claiming covid-19 related expenses for work

Working from home and claiming tax relief on expenses

As more of us are now working from home, more often, because of the recent impact has had on businesses and attitudes concerning the practice of working from home, how can employees be reimbursed for the extra expenses they incur working from home, and what exactly can they claim for?

It comes as no surprise to find that many of us have had to work from home over the past couple of years. While in most cases this was forced upon us, it has had a significant effect on the attitudes of employers towards this practice.

Many employees have found it beneficial, as indeed have some employers, and want to continue, at least for part of the working week. Working from home imposes a range of costs on both employer and employee that prior to the recent pandemic, haven’t drawn that much attention. So when employees spend a considerable part of their work time working from their own home, how much of the extra expense can they claim, and what exactly is claimable?claiming covid-19 related expenses for work

What types of working from home expenses are we talking about?

Enabling an employee to work effectively from home requires more than a little thought and planning, there are real costs and expenses to consider. These may include:

  • The cost of a laptop or other computer
  • An internet connection
  • A printer
  • Printer and general office consumables
  • A home office space and furniture
  • Heating
  • Lighting
  • Telephone / mobile phone

Most people typically discover that while working from home can be a great convenience, their household bills start to increase, especially if normally both adults are at work, working the typical 9 to 5 office shift.

Then there are other considerations that are often forgotten, issues such as insurance come to the fore, personal and for additional equipment. Also, can an employee now claim expenses for a trip to the employer’s office?

Reimbursement vs tax exemption

It is important to understand how expenses are treated for tax purposes.

Reimbursement

If, as an employee, your employer reimburses the expenses you incur as a part of your job, HMRC must be satisfied that:

  • No matter who did the job, the expense would have been incurred.
  • It was necessary to perform your job.
  • It was incurred in the performance of your duties.
  • It was incurred and paid back to you.
  • The expense was wholly and exclusively for your work.

If HMRC isn’t satisfied, you’ll run the risk of expense payment being treated as additional income and be taxed accordingly.

Tax exemption

If your employer doesn’t reimburse you for expenses incurred during the performance of your duties, you may be able to claim these against your income. That may be the case if for example your employer doesn’t reimburse you for the additional expenses of working from home. You must be able to prove, just like reimbursed expenses, that they were purchased wholly and exclusively for your job.

If this is the case then your expenses can be claimed against your income. For instance, if you earn £30,000 and you incur £5,000 of expenses, you will only pay income tax on £25,000.

Some common questions about claiming working from home expenses

Implications exist for both employers and employees where claiming expenses related to working from home are concerned. Let’s look at some of these.

Can employers reimburse homeworkers for their household expenses tax free?

The simple answer is ‘yes’ an employer can reimburse its employees when they work from home with your full agreement, provided they are ‘reasonable’ and provided that the employee working from home is a regular occurrence.

HMRC allows different levels of payment to be paid free of tax and national insurance without supporting evidence. For weekly paid employees, this is up to £6, and monthly paid employees can expect £26 a month.

Can an employee be reimbursed tax free for working expenses greater than these figures? Again, yes. However, you must be able to prove that the payments are wholly in relation to ‘reasonable additional household expenses’ and that you have supporting evidence to this effect.

When employees are given equipment for home use, is there an income tax charge?

Income tax charges for this type of expense usually arise because the equipment concerned is also being used for personal use. As such it’s considered a benefit and tax arises as a result. So, if the equipment is supplied and owned by the company and supplied for business use, not personal use, then a tax charge will not arise. The other condition is that this ‘benefit exemption’ is offered to all employees with similar employment terms. The equipment must also be returned when the home working ends or when an employee leaves, if not a chargeable benefit will arise.

[Learn more about how benefits in kind are treated by HMRC here]

If an employee purchases their own home-working equipment, can we reimburse them tax free?

As a consequence of Covid-19, there was a government scheme in place up to April 5th 2022 that allowed employees to be reimbursed tax free for home-office equipment purchases, provided the same benefit was available to other employees in a similar role. This has not been extended beyond April 6th 2022.

Can homeworkers claim tax relief on household expenses?

Yes, because not every employer will cover the cost of an employee working from home. However, there are limits. Firstly, just like an employer reimbursing employees for home use, it has to be fully justified as an expense incurred wholly, exclusively and necessarily in the performance of their duties. Usually this is difficult to achieve as the employee should not have had a choice to work from home - i.e. it was forced upon them by the employer. If they did have a choice in the matter, then this would not be allowed.

