Week 10

• You need to set up as a sole trader and register as self-employed if :​

  you earned (income not profit) more than £1,000 from self-employment (trading) between 6 April 2023 and 5 April 2024​
• Contract of Service?

  Employment
• Contract for Services?

  Self-Employment
• Some of the factors used by HMRC in determining self-employment​

  • Control​
  • Remuneration and financial risk​
  • Equipment​
  • Work performance and correction​
  • Holidays and sickness​
  • Exclusivity​
• Income arising from trade, profession or vocation is self-employment income and assessed as such.​
• • Self-employment  is unincorporated business, not limited company which is subject to corporation tax​
• Expenses​

  The rules are a little more liberal than for employment.​

  Instead of having to be wholly, exclusively and necessarily incurred for the purposes of the trade, they just have to be ​

  Wholly and Exclusively​

  Incurred for the purposes of the trade​
• INCOME FROM SELF EMPLOYMENT​​Expenses rules​

  1. Must be wholly and exclusively incurred for the purposes of the trade​
  2. The expense must be revenue in nature​
  3. Private expenditure is not allowable​
  4. Appropriations of profit are not allowable​
  5. Capital expenditure is not allowable​
  6. Depreciation is not allowable – capital allowances are given instead​
  7. Expenditure is not deductible if it is has no connection with the trade (remoteness test)​

  ​
• Office expenses & equipment​

  • phone, mobile, fax and internet bills ​
  • Postage, stationery​
  • Printing, printer ink and cartridges​
  • computer software your business uses for less than 2 years​
  • computer software if your business makes regular payments to renew the licence (even if you use it for more than 2 years)​
  • Claim other software, along with computer & office equipment for your business as capital allowances, unless you use cash basis.​
• Rents, rates, power and insurance costs​

  You can claim expenses for:​

  • rent for business premises​
  • business and water rates. utility bills​
  • property insurance, security​
  • using your home as an office (only the part that’s used for business)​
  • for repairs and maintenance of business premises and equipment​

  ​You cannot claim expenses or allowances for buying building premises.​
• Car, van and travel expenses​

  You can claim allowable business expenses for:​

  • vehicle insurance​
  • repairs and servicing​
  • fuel​
  • parking​
  • hire charges​
  • vehicle licence fees​
  • breakdown cover​
  • train, bus, air and taxi fares​
  • hotel rooms​
  • meals on overnight business trips​

  You cannot claim for:​

  • non-business driving or travel costs​
  • Fines (for bad driving  and parking)​
  • travel between home and work​
• Clothing expenses​

  ​

  You can claim allowable business expenses for:​

  • uniforms​
  • protective clothing needed for your work​
  • costumes for actors or entertainers​
  • ​

  You cannot claim for everyday clothing (even if you wear it for work).​

  ​
• Staff expenses​

  You can claim allowable business expenses for:​

  • employee and staff salaries​
  • bonuses​
  • pensions​
  • benefits​
  • agency fees​
  • subcontractors​
  • employer’s National Insurance​
  • training courses related to your business​

  ​

  You cannot claim for carers or domestic help, for example nannies.​
• Reselling goods​

  You can claim allowable business expenses for:​

  • goods for resale (stock)​
  • raw materials​
  • direct costs from producing goods​

  ​

  You cannot claim for:​

  • any goods or materials bought for private use​
  • depreciation of equipment​
• Legal costs​

  ​

  Accountancy, legal and other professional fees can count as allowable business expenses.​

  • You can claim costs for:​
  • hiring of accountants, solicitors, surveyors and architects for business reasons​
  • professional indemnity insurance premiums​
  • ​

  You cannot claim for:​

  • legal costs of buying property and machinery - if you use traditional accounting, claim for these costs as capital allowances​
  • fines for breaking the law​
• Financial costs​

  ​

  Bank, credit card and other financial charges​

  You can claim business costs for:​

  • bank, overdraft and credit card charges​
  • interest on bank and business loans​
  • hire purchase interest, leasing payments​
  • alternative finance payments, for example Islamic finance​
  • ​

  You cannot claim for repayments of loans, overdrafts or finance arrangements​

  ​

  Insurance policies​

  • You can claim for any insurance policy for your business, for example public liability insurance.​

  ​
• Bad debts​

  ​

  When your customer does not pay you​

  • If you’re using traditional accounting, you can claim for amounts of money you include in your turnover but will not ever receive (‘bad debts’). However, you can only write off these debts if you’re sure they will not be recovered from your customer in the future.​
  • ​

  You cannot claim for:​

  • debts not included in turnover​
  • debts related to the disposal of fixed assets, for example land, buildings, machinery​
  • bad debts that are not properly calculated, for example you can not just estimate that your debts are equal to 5% of your turnover​
• Marketing and entertainment ​

  You can claim allowable business expenses for:​

  • advertising in newspapers or directories​
  • bulk mail advertising (mailshots)​
  • free samples ​
  • gifts to customers  which display a noticeable advertisement for the business, value no more than £50 per client per year but no food, drink or tobacco​
  • website costs​

  You cannot claim for:​

  • entertaining clients, suppliers and customers​
  • event hospitality​
• Subscriptions​

  You can claim for:​

  • trade or professional journals​
  • trade body or professional organisation membership if related to your business​
  • ​

  You cannot claim for:​

  • payments to political parties​
  • gym membership fees​
  • donations to charity - but you may be able to claim for sponsorship payments​
• Training courses​

  You can claim allowable business expenses for training that helps you improve the skills and knowledge you use in your business (for example, refresher courses).​

  • The training courses must be related to your business.​
  • ​

  You cannot claim for training courses that help you:​

  • start a new business​
  • expand into new areas of business, including anything related to your current business​
• Additional non-allowable expenses:​

  • ​
  • Drawings, owner’s salaries, owner’s National Insurance and Income Tax payments​
  • ​
  • Unreasonable salaries to the family members​
  • ​
  • Owner’s private medical insurance​
  • ​
  • Capital expenditure (assets and cars) and depreciation as it should be dealt under capital allowances (we will cover it in the next semester)​
• • Self employment is a contract FOR services​
• • Employment is a contract OF service​
• • Allowable expenses for tax purposes must be wholly and exclusively for the business​
• • To adjust profits for tax purposes always begin with net profit​
• • Add back disallowed expenditure for tax​
• • Deduct non trading income and capital allowances​