Marshall Roche 

Quarterly Newsletter  Autumn 2000

Tax Return Countdown

The Self Assessment timetable has now become a familiar routine and, as we pass the half-way mark between the end of the tax year and the final deadline of 31 January, we are pleased to note that around three-quarters of our work-load of tax returns are safely with the Inland Revenue.

However, as always, we would ask those who have not yet let us have their tax or accounting records for the last tax year to drop these in to us at your earliest convenience. Of course, we do send individual reminders, but we prefer to keep your costs down…

Once your return is done, we tell you how much tax to pay in January 2001 (if there is any due) and there is nothing more to do until then. But if in doubt - shout!

Buy now while stocks are cheap

At the time of writing, the UK FTSE 100 index has plummeted from its recent high. On the basis that it is better to buy when prices are at the bottom than at the top, that alone would seem like a good reason to invest now.

Another good reason is that, as we pass Christmas and the end of the tax year approaches, many people choose that time to make their annual ISA

investment. This sudden demand tends to push prices up and those who leave it until the last moment risk paying over the odds.

Therefore, if you have not yet used your ISA allowance of £7,000 for the current tax year and plan to do so, now would be a good time to make your move. Speak to Sue Jones or Tony Marshall for more details.

Working from home - tax relief on expenses Most people who run a small business spend at least some of their time working at home. This raises the question as to whether or not a deduction can be made in the accounts to reflect this. If you are employed but have to do work at home, what follows may apply if you can show that the expense was necessarily incurred in the performance of your duties. This is a much harder test than self-employed people face, but it will apply in some cases. For the self-employed it is a question as to what costs are involved in the use of your home for business purposes. Clearly, if you are heating and lighting part of your home whilst using it for business purposes, this is a business expense. Likewise, depending on the scale of use, other costs such as cleaning and maintenance may be relevant. In the past, the Inland Revenue tended to accept any reasonable estimate of these costs, summed up by a weekly figure (eg £5 per week) However, the advent of Self Assessment and the legal obligation to base your tax return on recorded income and expenses, has led some Tax Inspectors to challenge the round sum allowance. They insist that it should be based on a more precise calculation. The most straightforward way to assess the cost is to:- add up the total cost of your home for the year, then multiply by the proportion of business use. For example, if 10% of your home is used continuously, 10% of the total costs can be claimed. If 10% of your home is used for business half of the time, then the claim will be for 5% of the total. (For the purposes of time apportionment, unless it is the bedroom you are counting, there is a strong argument for ignoring the night-time. Therefore, eight hours use per day represents half the time.) There may be grounds for including more of certain costs where these are only incurred as a result of working from home. For example, if you are alone in the house it may still be necessary to heat half the house, even though your office only amounts to one room. So long as you are able to establish and defend a reasonable basis for the claim, this is acceptable. Another cost to consider is your mortgage interest (but not the capital or endowment payments). Although MIRAS has now disappeared, if a proportion of your home is exclusively used for business, that proportion of your mortgage interest can be claimed in your accounts. However, there is no provision for time apportionment - it must be exclusively used for business. This will disqualify most small businesses, but some could benefit.

Don’t bring me problems… Whether it is your relationship with your customers or with your staff, the adage ‘Don’t bring me problems, bring me solutions’ is well worth remembering. A lot of businesses now describe themselves as ‘solutions’ businesses, although most successful businesses are solutions orientated rather than problem orientated, whether they choose to think of it in these terms or not. If you employ staff, encourage them to come to you with the solution to a problem rather than just with the problem. Get them to work it out so you can check it - don’t let your staff delegate their problems to you! Bad weather interrupts play Whether it is a random selection or a reasoned choice, your business could come under the Tax Inspector’s spotlight, when he asks for a closer look. One of their regular checks is to review your level of income to ensure that it is all recorded. If there appear to be any gaps, it will be down to you to explain them away. If, for example, your business is affected by the weather, it would be useful to have a note of the weather conditions which gave rise to the poor turnover. This would be particularly relevant to those who work out of doors, but might also include businesses whose customers would be kept at home by bad weather. For some businesses, the opposite is true, especially when your customers desert you in preference for a day on the beach! Mine, all mine! Whether in business or not, it is worth recording the source of any monies received which are not income. Typical examples are personal insurance pay-outs, refunds of personal expenses, gifts and personal loans repaid to you. If the Inspector of Taxes asked to look at your bank statements for the last six years in search of unrecorded income, would you be able to explain all the odd bits and pieces of money received?