However, because of Covid-19, an employee can now claim the same weekly £6 or monthly £26 allowance through their Government Portal for tax years 2020/21 and 2021/22. This claim is possible even if the employee was asked to work from home on a single day in either tax year. For a person on the basic tax rate of 20%, they are able to claim £6 per week which equates to £1.20 per week, or £62.40 per year. 40% taxpayers can claim double this.

Again, it is possible to claim more, but as ever, complete records demonstrating the authenticity of the claim must be kept and be justifiable.

If an employee works from home can they claim tax relief on travel expenses for trips to the office?

This is a difficult and complex area. It requires the definition of what is an employee's permanent workplace and temporary workplace. It also depends on whether the employee is permanent or part-time.

HMRC considers a permanent place of employment that location where an employee attends in performance of their duties. Regular relates to the frequency of attendance or pattern of attendance. This means that going to the office everyday is a requirement, a visit once a week, fortnightly or monthly, may apply.

On the other hand, HMRC considers a temporary workplace a location an employee attends while fulfilling a temporary role or one of limited duration. If an employee spends more than 40% of their time at one location over a 24 month period, HMRC will consider this as a permanent workplace.

So, if an employee ordinarily works from home full-time and is required to travel to the office, the employee can claim unreimbursed expenses tax free - provided the travel is not made regularly, else it may be considered that the office is the permanent place of employment.

Accordingly, if an employee shares their time between two locations, such as a home-office and their real office, HMRC will consider this as ordinary commuting between two ‘permanent’ places of work.

Can you backdate working from home allowance?

Yes, HMRC will accept backdated claims for up to 4 years.

Am I eligible for working from home tax relief?

Yes, provided you had no choice in the matter and your employer asked you to. Then you can claim £6 per week / £26 per month (monthly workers).

Note that you cannot claim this allowance if your employer reimbursed your expenses for doing so or paid you an allowance.

How do you claim payment for working from home?

You can make a claim if you have a government portal account or through your regular SA100 tax return.

Record keeping

Making expense claims is one thing, making sure you have the evidence to support them is quite another. Most employees are used to claiming ad-hoc expenses from their employer, such as when they attend an off-site client meeting, attend a trade show, stay overnight somewhere or claim subsistence expenses. When it comes to claiming expenses that relate to the use of your home, HMRC quite naturally regards these claims with little more skepticism.

It’s essential that you keep accurate documents in relation to what you are claiming. If you are claiming for heating that you might ordinarily expect not to have to pay because ordinarily you work in an office from 9 to 5, then make sure you apportion a reasonable amount of the bill. Don't, for instance, claim for heating your entire house when in reality you’re using just one room.

When you’re unsure, talk to a tax expert like TaxAgility

Personal tax addition can be a complicated area and making claims for expenses if not properly validated and justified, can lead to serious consequences with HMRC. If you have any doubts or would like a tax expert to help you in making claims for tax relief, call TaxAgility today on: 020 8108 0090 and speak to one of our personal tax experts.

 


Reporting Employee Benefits-In-Kind

Employee benefits in kind, the P11D and what employers must report.

Attracting and retaining valued employees is not at all easy these days. One way employers like to try and ‘sweeten’ their employment packages is through benefits such as, private healthcare schemes, company vehicles to the humble mobile phone, but these have tax consequences too.

Why have benefits-in-kind (BIK) become such an issue?

You might wonder why in a time where employees find it increasing difficult to retain valued staff, why the Government is slowly making it unattractive to provide these benefits? The simple reason is that some companies have chosen to use this route to reduce their own tax bills by offering more benefits while providing lower salaries. Lower salaries mean less National Insurance and Pension costs. For instance on an employee earning £30K per year, the company pays 13.8% or in this case around £2,800 and then another £716 in pension payments per year. With a lot of employees, this soon mounts up.Reporting Employee Benefits-In-Kind

It works the other way too. In years past, an employee may have been able to opt for benefits ion return for a reduced salary - called "optional remuneration arrangements”. By doing this, the employee would pay less tax and national insurance.

Company cars have received harsh treatment in recent years, with the tax rate currently at 37%. The only exception, one that is becoming increasingly interesting for employees, is having a fully electric vehicle. Current tax legislation applies a zero tax rate to this type of vehicle.

So, to make benefits-in-kind a less attractive way to reduce a company’s tax burden, the government has continued to tax them.

What employers need to know about benefits-in kind and the P11D.

As an employer you’ll need to understand what constitutes a benefit-in-kind, what to report, how to report it and what the deadlines for reporting are. So here’s a recap.

What is a benefit-in-kind (BiK)?

