Last month we published part 1 of expenses and tax according to trade and this month is part two. It is still one of the most common questions we get on a regular basis “what expense can I claim according to trade”?
Since 2015 barristers have been able to be in business as sole traders, partnerships or limited companies.
Normal accounting and tax rules apply with some differences:
There is a specific VAT flat rate scheme rate for legal services of 14.5% see VAT tab.
If you are accruals accounting rather than cash accounting then income figures may need to include an amount for work in progress, see Income tab.
If you are incorporating your business to trade through a limited company goodwill will need to be valued on incorporation. Capital Gains Tax may be due and Business Asset Disposal Relief (BADR) is not available on goodwill sold to a connected party such as your own company except in very limited circumstances, see Overview tab.
Legal practices often have a lot of staff (including directors) undertaking training courses which are often paid for through the business.
Sole practitioners may work from home and fund their home office space through the business.
Barristers often use the cash basis of accounting but the normal turnover thresholds now apply. Previous rules allowing the cash basis to apply for the first seven years of trading were repealed in 2013, see Overview tab.
Other business expenses
· Cleaning products.
· Training costs, for CPD to keep up to date.
· The cost of training for a new qualification is a capital cost and is not allowable.
· Dark clothing purchased to wear in court is not deductible for Income Tax.
CONSTRUCTION & SUBSCONTRACTORS
Construction businesses should always carry out an Employment status check to check whether their workers are self-employed or employees.
The Construction Industry Scheme (CIS) applies to all payments made by a contractor to a subcontractor under a construction contract.
Contractors and subcontractors must be registered with HMRC.
Contractors must assess each subcontractor before making any payment to them and are responsible for making a deduction of tax at source.
The Construction Industry Scheme VAT reverse charge applies to construction services from 1 March 2021.
When the reverse charge applies the supplier does not charge VAT: the customer accounts for the supplier’s output VAT.
The VAT treatment of construction work may be:
Zero rated within Group 5, Schedule 8 VAT Act 1994 (VATA).
Reduced rated within Group 6 or 7, Schedule 7A VATA.
If none of the above apply it is standard-rated, unless the flat rate scheme applies.
Other business expenses
· Protective clothing, such as steel toe cap boots, trousers with reinforced knees, helmets, hi-viz jackets etc.
· Cost of a Uniform, for example where you have a t-shirt with your business logo. You cannot claim for ordinary clothing.
· Costs of cleaning these items can also be claimed if proved that it is only used to clean these.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or getting a new qualification is a capital cost and disallowable.
Cost of goods bought for resale or goods used
· Materials you supply to the building project or re-sell to customers.
· If you take any of these materials from stock for your own use or consumption you will have to treat this as a sale at market value. There may be VAT implications i.e. if these items are standard rated when sold.
· Accounting for stock and Work In Progress (WIP): this is only necessary if you are Accruals accounting.
Construction industry: payments to sub-contractors
· Gross amounts paid to sub-contractors.
· You should always carry out an Employment status check to ensure your workers are self-employed.
· If you engage contractors or sub-contractors you will need to be registered as a contractor and report for tax under the Construction Industry Scheme.
DOCTORS AND DENTISTS
General medical practitioners and general dental practitioners working for the NHS will typically be operating a profession or a vocation with profits taxable as trading income.
Up until April 2023, there are special rules for associate dentists.
By concession, HMRC will treat them as self-employed with their income treated as trading income.
From April 2023 associate dentists will be subject to ordinary employment status rules and will not automatically be classed as self-employed.
Traditionally doctors and dentists have only been able to operate as sole traders or partnerships due to the nature of their NHS work. In more recent years it has been possible for doctors and dentists to incorporate and trade through limited companies.
Doctors and dentists with an NHS contract for services are treated as self-employed but are eligible to make contributions to the NHS Pension Scheme. They have previously had to watch their annual allowance and lifetime allowance limits to ensure that they did not inadvertently trigger charges for excess contributions or a lifetime allowance charge once benefits are drawn. the proposed changes at Spring Budget 2023 have largely removed this requirement, see Overview tab.
Qualifying health services are exempt from VAT.
Non-therapeutic services supplied by doctors are not exempt
Other business expenses
· Fees paid to a hospital or surgery for the use of their equipment, facilities and staff.
· Protective clothing and disposable PPE, such as face masks, gloves or aprons.
· Laundry costs of towels, protective clothing and uniforms.
· Cost of a Uniform where you have to wear one or where you have a logo. You cannot claim for ordinary clothing.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or obtaining a new qualification is a capital cost and is disallowed.
LORRY DRIVERS
Lorry drivers are usually in business as sole traders or limited companies.
They should always carry out an Employment status check to check whether their workers are self-employed or employees. The Off-payroll working rules may apply.
Self-employed drivers have different expense claim rules to employed drivers.
Normal accounting and tax rules apply:
The VAT flat rate scheme rate for transport is 10%, see VAT tab.
Payment for work done for overseas customers may have Withholding tax deducted
Other business expenses
· Digital tachograph cards and photos for them.
· Training costs, to keep up to date. Licence renewal costs and ongoing driver training will be deductible.
