INTRODUCTION
Starting any new business venture carries an element of risk.
Whether you plan to start with commercial premises, equipment
and staff, or alternatively intend to set up on a more modest
basis, perhaps freelancing from a room in your home, it is important
to plan for your success.
You need to establish whether there is a large enough market
for your product or service. Some preliminary research will be
necessary in order to find out who and where your competitors
are, and how much they are charging. Try to gauge whether business
is currently good for them, as this may indicate the potential
for your own business to succeed.
Once you have done your research, and assuming
that you are still committed to proceeding, the next stage is
to consider your business plan.
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THE
BUSINESS PLAN
If you need to raise finance from a bank or from outside investors,
you will normally have to show them a business plan.
If you do not need to show a business plan to anybody, it is
still advisable to prepare some basic figures, however simple
the format. This is because there are two things that you should
know before you commit yourself to a new business - how much
you will earn if things go well, and how much it could cost you
if things don't go so well.
A business plan is normally divided into two main sections.
First there is a narrative section explaining what the business
will do, how and where it will be done, who will run the business
and how it will be financed. The second section comprises a profit
projection, a cash flow forecast and explanatory notes if necessary.
You need to prepare the narrative section if you are going to
show your business plan to somebody else who needs this information.
Glazers can help you draw up your business plan. It does
not need to be a large document and in most cases is likely to
be more effective if it gives the reader all the relevant information
in just a few pages. More elaborate ventures may require a greater
volume of detail.
Preparation of a business plan serves a number of purposes.
First, it makes you consider your business objectives and commit
your ideas in writing. In doing this, fresh ideas (and potential
hurdles) may spring to mind which may help you to clarify the
precise direction that you wish to take. If there are any fundamental
flaws in your business plan, it is helpful to identify these
at the outset.
The second purpose of a business plan is to encourage you to
consider the financial aspects of the proposed venture, such
as pricing policy, whether the business will provide you with
the desired level of income, how much capital you will need to
start up and how your bank balance is likely to stand from month
to month. Only by quantifying your expectations will you know
later on whether things are going as intended.
The third purpose of a business plan is to assist in raising
finance. This finance may come from private or corporate investors,
but more commonly it will come from a bank.
If you approach a bank for loan or overdraft facilities, they
will almost certainly ask you to prepare a cash flow forecast
to enable them to consider your application. By having this readily
available within the business plan, you can save time by avoiding
the need for an additional appointment, and more importantly,
the bank manager will see that your proposals have been carefully
thought through beforehand. This is likely to help in getting
your relationship with the bank off to a good start.
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PEOPLE TO CONTACT
Having established what you are trying to achieve and how you
are going to go about it, it is important to seek expert advice
on the various aspects of your new venture. A common feature
among successful business owners is that they recognise the value
of investing in good professional guidance.
Accountant
First you will need an accountant and this is where Glazers
can help. We can guide you in business matters and provide
consultancy advice to help you build your business profitably.
It is essential to get the basics right. Records of your business
transactions need to be kept and tax liabilities need to be agreed
with HM Revenue & Customs. These are all areas in which we
can give advice, and this advice can prove invaluable. This is
particularly so in the first year of a new business when careful
planning is important in order to make sure you start off correctly.
We will help you to set up a good book-keeping system, which
will enable accurate accounts to be prepared. Keeping good books
from the start will keep accountancy costs down. Once the basics
have been dealt with, we can turn our attention to providing
business consultancy and tax advice, so that you get the most
out of your business.
Our other functions in the early stages are to assist in the
preparation of your business plan and cash flow forecast, assist
with registrations such as income tax, national insurance and
VAT, and to advise on the various methods of financing the business.
We do not charge for an initial meeting, so it costs nothing
to talk to us.
Solicitor
Next, you need to consider whether it is appropriate to engage
the services of a solicitor. The key issues on which you may
require a solicitor's advice are as follows:
· Purchase or lease of property: You will
need to consider any planning restrictions and ensure that you
can use the property for its intended purpose. You will also
need to be satisfied that you are not taking over any hidden
liabilities.
· Standard terms of business: Careful consideration
should be given as to how much credit you will offer your customers,
and how this will affect your cashflow.
· Protection of your trading name and product: A
business's brand and product are often its most valuable assets.
They can frequently be protected by the registration of a trademark
or a patent.
