it is open to any business that wishes to take part. The pilot will come to a close on 1 April 2019, at which point MTD for VAT will become mandatory for all VAT-eligible businesses, other than a minority which have had their roll-out date deferred until October 2019.

Let’s take a look at what will be involved for businesses once the official MTD for VAT roll-out date kicks in.

What do I have to do under MTD for VAT?

If you are a VAT registered business with a Taxable turnover above the VAT threshold, then you will need to keep and preserve your VAT records digitally and send your VAT returns to HMRC using MTD-compatible software.

To see what records you will need to keep digitally, take a look at VAT Notice 700/22.

When do I need to start following MTD rules?

Your start date will vary depending on your individual VAT period. You must start following MTD for VAT rules from the first day of your first VAT period that starts on or after 1 April 2019. After this date you will no longer be able to submit a paper based VAT return, or manually complete a VAT return online.

Your current VAT filing deadlines will not alter once MTD for VAT is introduced.

What should I do to prepare for MTD for VAT?

If you are not already using accounting software then you should make the switch as soon as possible. Bear in mind that by 2020, virtually all business taxes will fall under MTD rules, and without accounting software you will not be in a position to comply.

Remember that MTD for VAT is not just about online filing of VAT returns; it is also about maintaining digital VAT records.

If you are considering your options concerning accounting software, our guide to keeping your books in line should prove helpful.

If you are in any doubt as to your responsibilities concerning Making Tax Digital for VAT you should not hesitate to discuss the matter with your bookkeepers or accountant.

The Pros and Cons of Traditional Accounting

Last month we looked at what is involved in cash basis accounting. This month we are exploring the alternative: traditional accounting.

What is traditional accounting?

Traditional accounting, also known as ‘accrual’ accounting, involves recording income and expenditure at the point where an invoice was issued, or when a bill was submitted. This is opposed to cash basis accounting, where records are only made when money physically enters or leaves a business.

Who uses traditional accounting?

In practice, traditional accounting may not suit smaller businesses or sole traders. This is because invoices are recorded at the point they are issued, rather than when they are paid.

This means that you may find invoices included in your tax return figures that are yet to be paid. The risk here is that the invoice payment may take some time to come in, or may not even transpire at all. However, that invoice will still count as income for tax purposes. With cash accounting, there is no need to pay tax on anything you have not yet been paid for.

Traditional accounting tends to be more suited to the larger business, although for the smaller business expecting to grow rapidly, it is usually the better option because the turnover limit for cash accounting is £150,000.

Limited companies and limited liability partnerships must use traditional accounting.

What do I need to do if I use traditional accounting?

Traditional accounting requires you to keep records of all income and expenditure. This includes stock and equipment and its value at the end of your accounting period; all payments made to employees such as wages, benefits and bonuses; vehicle and travelling costs associated with the business; any interest accrued on bank and building society accounts, and all income.

What are the benefits of traditional accounting?

Most benefits of traditional accounting come in the form of being able to set off losses against other income, and being able to claim significantly more capital allowances. Cash accounting only allows capital allowances to be claimed against cars.

Traditional accounting, or cash accounting – which is best for your business? If you are in any way unsure as to the best accounting method for your individual circumstances, you are best advised to discuss the matter with your bookkeepers or accountant.

A Guide to Limited Company Allowable Expenses

Last month we looked at allowable expenses for self-employed workers. We pointed out that limited company rules on expenses are different and that we would look at those separately, which is precisely what we are doing in this post.

What are allowable expenses for a limited company?

The key rule to follow concerning limited company expenses is that they must be genuine. In other words, the expense must be something that was incurred exclusively, wholly and necessarily during the course of running your business.

Expenses that cross over both business and personal use cannot be claimed. It is important to retain all receipts and invoices so that if it becomes necessary, you can prove that your expenses claims were genuine.

What are typical limited company expenses that can be claimed for?

The following are some of the allowable expenses which can be set off against Corporation Tax:

Salaries – all PAYE salaries including directors and staff.

