Friday, 12 December 2008

Reduce Your Tax - Know Your Allowances and Improve Profits

Reduce Your Tax - Know Your Allowances an Improve ProfitsA couple of posts ago gave you the the bad news on the UK tax guide advising you what you may be liable for whatever your vocation. The good news is that you may be able to claim tax allowances. This means that there may be certain costs you can deduct from your taxable profits and reduce your tax bill.

It is a condition that the expenses claimed back against income tax in your tax return must be solely for the purposes of the trade or business.

If your business is being run from home, part of the expenses of the home used for business, such as an office or even a workshop can be deducted from your taxable profits. This should be declared on your self-assessment tax return each year.

If a room or space is for the business in your home, it is normal practice to work out the proportion of the house used for business and charge the appropriate percentage of council tax, heating and lighting and other utility bills, to the business. If you share a telephone, a percentage of that bill can also be charged to the business.

You should however be wary of the mandatory Capital Gains Tax system is always in place place. If you happen to sell the property at some point, Her Majesty's Customs and Revenue might judge that the space used as an office should be disallowed from the exemption for capital gains tax. The consequence of that is part of any profit on the sale of the house would be subject to the dreaded Capital Gains Tax.

If you have purchased equipment for your business, i.e. photocopying machine, computer, desk, filing cabinet, etc. it will be deemed as ‘capital expenditure’ and therefore qualify for an Annual Investment Allowance. It is law as from April 2008 you have now become entitled to claim tax relief on the initial £50,000 you spend on the business assets.

In turn this actually means that if you buy equipment or spend money within your office area, you can deduct the full amount invested of the cost of the assets from your taxable profits Again this is now up to a value of £50,000. This should substantially reduce your tax bill. Some items are eligible, like computers, others are not. You can find more information on capital allowances from your local HM Customs and Revenue office.

If you use a car for your business part of the cost of running that car, for example fuel, servicing, insurance etc. may be also an allowable as a business expense. This allowance can may also be subject to an addition 25% 'writing allowance.'

There is an alternative you can put on account 40p per mile (up to 10,000 miles) for business mileage. You need to keep a record of mileage to claim car expenses against for you claim. There are other implications that can also be used as long as they account for being “wholly and exclusively used in for business.”

Reduce Your Tax - Know Your Allowances an Improve ProfitsFor a finer details of what has been covered here there are HM Customs and Revenue all around the country who are there to provide you with specific information as well as giving a guide on tax generally for the self-employed. After all, the tax you pay is actually paying their wages!

Tax is an expensive liability for everyone, not least businesses. You would be well advised to make the most of provisions made for reducing that bill. After all, every business is made to make profits for you not throw at the taxman.

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