· Employment contracts: These are a legal
requirement if you take on staff. They need to be carefully drafted
so that there is no scope for misunderstanding.
· Distribution, agency and franchise agreements: Again,
these need to be carefully drafted. It is often only when a commercial
relationship breaks down that the inadequacy of the contractual
agreements comes to light.
It is advisable to take advice from a firm of solicitors with
sufficient expertise in the areas where you will need advice.
We will be pleased to offer a recommendation if you wish.
Bank
Selecting a bank is the next issue. If you expect to operate
your account in credit, your main concern is likely to be that
the bank charges are kept to a minimum. If you need finance from
the bank, you will also be concerned with the relative cost and
flexibility of an overdraft facility compared with a bank loan.
Knowing the right questions to ask will help you to ensure that
you explore all the options and make the best decision.
One of the most common questions raised by proprietors of new
businesses is which bank they should use. If you have a good
relationship with your current bank, then speak to your branch
manager. If in doubt, speak to more than one and compare their
terms.
At Glazers, we deal with all the major banks, and will be
pleased to make an introduction if you need one.
Insurance Broker
The various types of insurance which you may need are as follows:
· Employers' liability: This is compulsory by
law if you employ anyone. It covers personal injury and damage
to personal property of employees. (This includes yourself if
the business is operated through a limited company).
· Motor insurance: Check that all vehicles are
covered for business use and that there are no important exclusions
in the policy.
· Public liability: This covers personal injury
and damage to personal property of the public. It is not compulsory,
but is advisable, especially if you have business premises.
· Property damage: This covers buildings and contents
for fire and theft. Make sure that the level of cover is adequate.
· Consequential loss: This covers loss of profits
arising from interruption to the business through fire, theft,
flood etc.
· Professional indemnity: This may be necessary
in certain professions, particularly where client care is involved.
· Income protection: This type of insurance is
often overlooked. It covers you for loss of earnings when you
are unable to work due to personal illness or disability. The
required level of cover requires careful consideration and we
can help you decide on this.
· Keyman life assurance: This is appropriate where
the future of the business depends on certain individuals. Your
own life cover should not be overlooked, especially if you have
family dependants.
· Critical illness: This covers you in the event
that you should suffer from a chronic or terminal illness.
· Professional fee protection: This covers accountants'
fees arising from an official tax enquiry. (Such enquiries can
happen at random, even if your affairs are in good order.)
· Pension: It is advisable to plan for your retirement
at an early stage. Pension payments are also extremely tax-efficient
and we will be pleased to advise you on this.
Glazers has a specialist division (Glazers Financial Services)
that can arrange independent advice for you in all these areas,
even if you are not an existing client of the firm. Click here for
further details or telephone David Higgins on 020 8458 7427 for
a free consultation.
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CHOOSING
A LEGAL STRUCTURE
You will need to decide whether you are going to run your business
in your own right or through a limited company. There are reasons
for and against setting up a limited company and the decision
often depends on the type of business you are in.
The size of the business can often influence the decision, and
it is not uncommon to see a business set up in an individual's
own name and then switch to a limited company after a year to
two.
The most common types of entity are as follows:
Sole Trader
A sole trader is a person who is in business on his or her own
account. There are no statutory requirements governing the format
of a sole trader's accounting records, nor is there any need
to have them audited. However, it is important that the records
are reliable enough to enable accounts to be prepared each year,
and for VAT returns to be prepared, if you are VAT registered.
The best system for keeping your books will depend on the size
and nature of your business. For some businesses, this will be
a simple record, while other businesses may warrant a more sophisticated
system. Glazers will be pleased to advise you on the most
appropriate method of keeping your records.
Partnership
A partnership exists where two or more individuals enter into
business together, in their own right. They will be governed
by the Partnership Act 1890, and in more formal partnerships,
they may also be governed by a partnership agreement. Each partner
may be personally liable for the debts of the partnership and
this liability is unlimited.
The requirements for accounting records are similar to those
of a sole trader, and again no audit is necessary. Sole traders
and partners pay income tax on their annual profits. This is
based on the earnings of the business and is paid regardless
of how much the proprietors draw personally from the business
during the year.
Limited Company
A limited company, by contrast, pays corporation tax on its
profits, rather than income tax. The company is a legal entity
in its own right, and is effectively the proprietor of the business.
