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UK Tax Returns (Self Employed)


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#1 send2paul

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Posted 19 March 2006 - 07:55 AM

I am:

1. In the UK.
2. In full-time employment.
3. Registered with the Inland Revenue as being "self employed" for the purposes of the revenue gained from Google Adsense.

What can I claim as a :

1. Company Expense?
2. A Tax deductible item?

I was told by an accountant that I could only claim hardware - PC, as a company expense - and then at a dimishing rate of value. He said that I would not be able to claim for such things as web hosting, domain registration costs, software purchased etc - as these would be deemed as "ongoing costs" and not tax deductible.

So - as you might guess - I'm confused.

Are there any UK folks reading this, who are registered self employed with the Tax Man who can answer my queries?

Can I claim for such things as software, hosting etc as business items/tax deductible items on a UK tax return?

Ta very much for your expert help. (This sort of info doesn't seem to be readily available from accountants and such who don't understand this kind of business!)

#2 Respree

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Posted 19 March 2006 - 10:08 AM

As with any legal or accounting advice, these questions are best answered by qualified professionals.

Here is some light reading, which outlines the taxation rules in the UK.
http://www.hmrc.gov....heets/ir222.pdf

Your accountant seems to be correct. I'm more familiar with the US Tax law than in the UK, but the methods appear similar.

The 'diminishing' value of writing off your computer is called 'depreciation' in the US, which basically means that your computer has a 'useful life', typically a number of years (which may differ from country to country). You are claim a business deduction over the number of years that the equipment's useful life, as deemed by the tax law.

Broadly speaking, you can deduct from your turnover all the costs you incur for the sole purpose of earning business profits. But you cannot deduct costs which you incur for a non-business purpose,
such as your own personal expenses or drawings. And you cannot
deduct capital costs, that is, the cost of buying fixed assets or
intangibles, such as goodwill, which last for several years (or losses
you suffer when you sell them). But you may be able to claim
capital allowances on these capital costs. Additionally, you cannot
deduct costs which are recoverable under an insurance.
Business expenditure is allowed in your accounts for a period if it
was incurred in earning turnover in that period, even if you are not
due to pay the money until later.

The amount to deduct is the amount of the expense which was used
up during this period. This may not be the amount actually paid. For
example, if you owe money at the end of the account - your trade
creditors - it may be that this should be included in this account
rather than later when it is paid. (Make sure you do not deduct any
payments made in this account which you included as trade creditors
in your last accounts.) But if you make a payment which is used up
over two periods or more you should spread it in your accounts. For
example, if halfway through the year you pay 12 months rent in
advance for your business premises, only one half of the payment
should be deducted this year, and the other half next year.
The Notes for the Self-employment Pages tell you where to include
your expenses. There is a Table on page SEN8 to help you decide
which expenses can or cannot be claimed in working out business
profits for tax purposes.


Notice I bolded the phrase 'sole purpose'. When your accountant advised that you would not be able to deduct web hosting, domain registration costs, software purchased, perhaps he knew something you did not mention in your post. Were these costs incurred exclusively for the purpose of your business, or do you benefit from them 'personally'. I'm guessing this is why he/she is telling you they're not deductible.

The above quote makes a reference to Publication SEN8. See if you can locate a copy (I searched by couldn't find it quickly). This publication should give you a complete list of what business expenses can and cannot be deducted.

Hope this helps.

Edited by Respree, 19 March 2006 - 10:09 AM.


#3 send2paul

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Posted 19 March 2006 - 10:16 AM

Cheers Garrick :)

I'd looked at a few help sheets etc - but decided that asking "ordinary(!) people" here was a good route as well ;)

#4 sybil

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Posted 19 March 2006 - 11:34 AM

You have to ask your local tax office about it but they run half day workshops explaining everything you should consider, how to fill in the forms and what you can claim when you become self employed. I went on one and it was (very surprisingly) really good. I was told they don't advertise it because too many people would want to go (and the problem is...??!)

You can't claim training courses or entertainment (business lunches etc.) but you can claim a portion of your broadband bill, some of your hardware costs (as you already know), £2 per week for electricity etc. if you work from home...

I'm afraid I don't remember much more off-hand - I'd have to dig out my notes and I'm skiving off by posting this right now! I'll track them down later and add in the bits I've missed.

Edited by sybil, 19 March 2006 - 11:59 AM.


#5 send2paul

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Posted 19 March 2006 - 12:05 PM

Cheers Sybil - I reckon I'll get in touch with the tax office about these courses - thanks again :)

#6 Respree

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Posted 19 March 2006 - 01:32 PM

...but decided that asking "ordinary(!) people" here was a good route as well.


Certainly nothing wrong with getting second opinions, Paul.

