Blog Post

Tax made easy for counsellors

  • By Karen Emery
  • 25 Jan, 2019

Tax allowable expenses

Welcome back

So are you slowly getting your head round, income, taxable profit and the jargon of tax?

A quick recap of rules number 1 and 2

·        Rule 1 keep all your receipts

·        Rule 2 Never I repeat never lie to the tax office

·        Today’s Rule 3 only claim what HMRC say is allowable

Tax allowable expenses

Today we look at tax allowable expenses as a sole trader and there will be examples so you can start to understand what you can claim. The examples won’t be exhaustive so apply them to your particular business and start looking around for allowable expenses. Often people talk about claiming things off their tax. No this doesn’t mean you just get a cheque back from the tax office.

Remember taxable profit = Income – allowable expense. So if I have an income of £100 but I have to spend £40 on ALLOWABLE business stuff. I have £60 taxable profit.

In running a business you have running costs and incur expenses as you have to spend money on things and stuff. Be very clear HMRC says not everything can be treated as an allowable expense Top tip *Your spending and HMRC rules do not necessarily match up

HMRC says

1: the expense must have been for the sole purpose of earning business profits. They call this the ‘wholly and exclusively rule’

2: some items that you buy for your business might also be used privately. You can only claim the business part of these costs. So an example would be mobile phone call costs, computer anti-virus

Think about what you need your accounts to show. Do you need them to show lots of income for a mortgage application/ rent agreement or do you want to pay as little tax as you actually need to.

 

So before we start – Hands up if you are currently claiming for boxes of tissues as an allowable expense. A fundamental resource for your counselling room used wholly and exclusively for the business.


Be wary of people saying they have claimed something and it’s been fine. What they mean is they sent their tax return in and have never been audited. Remember the tax office doesn’t check your return and give you a gold star. They assume it’s correct.

If you’re not sure about an expense, ask HMRC they really are helpful. Or just choose not to claim it as an allowable expense to be safe. Don't panic about it all just remember is the expense wholly and exclusively for the business? 

Simplified expenses

For some expenses HMRC has a way to work out every bit of an expense from bills or they have what’s called simplified expenses to use set rates to make life easier. You can decide which you want to use if you’re a soul trader or partnership with no companies as partners. Currently where simplified exists, I use that to make my life easier. I’ll try and give the links for both.

So some categories from the self-assessment form to apply allowable expenses too.

Travel expenses

HMRC simplified standard rates for use for mileage upto 10,000 miles. See link below for over 10,000 miles

·        45p a mile car/van.

·        25p motorcycle

·        20p cycle.

Mileage is the only receipt you don’t therefore need to keep if you use the standard rate. You just need the 2 post codes and AA route finder (other route sites are available) to work out the miles and keep a record

Don’t forget travel costs includes such things as car park fees, bus/train/tram/taxi fare. Hotels for overnight stays for CPD etc

Travel allowable expenses examples

·        To supervision/ peer supervision

·        To CPD

·        To network meetings

·        To check out rooms to rent. To pick up the keys for a new room.

*HMRC is very clear home to work is NOT an allowable expense.

https://www.gov.uk/simpler-income-tax-simplified-expenses/vehicles-

https://www.gov.uk/expenses-if-youre-self-employed/travel

Rent,

This is your counselling room hire fee. Or a workshop room hire fee for example.  Don’t forget if a client cancels and you still have a room hire fee that is a business expense you have incurred.

Working from home allowable expenses

What if I work from home I hear you cry? HMRC has a great section of what you can claim.

You can work out the proportion of household bills eg heating, phone, internet over the year from your bills. HMRC asks that you have a “fair and reasonable” way to do this. Just like that school maths exam as a child remember to show your working outs and keep a record.

Why does the tax office trust you to effectively make up a way to work this out. Rule 2 the tax office assumes you haven’t lied  

https://www.gov.uk/expenses-if-youre-self-employed  (scroll to the bottom of this link for HMRC’s example maths of how to calculate costs of bills.     