In short, a benefit-in-kind is any benefit (perk) that an employee or director receives which is not included in their salary or wages. If you’re not sure, talk to us.

What are considered benefits?

The list of actual ‘perks’ HMRC considers as benefits is quite extensive, covering around 60 categories. You can see the full benefits list here.

For most people it comprises typical things such as private medical insurance, a company car, child care, expense allowances, clothing, mobile phones, home use, fuel for personal cars, etc. 

Mistakes are often made and employers / employees which can land them in trouble, such as when a director has overdrawn the director’s loan account by over £10,000. As this is deemed a loan, interest is due. Also, it’s very easy to forget about work related calls made from personal devices, such as a home phone or mobile and where this has been claimed back by the employee.

If you are not sure about any potential benefit you are giving or receiving, check with a knowledgable accountant like Tax Agility first.

How to Report Employee Expenses and Benefits

Employee expenses and benefits need to be submitted at the end of each tax year using form P9D or P11D, depending on the expense or benefit in question. The Government has provided a detailed list of common expenses and benefits online, clicking through to each of which will tell you which form you need, and how you should calculate what you owe.

You’ll need to submit a separate form for each employee; so if, for example, two full-time employees are provided with a mobile phone each for work, you’ll need to complete a separate P11D for each employee. If you submit a P11D you’ll also be required to submit a P11D(b), reporting what Class 1A National Insurance is due on your expenses and benefits payments. You can complete an online declaration if you didn’t submit a P11D, to ensure HMRC won’t contact you about it.

All forms should be filed through either HMRC’s PAYE Online service, your own payroll software, or by downloading the form online and posting it to the address you send your paper tax return to.

If you under-report on your employee expenses and benefits and, therefore, pay less tax than is required of you, you’ll likely be charged a penalty by HMRC if they believe your under-reporting to have been deliberate or due to carelessness. You may be asked to show evidence of how you accounted for each expense or benefit; records must be kept for three years.

PAYE Settlement Agreements

What are PAYE Settlement Agreements? It’s common for some employees to have to claim for small and infrequent expenses or benefits - perhaps a bond or reward for service or performance in a year, or a business trip claimed by the employee. These can be a pain to have to report separately. So, if you only pay small, irregular, and impracticable expenses or benefits to your employees you can simplify your tax and National Insurance Contributions by applying to receive a PSA so you only have to make one annual payment to cover all and any payments owed. Checkout our other article on PAYE Settlement Agreements (PAYE Settlement Agreement)

Are there any exemptions to benefits-in-kind?

The recent pandemic may have people asking this question, especially if they are using company cars. If your vehicle was not used for 30 days or more, you may be able to apply for an exemption. However, as with many things related to HMRC, you may need to be prepared to prove this.

As an employer, you generally don’t have to report typical expenses such as the following, provided that you are either paying a flat rate to your employee as part of their earnings - this must be either a benchmark rate or a special (‘bespoke’) rate approved by HMRC, or paying back the employee’s actual costs.

  • business travel
  • phone bills
  • business entertainment expenses
  • uniform and tools for work

Calculating Employee Earnings

Each employee expense or benefit will need to be calculated at a rate. The Government recommends you do this by adding the value of all expenses and benefits an employee has received over a given tax year to that of their annual salary (if they haven’t worked a full year with you, calculate the full-year equivalent of their salary and all expenses and benefits received).

When to report to HMRC using your P11D?

The deadline for submitting your P11D and P11D(b) is the 6th July after the end of the tax year.  For the 2020/2021 tax year, for instance, the deadline is 6th July 2021.  You must ensure that copies of the individual P11d forms are given to each of your employees by this deadline.

Class 1A National Insurance payments must be submitted by is July 19th or the July22nd if you are paying online.

Experienced P11D Tax Accountants

To speak with a professional to discuss whether you need to start paying tax on your employee’s expenses and benefits, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation consultation.


How to get a PAYE Settlement Agreement (PSA)

Calculator_TaxAgility Accountants LondonIf you’re a small to medium-sized (SME) business owner with a number of employees, you may wish to consider applying for a PAYE Settlement Agreement (PSA) to simplify your tax and National Insurance Contributions (NICs) paid on small, irregular, and impracticable expenses or benefits paid out to your employees.Read more


cost control

How to control costs

cost control

Cost control is different from cost cutting. Learn this financial discipline to keep a lid on your costs and improve profitability.

Not to be confused with cost cutting, cost control is all about financial discipline and it involves planning, managing and preserving your financial resources. It's good practice to follow in both good times and bad – and if you control costs consistently well over time, your business should benefit from a stronger operating position and better cash flow leading to a rise in the company’s current assets (such as more cash in the bank), which will undoubtedly strengthen the value of your company and its financial position.

