Setting up a small business can be exciting. So much rides on it – your hopes, your financial security and future opportunities. Yet all the costs to make it happen and then keep it running efficiently can seem daunting. That’s why you should consider whether your small business qualifies for tax breaks that allow you to save money.

HB Accountants is experienced in advising small businesses about their tax breaks. Here are our 7 top tips for you to consider:

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A social gathering at work can be an ideal time for team members to get to know each other better but it can be expensive. That’s why it pays to know about Trivial Benefits and tax relief on the annual office party.

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The IR35 ‘off payroll’ rules will be extended to the private sector from 6^th April 2020 onwards. What exactly does this mean, and what can contractors do to prepare in advance for these legislation changes?

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As an employer, if you provide a company car to your employees, they must pay tax on the cash equivalent of the car provided. That’s because HMRC view an employee’s ability to use a company car as a benefit in kind which has a cash value, on top of your employee’s regular salary. The cash equivalent of using a company car is calculated by taking the list price of the car, multiplied by a certain tax percentage. This percentage depends on the amount of carbon dioxide emitted by the car, and the type of fuel it uses. This article will outline the formula for you to follow to work out the list price of the car and find the relevant tax percentage that applies. Should you want more help with company car tax then please get in touch.

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To recruit the best talent, you need to provide an attractive pay package. For many employees having the fuel they use in their company car paid for by their employer is an attractive benefit, since they are covered for business miles and private use. But remember that changes in HMRC tax policies mean ‘free fuel’ is now taxed harder as a benefit in kind which can make it less attractive.

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Self-assessment is the process by which you advise HM Revenue & Customs (HMRC) of your income, gains and relevant expenses for a tax year. HMRC will calculate your income tax bill based on the information you provide.

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When you’re working from home, your bills are bound to rise. You’ll be using electricity, your own broadband and phone line, as well as making more use of your electricity, water and heating (especially in the winter).

If you are self-employed

The Government has published detailed guidelines for business people working from home. The trickiest element of this is that most things will be used for both business and personal use.

HMRC guidance is that you can claim for the cost of business calls made on a private telephone line and also an appropriate proportion of the line rental. You may, therefore, need to provide an explanation for the proportion of the total telephone bill you are claiming. This will also apply to broadband.

You can also claim for other costs of using a room at your home for business purposes (typically for office work). The sort of costs involved could include council tax, rent or mortgage interest, heat, light, water, insurance and cleaning. These can be apportioned on the basis of floor area, usage or time, or a combination of these. Typically, you will use one room as a part-time office (using it full-time is not recommended as this would cause capital gains tax problems on a sale of the property). If this is one of (say) six available usable rooms (excluding common areas, toilets, bathrooms etc), your starting point will be to claim one-sixth of the overall costs. You then need to consider the proportion of business use of that room to private use and reduce the claim accordingly.

If you are an employee

There are allowances you can claim if you’re an employee of a company, but these are dependent on whether or not this is specified as part of your job, or whether you’re doing it voluntarily. If it is your choice to work at home, you will not be eligible to claim any expenses at all.

However, if your employer has specified that you work from home as part of your job, or you have a homeworking agreement, your company can contribute £4 a week, tax-free, to help towards your extra costs.

The allowance only applies for regular working hours – you cannot claim if you occasionally work from home, or do work in the evenings or at weekends.

As an employee, you also have to show that the expense was necessary, and this is a very difficult obligation. If you decide to make this claim it will be restricted to the extra cost of heat, light etc and no claim will be available for council tax, mortgage interest or rent, insurance, or the cost of broadband or telephone lines. That is because those expenses would have been incurred anyway in your private capacity as a homeowner.

If you are a director

If you own your own company, you can set up an agreement between you and that company requiring you to work from home for certain periods of time; you can also set up a licence agreement under which the company will pay you a rent for use of your room as an office. This would enable you to make a claim which is closer to the self-employed rules. You will need to include the rental income on your personal tax return and claim the expenses against that rental. In practice, you will set the rent amount to more or less cover the claimable expenses, because if you set the rent too high you may end up paying personal tax (perhaps at 40%) and only getting corporation tax relief (at 19%)!

If you would like help working out what expenses you are entitled to when working from home, contact us to arrange an appointment.

For several years now the lack of availability of Business Property Relief (‘BPR’) for furnished holiday lets (‘FHLs’) has been well known and established through cases such as Pawson, Green and Ross. The courts in these cases ruled that the holiday lets were too much of a passive investment to qualify as a business, even though the owners were providing varying degrees of service it was often held to be no more than would be expected from self-catering (i.e. investment) properties. The boundary between a mere investment and an active business (not “trade”, the legislation says “business”!) is a hard one to cross with the level of other services provided to guests needing to be more akin to a hotel than a self-catering holiday let.

The loss of BPR can be a major blow to an estate. The 100% relief against inheritance tax afforded by BPR can be very valuable, hence why HMRC will be vigorous in their investigations into such a claim. For income tax and CGT purposes however there is usually no argument from HMRC. If the let is furnished, available for let for 210 days a year and let out for 105 days with no long term lets then as far as CGT is concerned the various trading reliefs are available. For income tax purposes too, if those criteria are met then the income is classed as trading thus allowing the owner to claim capital allowances. Such income is also qualifying income for pension purposes allowing for greater retirement planning opportunities. The loss of BPR for the estate after all those lifetime benefits can be most unfortunate.

However, an estate recently succeeded in obtaining the coveted BPR for a holiday let business. The executors of Mrs Grace Joyce Graham claimed the relief for holiday flats on the Isles of Scilly. Smelling blood HMRC contested the claim but the First-Tier tribunal dismissed HMRC’s challenge. In this instance the amount of work the deceased and her daughter put into the business (up to 200 hours per week between them at busy periods) and the level of extra services available to the guests were more akin to a hotel to anything else. New guests were given personal tours of the property and the level of personal attention was such that several TripAdvisor comments highlighted it was this personal input and hospitality which made their holiday special. In addition to the 4 flats on offer, there was: a swimming pool, a croquet lawn, a prize-winning garden (from which the guests could help themselves to herbs), a games room with a snooker table, table tennis, board games and videos; there was a sauna, the laundry room and a BBQ. Each flat was fully furnished and had its own kitchen and dining/living area. Basic foods were provided, flowers were delivered into the flats for new guests along with home-made marmalade (and wine or champagne for special occasions). Golf buggies and bicycles were available to borrow, the guest lounge contained books, an open fire and leaflets on local attractions.

The court pointed out that “it will only be the exceptional letting business which falls on the non-investment side of the line” – making clear that this finding did not alter the recent hard-line taken by the courts. But in this particular instance, Mrs Graham’s personal attentiveness in her lifetime pushed her estate’s BPR claim over that line:

“The pool, the sauna, the bikes, and in particular the personal care lavished upon guests distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would in our view regard it as more like a family run hotel than a second home let out in the holidays”.