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim47825 great examples of how to do calculations

Or you can use simplified expenses. (not if you’re a limited company)

25 to 50hrs     £10 a month

51 to 100hrs   £18 a month

101hrs +         £26 a month

Simplified can only be used if you work 25hrs or more a month.(that’s only 6.25hrs a week) Remember this isn’t just client hours at home, this is also paperwork, marketing, planning training or sitting writing this blog.

https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

https://www.gov.uk/run-business-from-home  Great general advice re home working, business rates

Here's an example of some allowable expenses to get you thinking about your business. Its not an exhaustive list

Accountancy, legal and other professional fees

Remember blog 1 if maths wasn’t your thing or record keeping is your worst nightmare you were off to pay an accountant?

·        Accountant

·        Book keeper

          BACP, UKCP,NCS  etc membership fees

·        Supervision

·        Virtual assistant ( they answer your phone or do your paperwork)

·        Website designer  (if you’re not techy pay someone to design your website)

Be aware counselling for yourself is highly controversial. If you're post qualified and you're doing new training, say a masters and its required as part of the course, then its a course requirement expense. If you have counselling for your self care then it doesn't really matter we're counsellors, HMRC sees it as a personal expense that benefits you.  Its not classed as wholly and exclusively. I've seen a letter direct from HMRC to confirm this. The subject is so controversial for us counsellors you should all satisfy yourself of hmrc's stance, as its your tax return.  I don't claim counselling.

Interest and bank and credit cards etc financial charges

 If you opened a business bank account with fees the fees are allowable

Telephone, fax stationary and other costs examples

·        Mobile phone handset and cover used solely for business( part cost if part use)

·        Mobile contract or pay as you go ( part cost if part use)

·        Printer

·        Computer/tablet from new. If using cash basis accounting(See record keeping in the next blog)

·        Printer paper / Printer ink

·        Receipt book / Book to keep income/expenditure. CPD notebook

·        Pens , Stapler/ staples, office sundries

·        Business cards

·        Business card holder x 1 for each bag so always prepared

·        Business card display holder

·        Flyers / postcards

·        Encrypted memory stick

·        Back up external hard drive ( useful to keep you tax records on) see record keeping next week

·        Filing cabinet for secure storage

Other allowable business expenses. for this look around your counselling room and  see whats in it?

·        Website hosting initial purchase, Domain name initial purchase, Website yearly fee

·        Counselling directory entry / BACP its good to talk entry or whatever directory you're on.

·        Facebook paid promotion / Google add words  (consider what you spend on marketing in general)

·        DBS fee / DBS update service

          ICO annual fee

·        Accounting software /App

·        Counselling insurance

·        Boxes of tissues

·        Clock ,Flowers, Candles, Room freshener, essential oils

·        Chairs and cushions

·        Curtains/rugs/ pictures/table lamp, table (a proportion if room not solely counselling use)

·        Painting of your counselling room. (a proportion if room not solely counselling use)

·        Personal alarm

·        Counselling / supervision books

·        Network meeting fees

·        Accreditation fees

·        CPD training – be careful though. You can only claim training that develops your existing skills. eg  1. you're already qualified and 2, you're   not trying to claim for yoga training when your business is listed as purely counselling.

HMRC have great free webinars https://www.gov.uk/guidance/help-and-support-if-youre-self-employed

http://www.hmrc.gov.uk/courses/SYOB3/syob_3_exps/html/syob_3_exps_menu.html

 

It’s been a long blog today but there’s lot of allowable expenses. Check out all the links to HMRC pages as they are the source of great information

I’m not an accountant, I’m a counsellor with a sensible approach whose read and understood the HMRC information. This blog doesn’t constitute financial advice.

HMRC says:  Even if you ask someone else (your accountant or tax adviser or perhaps a friend or relation) to complete your return for you, you remain responsible for the entries on the form


Next week’s blog will be record keeping to make sure you have those records in place.


 

 


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