In this article, our chartered accountants for small businesses in London aim to discuss all you need to know about cost control, including:

  • The difference between cost control and cost cutting
  • Cost control applications
  • Who should be involved in the exercise
  • Top tips to control costs
  • Quick wins
  • Habits to help you succeed

The difference between cost control and cost cutting

The main difference between cost control and cost cutting is that cost control is about the management of costs while cost cutting focuses on lowering costs.

Cost control is also about discipline and stewardship exercised throughout the business journey, during both good and bad times. Cost cutting, on the other hand, tends to kick in when the business is going through a rough patch and you want to save as much as possible.

Cost control is applicable to direct and overhead

Broadly speaking, costs can be categorised into direct and indirect. Direct costs are costs attributed to the production of specific goods or services.
Indirect costs or overhead costs, on the other hand, are ongoing expenses associated with running a business.

Here is a quick example – assuming you are a small publisher producing atlases to colleges. Your direct costs are cartographers, designers, printing, storage and the delivery charges from the warehouse to your clients. Your indirect costs are office rent, an e-commerce site to take orders, phone lines and emails to communicate with your clients, staff to support and market the products, among others.

Cost control can be applied to both direct and overhead costs. For example, you may engage freelance cartographers when possible and negotiate with your printer for a better deal to manage your direct costs. When it comes to controlling overhead expenses, you can choose to modernise your e-Commerce site and marketing efforts, implementing referral programmes that only cost you when a sale is realised.

Who should be involved in cost control?

Contrary to cost cutting which is usually a top-down approach, cost control involves your team members liberally, particularly your managers. Your employees are more likely to cooperate if they can understand how cost control can benefit the company and also themselves.

Here is an example – a client has three bank accounts in three different currencies and in the past, their in-house bookkeeper spent almost £1k a year on bank transfer fees because no one was ‘thinking about such small costs’. When the company director decided to make financial discipline as part of the corporate culture, ideas started to flow. The bookkeeper switched to using an online money transfer service when paying overseas suppliers and the company immediately reduced its bank fees significantly.

It is also possible to involve your suppliers as part of the cost control exercise. Once your suppliers know that you are taking a proactive step to control costs, they are likely to share with you options that can help lower your bills.

As cost control starts with a careful review of financial data, naturally you want to involve your accountant too. Talk to one of our small business accountants in London if you are looking for someone who can help you identify under-performing cost centres and suggest ways to reign in control.

Top four tips you can take to control costs

1. Reviewing the variances between actual costs and budgets

The main purpose of budgeting is to reduce careless spending and improve profits.

Every month our small business chartered accountants share a vital set of financial data called the management accounts with our clients. Among them is a document called budget variance which tracks how much you have budgeted to earn and spend in a particular month versus how much you have actually earned and spent during that period. Ideally, you want the actual figures to be as close to the budgeted figures as possible, as they indicate good planning, good execution, and less careless spending.

It is worth pointing out your budgeted figures must be realistic, based on historical data and market trends. For example, you shouldn’t expect to sell £10k worth of Christmas decorations to consumers in March (unless the figure is after some massive discounts). Equally, you can’t have a budget of £1k a month for marketing but choose to splurge on TV commercials.

2. Enhancing internal processes

Many businesses have their own set of procedures created years ago and some of these are so set in their ways to the point that no one questions if they are still relevant. Review every part of your internal processes and make the necessary changes to increase efficiency.

For example, your staff may still spend time on endless meetings, often involving everyone in the team and each meeting has a designated note taker. In reality, many companies have started to streamline meetings with clearly defined expectations and use apps to take notes.

3. Focusing on quality

Quality control is an essential tool in manufacturing, not just in producing an excellent product, but also in refining the production process as it can lead to zero wastage. Even if you aren’t a manufacturer, you can still apply the same principle to every product and service you offer.

Once you start to focus on quality, you will see an increase in satisfied customers, which is likely to lead to more sales and referrals. Together, they will create a positive feedback loop that will yield more favourable results, such as higher quality that will enhance value and allow you to potentially differentiate and charge higher prices to more customers.

4. Be well prepared

No business is risk-free and yet surprisingly, many small business owners aren’t prepared for the associated risks, let alone having robust plans to manage an uncontrolled loss of something valuable.

Risks that can affect a small business may include economic risk, compliance risk, financial risk, operational risk, fraud risk, reputation risk, and competition risk.