Subcontractor fees – if you engage subcontractors or freelancers to undertake work for your business then these will be classed as allowable expenses.

Pension contributions – all pension contributions paid to staff, providing they are made via an approved scheme.

Employer’s National Insurance Contributions – any contributions payable on employee salaries can be claimed for.

Travel and parking costs – travel expenses is another topic that needs its own dedicated post which we will cover in the future but suffice to say in general that most travelling costs will be classed as allowable expenses. Company car expenses can also be claimed, although there is a benefit in kind charge for private use.

Accommodation costs – if you are staying away from your normal place of business then you can claim accommodation costs, providing you do not claim for more than 24 months at a temporary place of work.

Subsistence costs – you can claim for subsistence whilst away from your normal place of work, but again as with accommodation costs, you cannot claim if you have exceeded 24 months at a temporary place of work. Incidental overnight expenses can be claimed at £5 per might or £10 per night if abroad should you be working away from home.

Training fees – providing the training delivers skills that are relevant to your business then you can claim for the costs involved.

Business insurance – all genuine business insurances such as employer’s liability, professional indemnity, property and vehicle insurance are classed as allowable expenses.

Telephone, mobile and internet fees – providing the contracts are in the name of the business you can offset the costs against your Corporation Tax. If you work from home then you can claim the cost of business calls made from your residential telephone line.

Use of home as office – home workers can claim £4 per week without receipts, or calculate a proportion of the household bills.

Computer equipment – all computer equipment and software used for business purposes can be claimed for.

Advertising and marketing costs – anything you spend on promoting your business is an allowable expense.

Business gifts – you may gift up to £50 per individual before complex rules apply.

Professional fees – anything you spend on accountants, solicitors, surveyors, etc. can be claimed for.

Health care – any employee who uses a computer is entitled to an eye test, the cost of which you can claim for. You can also claim for annual employee health checks.

It is advisable to always consult with your bookkeepers or accountant if you are unsure as to whether an expense is a genuine business one that can be included in your Corporation Tax return.

Cash Basis Accounting Explained

Cash basis accounting is a method often used by sole traders and partners to work out income and expenses for a Self-Assessment tax return. Many small business owners choose to use cash basis accounting rather than traditional accounting. Here we look at why that is, and how cash basis accounting works so you can decide whether it’s for you.

With cash basis accounting, you only need to declare money when it comes in and leaves your business. So, at the end of the tax year, you only have to pay Income Tax on the money you have received during your accounting period.

Is cash basis accounting right for me?

There are some instances when cash basis accounting won’t be the right choice for you. For example, if you run a business that is not straightforward, for example with extensive stock levels; if you wish to claim bank charges or interest in excess of £500 per year as an expense; if you have losses that you wish to offset against other taxable income, and if you have a need to obtain business finance, because you may be asked for accounts drawn up using traditional accounting.

Who can use cash basis accounting?

Any small self-employed business such as a sole trader or partnership can use cash basis accounting providing their annual turnover is £150,000 or less. If you run multiple businesses, then if you use cash basis accounting for one of them, then you must use it for the others. If the combined turnover for all your businesses exceeds £150,000 then you cannot use this accounting method.

You can however remain within the cash scheme if your income rises during the current tax year. So for example if you commence the tax year earning £140,000, but by October your turnover has increased to £200,000 then you can continue to use cash basis accounting for the rest of that tax year, providing your turnover does not exceed £300,000. If it does, then your next tax return will need to use traditional accounting.

Limited companies and limited liability partnerships are not permitted to use cash basis accounting. There are also certain other exceptions, a list of which can be found here.

Can I switch from traditional accounting to cash basis accounting?

If you qualify for cash basis accounting then you can switch from traditional accounting, however there may be some adjustments that need to be made, for which it is likely you will need professional guidance.

If you are in any doubt as to whether cash basis accounting is right for your business, talk to your bookkeepers. They will be able to advise you on an individual basis and guide you as to the best accounting method depending on your current and future needs.