Was simply trying to point out that if a tax auditor ever asks you 'why you deducted a non-deductible expense' a response like "... a guy from Cre8asite told me it was okay" will not be a great defense. =)

#7 manager

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Posted 19 March 2006 - 02:29 PM

Hello folks,

The 'diminishing' value of writing off your computer is called 'depreciation' in the US, which basically means that your computer has a 'useful life', typically a number of years (which may differ from country to country). You are claim a business deduction over the number of years that the equipment's useful life, as deemed by the tax law.

Depreciation means the same in the UK, however it is only relevant when calculating the values of assets for inclusion on balance sheets. Information on a balance sheet is generally used to help determine the net monetary value of a business at a given period in time.

Paul I think you need a new accountant :D

The acid test to determine if expenditure is a legitimate business expense is easy.

EG Could you run your business without paying for hosting?.

If the answer is no, then your hosting fees are classed as legitimate business expenditure.

TreV

#8 send2paul

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Posted 19 March 2006 - 02:39 PM

Thanks Trev................. it's a ll bit vague, isn't it?

.... or is it me? :D

#9 huntz

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Posted 07 June 2006 - 04:34 PM

If i was making only £700 a year through adsense, apart from being able to make more, should i register as being self employed? Is there a point of earning that i should register? Thanks for the info btw.

#10 send2paul

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Posted 08 June 2006 - 12:00 AM

Good morning huntz - and welcome to the Cre8asite forums and community :)

It's easy really - if you're earning money - you need to declare it to the Inland Revenue. If you don't declare it, then someone might shop you to the IR, in which case you'll be in trouble.

This will be the first year that I have ever done this sort of thing. I do know that you's needn't pay National Insurance contributions if you thnik you'll earn under a certain amount, (I can't remember what that amount is), and I think you're guesstimated earnings falls into that category.

Paul

p.s. if you want to, come and say a few words about yourself in the Introduce Yourself forum, and maybe have chat in After Hours ?

#11 bragadocchio

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Posted 08 June 2006 - 12:31 AM

Hi huntz,

Good to have you join us here.

If i was making only £700 a year through adsense, apart from being able to make more, should i register as being self employed?


I'm not sure that I've ever seen the tax information pages from Google's adsense program ever pointed to here, before. Here's a link to what they say:

https://www.google.c...adsense/taxinfo

#12 MARAPETS

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Posted 05 October 2006 - 01:33 PM

I claim back internet access, phone bills, mobile phone contracts, stationary, paper, percentage of new printer/computer

#13 lee.n3o

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Posted 06 October 2006 - 12:57 AM

Paul what you claim back is all down to how 'Good' you accountant is ;-)

#14 send2paul

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Posted 06 October 2006 - 01:26 AM

Lee - what an online education filling in the tax form is! :D

Basically, I claimed back everything to do with my online work - hosting, software & books cost. Yeah, it was an intersting experience - particularly becuase they have to physically mail you a password, (no they won't email it!), before you can start work.

So don't think that by registering and having all your info in front of you will get you going straight away - you have to wait a week to get the password in the post!

Paul

#15 manager

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Posted 06 October 2006 - 01:36 AM

Guys,
I would strongly advise against completing your own Tax return. (unless we are talking about small incomes) earned in addition to a PAYE salary. I would go as far as to suggest it is a false economy. Any accountant worth their salt will save you money, not cost you.

Just my two pence worth :D

TreV

#16 send2paul

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Posted 06 October 2006 - 01:42 AM

Trust me TreV..... it's a small income...lol... :D

#17 lee.n3o

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Posted 06 October 2006 - 02:37 AM

I would strongly advise against completing your own Tax return. (unless we are talking about small incomes) earned in addition to a PAYE salary. I would go as far as to suggest it is a false economy. Any accountant worth their salt will save you money, not cost you.


Paul no matter how SMALL it is ... You might end up getting money back if everything is completed properly ... As Trev says, I would still recommend using an accountant.

#18 manager

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Posted 06 October 2006 - 02:43 AM

This may or may not be my personal view:

The size of your income depends largely on whom you are talking to,
If you’re talking to the taxman, you’re on the poverty line.
However should you be trying to secure a Mortgage or a business development loan, you’re making a fortune.

Trust me TreV..... it's a small income...lol...

LOL I believe you Paul……………not !

TreV

#19 send2paul

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Posted 06 October 2006 - 02:26 PM

Would that it be that my main income were from my internet activities (!) - then I would definitely going down the:

1. Accountant
2. Lawyer
3. Registered company route.

However, (even with grandiose ideas of becoming a "full-time" internet person), the cost involved:

A. To hire an accountant and lawyer, balanced against....
B. My potential earnings and....
C. The amount of money they could save me, or the legal embarrassments I could find myself in...

- just didn't add up. And I really have been realisitic with my potential earnings, and attended local small business "do's" to assess just how "official" I have to get my small business empire.

Paul, (yes your honour - my real name :))



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