For instance, business owners know that the economy can fluctuate between periods of strong growth and weakness. As a business owner, you must be able to analyse the changes and trends pertaining to your industry. Your business must innovate, evolve, and adapt to stay relevant. Also, it is wise to set up a rainy day fund to tide the company over during an economic downtown.

A few quick wins

Controlling costs should not be a burdensome exercise and here are some easy savings you can make immediately:

  • Finding alternatives to lower bank transfer fees – plenty of online money transfer services now charge less for each transaction than your bank.
  • Using cloud computing – subscription-based or pay-as-you-go software and data storage remove expensive infrastructure in-house. At Tax Agility, we work with Xero, cloud-based accounting software that streamlines many common accounting processes, saving you time and money.
  • Eliminate unnecessary costs – unneeded insurance, unused telephone lines, subscriptions that your staff don’t use, hiring staff when outsourcing can do the work, these are some costs you can eliminate immediately.
  • Negotiating with your suppliers – apart from asking for discounts and better payment terms from your current suppliers, find out if there are alternatives. Also, look for alternative suppliers where possible.
  • Rejuvenating your marketing programmes – try new approaches such as rewarding your loyal customers when they refer other buyers to you.
  • Maximising your staff’s skills – many modern offices look for staff who can step up and be responsible for a variety of tasks. For instance, a marketer today should be able to manage a CRM system, design a newsletter, write compelling product descriptions, know how to take good product pictures and publish them online, among other tasks. If your marketer can only do limited functions, consider training and encourage them to grow, or find somebody who can.

Good habits can help you reach your goals

Financial discipline is about being consistent in your approach when it comes to planning, managing and preserving your financial resources. It is definitely not a one-time exercise. To be successful in cost control, you must be able to plan, set realistic goals, review results and spend time to sharpen your financial knowledge regularly.

At Tax Agility, we know that not every small business owner has the time to plan and interpret financial data, this is why our small business accountants are ready to assist. Our biggest strengths are in number crunching and applying solid financial principles to help you create and maintain the economic value for your company. So give us a call on 020 8108 0090 when you are ready to instil some financial discipline into your business.

Tax Agility can help you to control costs

Cost control often starts with a careful review of your major cost centres – your direct costs, sales and marketing, finance and administration, IT support, legal costs, to name but a few – over a period of six to 12 months. After that, you proceed to rank each cost and identify areas where savings can be made.

Your accountant is vital to your cost-control effort. At Tax Agility, our small business accountants have the experience to help you review your financial data and suggest ways which you can take to manage your costs and improve profitability.

We have three offices – in Putney, Richmond, and also at Cavendish Square in Central London – conveniently located to assist company directors and owners across London with a complete range of financial and business services, including Accounts & bookkeeping; Payroll management; Management consultancy; Personal tax planning and many more.

Call us today on 020 8108 0090. Alternatively, use our online form to arrange a complimentary, no-obligation meeting.

You may be interested in:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.


Christmas gifts

Tax guide for Christmas gifts

Christmas gifts

Non-cash Christmas gifts cost less than £50 an item can be considered as ‘trivial benefits’.

As the calendar year comes to an end and Christmas approaches, many small business owners in the festive spirit enjoy giving a token of appreciation to the team members. But before you go and splash out, here are the tax rules you need to be aware of.

  1. Cash or vouchers which can be converted to cash are not considered as trivial benefits. They are subject to tax and National Insurance.
  2. Christmas gifts that are less than £50 per head (inclusive of VAT), not considered as a reward for their work or performance, and not stated in the terms of their contract, can be considered as trivial benefits. In this case, they are exempted from tax and National Insurance.

Christmas gift examples

Some thoughtful Christmas gifts that are below the £50 mark and can be considered as trivial benefits include:

  • Something traditional: a bottle of wine or a box of chocolate
  • Something more personalised: a scarf, a pair of gloves or a personalised mug
  • Something popular like small electrical items, anything from portable power banks for phones to adapters.

What about Christmas bonuses?

HMRC is clear on Christmas bonuses – any cash you give to employees as a Christmas bonus means earnings. This means you have to add the value of the bonus to your employee’s other earnings, pay PAYE tax and also National Insurance through payroll.

What about gifts from a third-party?

It is possible for your employees to receive gifts from a third party. For example, you run a bakery and your employees may receive a gift from a flour manufacturer. The gift can be cash, vouchers, cheques or items. What you have to report to HMRC depends on what kind of third-party reward your employee receives and whether you are involved in arranging the reward.

The rule of thumb is that if the cash or vouchers are involved, the third-party must deduct PAYE from the reward and you must deduct National Insurance on the combined value of the reward and the PAYE tax paid on it by the third party.