A company must have at least one shareholder (the owner) and
at least one director (who manages the business). The directors
and shareholders need not be the same people, but in practice,
for the vast majority of smaller companies, the directors are
also the shareholders.
Limited companies are incorporated under the Companies Act 1985,
which imposes accounting, reporting and public disclosure requirements,
as well as a mandatory audit for companies over a certain size.
The liability of individual shareholders is limited to the amount
of their share capital, except to the extent that personal guarantees
have been given to third parties (e.g. the bank).
While the company pays corporation tax on its profits, the directors
personally will have income tax deducted on any salary which
they take from the company. Similarly, shareholders may receive
a dividend from the company and they too may incur income tax
on this.
The decision as to whether to incorporate your business as a
limited company will be based on commercial as well as tax considerations.
This decision is a very important one, and each case is different.
We will be pleased to advise you on this.
Further points relating specifically to companies are dealt
with later in this guide.
Limited Liability Partnership
The LLP is a relatively recent concept. The idea behind it is
to combine the structure of a partnership with the financial
protection of limited liability, previously only available through
a limited company.
Basically, an LLP prepares accounts and pays tax in a similar
way to a regular partnership, but unlike a regular partnership,
it is required to file accounts at Companies House and may need
to have its accounts audited if the level of business is over
a certain limit.
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REGISTERING
WITH THE AUTHORITIES
For all businesses, there are a number of registrations that
need to be considered, and these are as follows:
Income Tax & Corporation Tax
For sole traders and partnerships, there is a legal requirement
to notify HM Revenue
& Customs that you have commenced business, and you need
to do this within 3 months of starting. We suggest that you speak
to us before completing the Revenue's enquiry form, which is
available from HM Revenue & Customs or from us.
In the case of limited companies, HM Revenue & Customs will
be notified by Companies House and the enquiry form will then
be sent out automatically by the Revenue.
If you employ staff, you will need to apply for a PAYE (Pay
As You Earn) scheme to be set up. If you operate through a company,
you will need a PAYE scheme even if you have no staff, as your
own salary will need to be subject to PAYE and NIC (National
Insurance Contributions).
National Insurance
If your business is not operated through a limited company,
you will also need to register for Class 2 national insurance
contributions. This can be done at the same time as you register
with the Revenue for income tax.
VAT
Whether or not your business is run through a limited company,
you will need to register with HM Revenue & Customs for VAT
once your turnover (i.e. sales, fee income, etc.) exceeds the
registration limit. In many cases it is advantageous to make
a voluntary registration before your turnover reaches this limit.
We will be pleased to advise you on this and on the other registrations
already mentioned.
Licences
Certain types of business need a licence from local administration
offices in order to trade legally. We recommend that you take
legal advice if in any doubt.
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FINANCING
YOUR BUSINESS
In the early stages of your business, you may find that the
income which you generate does not cover all your expenditure.
This might be because the income of the business is slow at first,
while in the meantime you have setting up costs such as stationery
and equipment, and some expenses which have to be paid for in
advance, such as insurance, rent etc.
During this period you still need money to live on and therefore
you will need to consider where this is going to come from. The
most common sources of finance are as follows:
Capital
It is likely that you will need to use your own savings to support
your business initially. If you do not have any money of your
own put aside, you will probably need the backing of a friend
or relative, or some other private investor who has faith in
your idea.
Banks
The most common source of finance for new businesses is the
high street bank. As previously mentioned, the bank will want
to discuss your plans for the business and see a cash-flow forecast,
but they will also look at how much of your own money you are
putting up and how much security you can offer.
For most people starting out, the only security available is
their home, and you need to think very carefully before you allow
the bank to have a charge on this. This is one of the first tests
of how committed you are to your business idea and how confident
you are that it will be financially successful.
The interest rate that the bank will charge you is likely to
vary as the Bank of England base rate moves up and down. This
movement is highly unpredictable, so it is wise to borrow well
within your means, in case the interest rate rises unexpectedly.
The interest rate charged by the bank will depend on the type
of business you are in, the level of security you can offer and
the overall risk perceived by the bank. Typical rates are between
2.5% and 4.5% above base rate, but be prepared to negotiate.
