As there are a lot of folks doing their self-employment tax returns at the moment we’ve decided to do a few posts in answer to commonly raised questions (so if you have questions send them over
We’re pleased to be collaborating with Kirsty Andrew of Frank Alice (as she’s a chartered accountant and we’re not!).
Q1 – What do I do about things like car costs and petrol where only a proportion is due to the business?
Ok, lets split this into a couple of more specific questions a) should I put in the whole invoice or just the percentage? and b) what proportion do I allocate to the business?
a) Frank Alice recommends that you just put in the percentage. If you want to keep track of the whole amount then you can of course put this in the notes or the details on your system (for MyCake there is a ‘details’ section to enter text in for every purchase)
b) When it comes to cars the best practice is to keep a log of all the miles you drive for 3-6 months and separate out your business miles from your personal miles. Assuming that these six months are representative of your usual habits you can then reasonably apply the percentage split between personal and business to all your petrol and car related costs.
Q2 – How do I ‘depreciate’ the value of capital items e.g. computers, cars etc?
Firstly it’s good to be clear on the difference between how these are handled vs. direct and indirect costs. Things like computers and cars (also production tooling or equipment) are whats known as ‘fixed assets’ in that you achieve benefits from them across several years not just in the year they were bought. This means that you need to be able to represent their value (albeit decreasing each year as they wear out … there are fixed ways of doing this which we’ll get to in a moment) over several years. This is done on a ‘balance sheet’ rather than a ‘profit and loss’.
The upshot of this is that you will claim 50% of the cost of the item (as a cost, offset against income to the business) in the first year and then depending on what it is claim the remaining percentage in the follow two to four years. This is known as claiming the depreciation of the fixed asset i.e. as you reduce the value on the balance sheet, this reduction is posted as a cost in the P&L so you are able to phase the cost of buying the asset over its life time.
It won’t surprise you to know that there is all sorts of detail behind this short post so if you need more advice we suggest you book yourself a place at our event at the CUBE on 20th Jan from 6.30pm-8.30pm where Kirsty from Frank Alice and Lisa from Boogles will both be there to work with you to get your books into shape for your tax return. Contact Araceli at the CUBE direct to book a place.
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