For non-cash goods, the third-party must account for the tax due on the reward and pay tax and National Insurance. However, if you are involved in arranging the reward, the third party will pay for the tax due and you are responsible for the National Insurance.

As this can get complicated quickly, the best approach is to talk to your tax accountant.

Tax Agility can handle your taxes

At Tax Agility, our small business accountants can provide tax advice concerning Christmas gifts and trivial benefits to all small business owners in London, Richmond and Putney. You can count on us to provide honest tax advice pertaining to:

  • Corporate tax
  • VAT
  • Employers’ PAYE
  • National Insurance
  • Business rates
  • Income tax (for directors and shareholders)

Give us a call today on 020 8108 0090 or get in touch with us via our contact page to arrange a free, no obligation meeting.

If you enjoyed this article, you might also be interested in:

This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Business people Celebrate Merry Christmas And Happy New Year

Tax rules for staff parties and annual events

Business people Celebrate Merry Christmas And Happy New Year

Beware of the £150 per head exemption before organising your office party.

The idea to get your team members away from work and their daily routines for a social function is sound and meaningful. Rightly so, HMRC recognises the importance of such social event and allows tax exemption to small business owners who look to reward their employees with a staff party or a social event.

Important tax rules on staff parties and annual events

HMRC is stringent when it comes to the extra perks you provide to your staff and the perks are subject to PAYE tax and National Insurance.

But once a year, HMRC allows you to spend £150 per employee which is an exemption, meaning you can claim them as a business expense. To qualify, the event must:

  • Occur annually. It can be a Christmas party or a summer event.
  • Cost less than £150 per employee. This cost includes VAT and other related expenses such as the event itself and transport.
  • Available to all employees.
  • Available to their partners, meaning their partners are also subject to the £150 per head limit.
  • Applicable to shareholders who are also directors or employees.

What happens if my event costs average more than £150 per person?

If your annual event exceeds the £150 tax exemption per person, you cannot claim the first £150. Instead, you must report the whole amount to HMRC and pay National Insurance on the full cost of the event accordingly. In this instance, it is best to get help from your accountant as you will also need to complete form P11D for each employee.

Can I host more than one annual event?

Yes. Employers can host multiple annual events but must ensure that the combined cost of the events is no more than £150 per employee for the year. However, to make it easier, most business owners choose to use their tax exemption budget during a single occasion.

Let Tax Agility manage your taxes

Tax is probably not the favourite subject among many small business owners. In the UK, tax is a complicated subject and how much tax your business has to pay depends on its structure, the VAT option it chooses, and how much money it makes. We understand that not all small business owners can keep abreast of the latest tax changes, which is why our accountants for small business owners are here to assist.

When it comes to taxes, you can count on us to provide services pertaining to:

  • Corporate tax
  • VAT
  • Employers’ PAYE
  • National Insurance
  • Business rates
  • Income tax (for directors and shareholders)

Whatever you need, we are committed to making your business a success - contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a free, no obligation meeting.

If you enjoyed this article, you may also be interested in:

This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Person preparing invoices for the customer

How contractors should invoice for expenses

Preparing invoices for the customer

Knowing how to invoice for expenses when you first start out as a contractor, regardless of your profession, is crucial to ensure that you keep up a professional appearance and can breeze through the first few months of your contracting career.

As a contractor, you are likely to incur a few expenses when providing your services to clients. For example, you may need to travel and visit premises in another town (an expense which you incur), or you may need to purchase a piece of equipment on behalf of your client (a disbursement which you will invoice). To help you navigate the expense and disbursement process, our accountants for contractors in London at Tax Agility share three common methods that you are likely to encounter when invoices your clients for your expenses.

Adding VAT

Regarded as the simplest invoicing method, adding VAT involves charging VAT on any expenses you have incurred while working or carrying out your services for your clients, such as hotel stays, public transport expenses and mileage. In this case, you add the VAT regardless of whether or not you were charged VAT on these items in the first place.

For example, you performed £2,000 worth of work for your client and you incurred £40.00 in petrol cost due to driving out to an in-person meeting with your client (a cost they had agreed to reimburse), you would invoice them £2,448 and the breakdown is as follows:

  • £2,000 for the work
  • £40 for petrol cost
  • £408 (20% VAT on £2,040)

Splitting VAT

In the event that your clients do not like the above method as they are paying VAT on the petrol cost twice, then you will need to remove any VAT you paid on expenses you claim back from them, then applying VAT to your final, gross invoice.