Hire Purchase and Leasing
If you are buying motor vehicles or equipment, hire purchase
and leasing provide two further options. You will need to obtain
quotes in order to find out which is cheaper. You do not necessarily
need to use the HP or leasing company suggested by the supplier
and it often pays to shop around. We will be pleased to give
you the telephone numbers of reputable credit companies if you
would like to compare quotes.
Although there are legal differences between HP and leasing
agreements, they are basically similar. The main practical difference
surrounds the tax relief available under each of these. Either
one can prove the more beneficial depending on your circumstances,
so it is worthwhile speaking to us before you sign an agreement.
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MARKETING
YOUR BUSINESS
There is far more to say about marketing than can be covered
in a guide of this size. To put it in a nutshell, unless you
have a ready-made source of business and as much work lined up
as you are prepared to handle, then you need to look for more.
There are several ways of marketing your business and they all
involve communicating to the marketplace that you have a product
or service to offer. Depending on the size and type of your business,
these might include:
· Advertising - consider local, trade and national
newspapers and magazines, and even radio and TV. Find out what
works for you and what is most cost-effective.
· Directory Listings - use trade and professional
directories, and local directories such as Yellow Pages and Thomson.
· Direct Mail - target the customers or clients
you want by writing to them directly, or distribute flyers. Consider
including a special offer to improve the response rate.
· Word of Mouth - tell people that you in business
and looking for more!
· Premises - if you have business premises that
people will be visiting, make sure these present the image you
want to convey.
· Publicity - consider staging an event to attract
free media publicity. Introduce yourself to local journalists
and send press releases announcing any newsworthy items.
· Networking - attend business networking events
to gather new business contacts and get your business as widely
known as possible.
· Web Site - even a small web site can say so
much about your business, in terms of product and service information
and also your image. Once you've got it, make sure it's kept
up to date and make sure enough people are going to see it!
· Stationery - letterheads, business cards and
brochures are not just a source of information about your business
- they should also reflect the right image and promote your logo
if you have one.
· Pricing - the art of pricing can be a difficult
one to get right. Price doesn't just affect your financial projections
- it also sends a message to the marketplace about quality and
value-for money.
The decision as to how much to spend on marketing will depend
on individual circumstances, such as the size of your business,
the type of business you are in, and the amount of extra business
that you wish to generate. Inevitably, some things will work
better than others, and sometimes you will only find out by trying.
To minimise wasted expenditure, monitor where your business comes
from and concentrate on the marketing strategies that provide
the best return on investment.
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KEEPING
BOOKS AND RECORDS
All businesses need to keep details of their transactions. These
details fall into two categories. The first category is the source
documents which provide evidence of income and expenditure, such
as sales invoices, expense invoices and receipts, etc.- usually
referred to as 'the records' of the business.
The second category is what is generally known as 'the books'
- summaries listing all the transactions of the business. The
books can be written manually using a ledger or loose-leaf file,
or alternatively you can use spreadsheets or specially designed
accounting software.
There are a number of reasons why it is necessary to keep books
and records:
Legal Requirement
There is a legal requirement to keep your books and records
for a certain period of time. The records of any business may
be requested for inspection by HM Revenue & Customs. In the
case of limited companies, there is a specific requirement under
the Companies Acts.
The exact length of time for which you need to keep your books
and records varies slightly, according to circumstances. As a
general rule, you should keep them for at least 6 years after
the end of each accounting period or tax year.
Preparing Accounts
Accounts are often needed by the proprietors of businesses for
management purposes, and by banks and other interested parties
for credit purposes. They also need to be prepared so that the
figures can be entered in the annual tax return, and in the case
of limited companies and limited liability partnerships, for
submission to Companies House.
Although for statutory purposes the accounts will usually be
annual, they may be prepared more frequently for management purposes,
perhaps monthly, quarterly or bi-annually, as necessary.
As the books and records of any business form the backbone of
the accounts, it is important to have a good record-keeping and
book-keeping system. Glazers will be pleased to give you advice
on setting up a manual or a spreadsheet system, or help you select
one of the many accounting software packages available.
VAT Returns
For businesses which are VAT registered, a good book-keeping
system enables VAT returns to be prepared with little extra work
necessary. The relevant VAT figures can be extracted from the
book-keeping summaries, if the system is set up carefully.
Types of Book-keeping System
It should be stressed that a good book-keeping system is not
necessarily a sophisticated or complicated system. What is important
is that the system is appropriate for the size and nature of
the business.