· The cost of training for a new skill is a capital cost and is not allowable. Initial HGV training, licence costs and the fees for the necessary driver tests will be capital and disallowable. Renewal fees will be allowable.
TRADESPEOPLE
Tradespeople can be in business as sole traders, partnerships or limited companies.
They should always carry out an Employment status check to check whether their workers are self-employed or employees.
They should also check to see if they are contractors or sub-contractors under the Construction Industry Scheme (CIS).
Normal accounting and tax rules apply:
Different rates of VAT may apply depending on the work being undertaken.
There are various VAT flat rate scheme rates which could apply, see VAT tab.
If you take any goods or materials from stock for your own use or consumption you have to treat this as a sale at market value. There may be VAT implications.
Cost of goods bought for resale or goods used
Use this heading for all your direct costs such as materials you consume in your business or supply to your customers e.g:
· Bathroom and kitchen fixtures and fittings, sanitary ware, washers, taps and pipework.
· Electric cabling, consumer units, switches and light fittings.
· Paint, primer, paintbrushes and rollers, plaster, sandpaper, tiles, filler, sealant.
· Bricks, mortar, timber, concrete.
· Screws, nails, staples.
· Costs of Clothing & Workwear if it is branded with a logo, such as polo or t-shirts and caps, or required for hygiene, health and safety.
· If you take any of these materials or other items from stock for your own use or consumption you will have to treat this as a sale at market value. There may be VAT implications i.e. if these items are standard-rated when sold.
Other business expenses
· Protective clothing, such as steel toe cap boots, trousers with reinforced knees, helmets, safety goggles, hi-viz jackets etc.
· Cost of a Uniform, for example where you have a t-shirt with your business logo. You cannot claim for ordinary clothing.
· Costs of cleaning these items can also be claimed if proven that it is only used to clean these.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or getting a new qualification is a capital cost and is disallowable.
· Staff welfare costs such as tea, coffee and meals for workers.
Expenses and Tax According To Trade Part 2
Last month we published part 1 of expenses and tax according to trade and this month is part two. It is still one of the most common questions we get on a regular basis “what expense can I claim according to trade”?
Click here for Part One of Expenses and Tax According to Trade
BARRISTERS
Since 2015 barristers have been able to be in business as sole traders, partnerships or limited companies.
Normal accounting and tax rules apply with some differences:
· Training costs, for CPD to keep up to date.
· The cost of training for a new qualification is a capital cost and is not allowable.
· Dark clothing purchased to wear in court is not deductible for Income Tax.
CONSTRUCTION & SUBSCONTRACTORS
· Cost of a Uniform, for example where you have a t-shirt with your business logo. You cannot claim for ordinary clothing.
· Costs of cleaning these items can also be claimed if proved that it is only used to clean these.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or getting a new qualification is a capital cost and disallowable.
· If you take any of these materials from stock for your own use or consumption you will have to treat this as a sale at market value. There may be VAT implications i.e. if these items are standard rated when sold.
· Accounting for stock and Work In Progress (WIP): this is only necessary if you are Accruals accounting.
· You should always carry out an Employment status check to ensure your workers are self-employed.
· If you engage contractors or sub-contractors you will need to be registered as a contractor and report for tax under the Construction Industry Scheme.
DOCTORS AND DENTISTS
· Protective clothing and disposable PPE, such as face masks, gloves or aprons.
· Laundry costs of towels, protective clothing and uniforms.
· Cost of a Uniform where you have to wear one or where you have a logo. You cannot claim for ordinary clothing.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or obtaining a new qualification is a capital cost and is disallowed.
LORRY DRIVERS
Lorry drivers are usually in business as sole traders or limited companies.
· Training costs, to keep up to date. Licence renewal costs and ongoing driver training will be deductible.
· The cost of training for a new skill is a capital cost and is not allowable. Initial HGV training, licence costs and the fees for the necessary driver tests will be capital and disallowable. Renewal fees will be allowable.
TRADESPEOPLE
Tradespeople can be in business as sole traders, partnerships or limited companies.
· Bathroom and kitchen fixtures and fittings, sanitary ware, washers, taps and pipework.
· Electric cabling, consumer units, switches and light fittings.
· Paint, primer, paintbrushes and rollers, plaster, sandpaper, tiles, filler, sealant.
· Bricks, mortar, timber, concrete.
· Screws, nails, staples.
· Costs of Clothing & Workwear if it is branded with a logo, such as polo or t-shirts and caps, or required for hygiene, health and safety.
· If you take any of these materials or other items from stock for your own use or consumption you will have to treat this as a sale at market value. There may be VAT implications i.e. if these items are standard-rated when sold.
· Cost of a Uniform, for example where you have a t-shirt with your business logo. You cannot claim for ordinary clothing.
· Costs of cleaning these items can also be claimed if proven that it is only used to clean these.
· Training costs, where you are keeping skills up to date. The cost of training for a new skill or getting a new qualification is a capital cost and is disallowable.
· Staff welfare costs such as tea, coffee and meals for workers.
If you have a question regarding your expenses and tax according to trade – speak to the Robinsons Team.
credit: rossmartin.co.uk
Archives
Categories
Archives
Recent Post
Categories
Portfolio
Meta
Calender