Let’s say you performed £2,000 worth of work for your client, and you also paid £1,200 (with VAT) for a training course which your client suggested you attend and promised to reimburse you for. In other words, the training cost is actually £1,000 + VAT £200.

In this case, you will invoice your client £3,600 and the breakdown is as follows:

  • £3000 (£2,000 for the work + £1,000 for the training cost)
  • £600 (20% VAT on £3,000)

Disbursement

Disbursement payments occur when you purchase something on behalf of your client and pass that cost over to them in your invoice. In this instance, you do not charge VAT on the items and you cannot claim back any VAT.

As explained by HMRC, there are various rules surrounding disbursement including:

  • You paid the supplier on your client’s behalf and acted as the agent of your client.
  • Your client received, used or had the benefit of the goods or services you paid for on their behalf.
  • It was your client’s responsibility to pay for the goods or services.
  • You had permission from your client to make the payment for the said goods or services.
  • Your client knew that you were not the supplier of the goods or services.
  • You show the costs separately on your invoice.
  • You pass on the exact amount of each cost to your customer when you invoice them.
  • The goods and services you paid for are in addition to the cost of your own services.

Here is an example: you performed £2,000 worth of work for your client and you incur £40 in petrol costs which the client would pay. To do the job, your client also asked you to purchase a piece of electronic (a Geiger counter worth £200) which they would need in the project. You will invoice £2,648 and the breakdown is as follows:

  • £2,040 (£2,000 for the work done + £40 petrol expenses)
  • £408 (VAT on £2,040)
  • £200 (Geiger counter disbursement)

How can Tax Agility help contractors?

At Tax Agility, we understand that contractors are constantly juggling different tasks at once, which is why we want to step in and help. With the assistance of our dedicated accounting and tax services for contractors, you can focus on building your business while we manage your financial and tax affairs.

Our contractor tax and accounts services include:

  • Setting up a limited company to help you get started
  • On-going accounts and bookkeeping management for contractors
  • IR35 support for contractors
  • Construction Industry Scheme (CIS) support
  • Corporate tax advice
  • Self-Assessment tax returns
  • Personal investments

If you would like to arrange a one-to-one meeting to discuss any tax or invoicing queries you might have, we offer a no-obligation, free consultation. Contact us today on 020 8108 0090 or get in touch with us via our Contact Page.

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This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.


Payroll administration--pieces of paper-calculator-glasses and other objects

Why outsource your payroll administration

Payroll administration--pieces of paper-calculator-glasses and other objects

As a business owner, you know that managing payroll in-house can be a complicated affair. The payroll process is time-consuming as the tasks include statutory sick pay, statutory maternity/ paternity/ adoption/ shared parental pay, student loan, holiday pay, bonuses, pension and various National Insurance classes, among other issues like preparation of various forms (such as P11, P35, P45, P46, P60) pertaining to employment.

Spending your time dealing with payroll may not make sense for a small business owner because there are other areas that need your attention. Equally, hiring a dedicated person in-house to manage payroll for a small team seems excessive too. This is why it makes sense to outsource your payroll administration to a professional payroll company like Tax Agility.

Here are the five reasons why outsourcing your payroll administration is a smart move.

Focus on other aspects of your business

As an employer, you are obligated to record your employees’ salary in payroll software, even if they get less than £116 a week. The process involves:

  • Calculating deductions (taxes and National Insurance) from their pay.
  • Calculating the company’s National Insurance contribution if their earnings are above £157 a week.
  • Producing payslips for every employee.
  • Submitting their pay and deductions to HMRC in a Full Payment Submission (FPS).
  • Recording the payments.

Dealing with payroll is a time-consuming task. Every hour you spend on payroll administration is an hour that could be better spent developing your business or growing your business network. By allowing us to manage your payroll, you can turn your focus back achieving your business goal.

Lower your risks

Payroll is an on-going process that requires constant attention as HMRC is quick to issue a penalty. For example, in addition to paying your employees, you need to pay HMRC for the National Insurance contributions by the 22nd day of every month, otherwise you may have to pay a penalty.

In the event that you have paid your employees but forgotten to send the FPS to HMRC, they may also fine you.

When HMRC introduces a new law, like companies must now provide and pay into a workplace pension scheme for their employees, you need to be in full compliance of the law. The minimum contributions are 5% (2% from employer and 3% from employee) until 5 April 2019, then 8% (3% from employer and 5% from employee) after that day. With us staying on top of this issue, we can help you manage it so you’re compliant with the new law.

Cost saving

Outsourcing your payroll service can be highly cost-effective when you factor in the time spent on creating tax documents and monthly (or yearly) payroll software maintenance cost. You also don’t have to spend time learning the payroll software and manage the upgrade yourself.

