Payments on account kick in at £1,000 for 2008/09 onwards

I'm preparing 2008-09 tax returns for my clients (that's the ones for the tax year 6th April 2008 - 5th April 2009).

What I'm used to seeing is that if a self-employed client's income tax and class 4 NIC is over £500 for the year, they would make payments on account.

Eh?

After their first year of trading, they would pay, let's say, £600 on 31st January for that first year's tax, and £300 on the same day for half the current (second) year's tax. Then another £300 on 31st July. And then let's say the tax liability for the second tax year was £700. They've already paid £600 of that - those are the £300 instalments. That's a very brief explanation of payments on account.

But today, I was preparing a client's 2008-09 tax return and spotted that, although his income tax and class 4 NIC amounted to almost £700, the software said no payments on account were required?

[scratches forehead and wonders if she's done something silly...]

So I double-checked HMRC's website just to make sure.

Aha.

For 2008-09 onwards, the threshold at which payments on account become due is £1,000 - not £500.

Goodo. No payments on account for not-very-well-off client. Phew.

"When can I claim expenses?"

This is a question that often crops up. Because HM Revenue say that any expenses your business incurs must be "wholly and exclusively for the purpose of the trade", or else you can't claim tax relief on it.

So how does that work?

Let's take travel and accommodation expenses, which are a very thorny issue. (Please note this is general guidance only, and if you're not sure you should take advice about your own case and your own journey.)

For example, imagine I travel from my home in Cumbria to London, for a training day. It's a long journey and I decide to make double the use of it by staying an extra day and going to the theatre. So I've got the cost of a 2-night hotel stay and my train fare to think about.

The first point to consider is what is the purpose of the journey. Is it just for the trade (in which case it's fully allowable for tax) or is it for pleasure too?

It's for pleasure too, because when I booked the journey, I planned to go to the theatre too.

So that means there's a duality of purpose. Note that HM Revenue distinguish between purpose and benefit. If the journey is for the purpose of the trade only, and you only get incidental personal benefit from it, it counts as wholly for the trade.

For example, if you go to Morrisons to buy ingredients for your cupcake business and at the same time you buy a bar of chocolate for your son, I would say that would be only incidental personal benefit, not dual purpose - so you could claim the cost of your travel there and back, and the cost of the cupcake ingredients. You can't of course claim the cost of the chocolate bar!

If an expense has dual purpose, then the cost is not allowable for tax. It's completely disallowed.

But... if it's possible to apportion the cost between trade and non-trade, so that a definite part was for trade and a definite part for non-trade, HM Revenue do allow you to apportion cost, and claim tax relief on the "trade" bit of the cost.

So for my journey to London, I could split the hotel bill between the night I would have had to stay for the training day, and the night I chose to stay extra, and claim tax relief for one night only.

When I entered that in FreeAgent, I would put one night's cost as "Accommodation and Meals" and the other as "Drawings".

What about the train fare?

That's a difficult one. I could argue that I wouldn't have gone to London at all if it hadn't been for the training day. The primary purpose of the trip was for business, the train fare didn't cost any more because I stayed an extra day, so I would probably try and claim it.

But HM Revenue could come back with the "duality of purpose" argument and say that I planned the trip for both business and pleasure and therefore it wouldn't be allowed.

It's a grey area.

So do be prepared to argue your claim, keep all available receipts, and of course, take professional advice.

Coming soon! New book and website builder for "5 to 9ers"

Do you have a full-time job, but are running a business from home in your free time?

Emma Jones of Enterprise Nation is writing a new book aimed squarely at you. It's called "Working 5 to 9: how to build a successful business in your spare time".

And, Emma's also teamed up with a creative agency called "Jump To", to provide a website builder for 5 to 9 'ers (that's people who work from 5pm to 9pm - or 9am! - on their home business).

Both the book and the website builder will be available from January 2010.

If Emma's last book, "Spare Room Start Up", is anything to go by, the new book will be fun, lively and packed with lots of useful tips and advice. And the website builder sounds a great tool, too, so long as it avoids churning out identikit websites :-)

To register your interest, head over to Enterprise Nation here.

Training on the move

I seem to be spending a fair bit of my time on the train at the moment (and trying to resist the temptation to splash out on first class tickets).

It's great if I can spend that time working. But mobile broadband doesn't always work on the train, so it needs to be something that I can do offline.

As a qualified chartered accountant, particularly because I'm now looking after clients of my own, I have to make sure I'm up to speed with any changes in accounts and tax legislation. I can glean a certain amount from the online and offline media, but structured, targeted courses, written by professionals, are the best way to pick up on those changes.

But taking a day, or even half a day, out of my schedule isn't always practical, especially as there aren't that many courses taking place here in rural Cumbria, so it'd mean a long journey to Newcastle at best.

OK, how about finding courses I could work through on the train? That means online courses are a no-no. Courses on a CD-ROM? My netbook doesn't have a CD-ROM drive.

No problem, said a helpful gentleman called Matthew Page at training provider CCH today.

Before you travel, put the CD-ROM into your desktop. Put an empty memory stick into your desktop. Drag the files from the CD-ROM on to the memory stick.

When you're on the train, put the memory stick into your netbook.

Hey presto, training material that I can work through on the train even if my mobile broadband won't connect and even though my netbook doesn't have a CD-ROM drive.

And, even though they don't say so on their website, CCH take payment by monthly direct debit so I can spread the cost over 12 months.

Great stuff.

Home business on the move

If you're anything like me, as well as an office at your home, you'll need to work on the move sometimes. That could be in a cafe, on the train, from a holiday cottage if you're really keen, etc. etc.

So you may need to use a BlackBerry, laptop, netbook or some other gizmo to access the Internet.

On my other blog today I've written about how the staff at a Carlisle cafe were helpful and flexible enough to work around me needing to plug in my netbook there.

I'm surprised, though, that in these days of mobile working, not everywhere has a policy about computer access by customers. Even cafes that don't provide WiFi may have customers with mobile broadband dongles who want to work there (like me).

There may be places which don't have convenient sockets, or who don't have a policy, or who say "no" and won't change their minds.

Do be aware that not everywhere is going to be as responsive to customer needs and as ready to think on their feet as these ladies at the Carlisle cafe.

Today's piece of advice is - if you are on the move, don't forget to fully charge your device at home before you go!