Helpful tips for the tax season
We know that nobody wants to talk about tax, but with the end of the financial year fast approaching, it’s important to be on top of the books. We’ve compiled some of our business know-how into a few helpful pointers on how to avoid the traps that we know can cause havoc for office supplies dealers.
Know where you stand in your business
If you operate your business as a sole trader, you and your business are legally one and the same, and so you classify as self-employed. Because of this, any money you take out of the business is known as ‘drawings’ and you can avoid running a payroll. This is, of course, unless you employ any staff.
However, if you are running your business as or through a limited company, then legally you are a separate entity to your business. This means there is a limit on how much money you can draw out of the company without extra tax being applicable.
Your company can pay you a salary as well as dividends on any shares you own, as you are technically considered an employee – assuming the business is making enough profit to cover them. You’re also eligible to claim for any expenses that you incur on the company’s behalf. Be sure to note that if it pays you more, you could be required to pay extra tax and NI on this.
Check to see if you’re eligible for the VAT Flat Rate Scheme
In a nutshell, the VAT Flat Rate Scheme allows businesses to pay a fixed rate of VAT to HMRC and keep the difference between what it charges the customers and what it pays to the taxman. It simplifies the tax paying process, saving you time and quite often money. You must apply to HMRC and be accepted before you start using it, and in most cases can’t claim VAT on your purchases (except for some capital assets over £2,000). If you’re accepted onto the scheme, you’ll also have to update your accounting software’s VAT settings, but the long-term benefit is essentially a simplified and time-saving process.
Monitor your motoring costs
If you’re claiming HMRC’s 45p or 25p for every mile you travel on business journeys in your own car, remember that this covers all the costs of buying and running your vehicle. You therefore cannot claim for the costs of fuel or repairs for it, or capital allowances against the car’s purchase. There are some other costs allowable for when you’re using the mileage method however, such as road tolls or car parking fees.
Don’t get bogged down by water
If you spend time working from home, then it’s possible to claim a percentage of your household running costs in your accounts. However, you’re not eligible to claim on the water you use, unless your business requires a lot of it, for example laundrettes, hairdressers or dog groomers. In any case, in order to claim on it, it must be supplied using a pipe separate to your domestic one.
Don’t let food and drink costs eat you up
Food and drink are naturally considered partly personal costs by HMRC, but you are only able to claim in certain circumstances. If you own a limited company, the rules are fairly simple, and the cost of food and drink can be claimed back whenever you are out and about on business. However, the rules are more rigid for sole traders, and you are only able to claim the cost of food and drink if you are away on business overnight, the journey is extraneous to usual or the company’s nature requires you to spend short periods of time at various locations.
Don’t let me entertain you
HMRC isn’t inclined to treat entertainment of individuals including customers or subcontractors as a necessary expense. To be safe, know that you can only claim VAT on entertaining legitimate, current business employees, anyone else could risk burning a hole in your pocket.
Timing and organisation are key, and if in doubt, consult an expert
It’s important to keep a correct record of the business income, so that you don’t risk penalties for late tax payment. If you’re using the cash basis of accounting, you’d include your income when your customer paid you for it; otherwise, you count income from when you do the work or provide the service, regardless of the invoice, or payment date. Always remember that if there is anything that you’re unsure about, seek the assistance of an accredited accountant.
A bit more about Office Power
We believe knowledge is power and the key to success in the office supplies industry is knowing the ins and outs of every aspect of your business, however big or small, and managing it accordingly. We’ve learned through experience, and now – having racked up over 20 years’ in the industry, a handful of awards and a fair few specialist contacts – we’re keen to share the knowledge we’ve cultivated, providing office supplies dealers throughout the UK with the support and advice to achieve real growth.