Simplified National Insurance contributions

Splitting up into various categories, National Insurance contributions are complex. Understanding the classes – Class 1, 1A, 1B, 2, 3, 3A and 4 – alone require you to a good amount of time reading them. Leave them to the professionals because this is what we do best.

Full year-end payroll services

Every April, you will need to review your payroll reports, give your employees a P60 and prepare your employee records for the next tax year, plus you will also need to let HMRC know that it is your final EPS report of the year. There are certain dates you need to keep in mind, such as:

  • Before 5 April: send your final EPS to HMRC.
  • After 6 April: update your payroll software and employee payroll records.
  • By 31 May: give your employees a P60.
  • By 6 July: report employees expenses and benefits to HMRC.
  • Our payroll service will gladly help you to manage the year-end payroll process.

Outsource your payroll administration to the professionals

If you want to spend less time on tedious payroll administration and more time on other areas of your business, the best thing you can do is to outsource the work to us. At Tax Agility, our team will provide you with consistent payroll administration as well as one-off payroll exercises like providing your employees with bonuses, overtime payments and commission.

Contact us today on 020 8108 0090 to discuss outsourcing your business’ payroll administration to our experienced accounting team in London. Alternatively, you can get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

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What is the 24 Month Rule for Contractor Expenses?

Contractor AccountantsThe 24 month rule for contractor expenses is a law that allows contractors to receive tax relief on travel expenses should you be required to travel from your home to a temporary working location for a period of 24 months (two years) or less.

If you qualify for such relief it will be paid to you, tax free, directly by your employer. Under the law, travel expenses refer to all reasonable costs that are incurred as a direct result of you having to travel from your home (permanent residence) to your temporary working location.

The Rule Defined

The 24 month rule for contractor travel expenses only applies towards the first 24 months of you being asked to work from a temporary working location if the contract is expected to last for no more than 24 months.

If the contract signals a permanent move, or the move is to last for more than 24 months, no relief will be available for any period. If, however, halfway through a shorter contract your temporary location becomes permanent, or the contract is extended so the total time at your temporary location will exceed 24 months, relief is no longer available from that point on, but relief claimed up until that point may be kept.

Similarly, if you’re asked to work full-time from a temporary location for longer than 24 months, but several (or many) months into your contract at this location your time there is shortened to less than 24 months, you’ll be able to claim relief on the remaining months you have at your temporary location, but you won’t receive relief for the months up to that point, as at that time your contract was intended to be longer than the two year threshold.

What is a Temporary Working Location?

A temporary working location, for the purpose of the 24 month rule, is any location that you aren’t expected to be at (and ultimately aren’t at) for longer than two years.

You should note, however, that if your temporary working location is close enough to your permanent work location that it doesn’t prompt a dramatic change in the journey you take or the cost incurred to get there, with your journey from home remaining largely the same, you won’t be able to claim relief, regardless of how short your temporary working contract is.

Qualifying Exceptions

There are, of course, exceptions to the rule.

If you’re required to work one day a week from a temporary location for a period longer than 24 months you’ll still be able to claim relief for your weekly journeys to your temporary working location because you won’t be spending more than 40 percent of your working time in this temporary location (you’ll be spending just 20 percent, in this example).

If you’re in your job for less than two years, or you’re moved to a new permanent working location, you cannot claim relief as at every stage your working location is considered to be permanent.

How to Take Advantage of the 24 Month Rule for Contractor Expenses

Hiring an accountant to take care of (and organise) your contractor expenses is a necessary business investment if you wish to spend less time worrying about what you’re owed, and more time focusing on your work.

To speak with a professional accountant to discuss the the process of claiming for contractor expenses, or for any other questions, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no-obligation meeting.


Self-Employed Business Expenses Explained

Calculate_TaxAgility Accountants LondonUnderstanding what does and doesn’t constitute an appropriate self-employed business expense is one of the toughest challenges recently self-employed business owners have to face.

Knowing the difference between an allowable business expense vs. a non-allowable expense can help you avoid not claiming for something you legally have a right to claim for, and having to have an awkward conversation with HMRC should you make an incorrect claim.

Though you should always keep in mind the fact that any expense you claim for must be the result of something that is ‘wholly and exclusively’ for business purposes, the below summary should give you a much better idea of what expenses you can confidently apply for.

It should be noted that you cannot claim expenses on items you purchase to keep and continually use in your business, such as laptops, desks, or vehicles. In the majority of circumstances these can be claimed as capital allowances instead.
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