Spreadsheets are commonly used nowadays as a simple means of
book-keeping. Specially designed accounting software is available
if you wish to go one stage further.
Glazers can show you how to set up a good system
for keeping books and records. We also operate a computerised
book-keeping service for clients who prefer to leave it to us,
and a Sage-compatible Online50
Accounting service, which offers several benefits.
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INCOME
TAX AND NATIONAL INSURANCE
If you run your business as a sole proprietor or through a partnership,
you will almost certainly be liable to income tax and national
insurance on your profits.
This guide merely highlights some basic points. For a more detailed
outline of the UK tax system, refer to the 'Tax
Tools' section in this site.
Income Tax
For sole traders and those in partnership, income tax is normally
paid in two instalments in January and July.
There may be significant tax planning opportunities, whatever
the size of your business, so it is worthwhile asking our advice
from the outset on how to save tax. One consideration will be
which year-end you should choose (i.e. to which date you should
have your accounts drawn up). You can select any date in the
calendar; 31 March and 5 April are very often convenient and
tax-efficient, but there may be reasons to select a different
date.
We will ensure that you pay as little tax as possible, while
keeping within the law. Amongst other things, we will advise
you on which expenses you can claim for in your business. A brief
summary of these is listed towards the end of this guide.
National Insurance
Sole traders and those in partnership are generally liable to
two different classes of national insurance contributions. Class
2 contributions are based on a flat rate and are usually paid
direct to the National Insurance Contributions Office of HM Revenue & Customs
by monthly direct debit from your bank account.
Class 4 contributions are based on your profits and are paid
to the Revenue with your income tax. Because Class 4 contributions
are profit-related, income tax planning can often have the effect
of reducing your national insurance liability at the same time.
With certain exceptions, you will need to register for Class
2 contributions as soon as you start your business. There is
no need to register for Class 4 contributions, but these will
need to be shown on your tax return, if payable.
Providing for Tax and National Insurance
Payments
One further point to bear in mind. It is often advisable to
put some of your income aside into a savings account on a regular
basis so that you are able to meet your income tax and national
insurance liabilities when they become due.
Glazers' clients are advised about their tax and national
insurance liabilities as early as possible in advance, so that
they can plan accordingly.
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EMPLOYING
STAFF
Apart from the obvious cost of employing people, you also need
to consider the responsibilities that go with it.
Payroll Aspects
You will need to deduct PAYE and National Insurance from your
employees' salaries or wages, and pay this over to the Inland
Revenue. As the employer, you will be responsible for calculating
these amounts and you will need to keep tax deduction records
for everybody that you employ. You will also be liable to pay
employer's National Insurance Contributions.
Glazers operate a payroll bureau for clients and we can
prepare all your payroll records if you wish. Alternatively,
if you prefer, we can show you or a member of your staff how
to calculate the payroll figures and keep the necessary records.
Our payroll helpline on 020 8458 7427 can answer specific
queries.
Legal Aspects
There are also legal obligations for employers. As previously
mentioned, employers' liability insurance is required. You also
need to comply with Health and Safety legislation.
Employment contracts should not be overlooked. These are generally
a legal requirement once an employee starts work.
We will be pleased to give you initial guidance in these
areas and we can also arrange insurance and professional guidance
in Employment
Law and Health & Safety.
Staff Pension Schemes
If you employ 5 or more staff, then subject to certain exemptions,
you must make a pension scheme available to them. An inexpensive
option is a Stakeholder Pension Scheme.
Glazers Financial Services can provide more information on request
and arrange pension schemes of all types on your behalf.
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SPECIAL
CONSIDERATIONS FOR COMPANIES
Limited companies are governed by the Companies Acts. There
are therefore some important points which apply to limited companies
but which do not apply to sole traders and partnerships. Some
of these points have already been covered. Other important considerations
are as follows:
· Company Formation - this entails either forming
a company from scratch or alternatively buying a ready-made company
(and changing its name if necessary). The company will have its
own number and will be registered at Companies House.
· Company Name - any name can be chosen, provided
that the name has not already been registered by another company
and provided that the name is not misleading or undesirable.
· Registered Office - every company must have
one. This is the address to which Companies House will send all
correspondence. As it need not be the company's trading premises,
many clients of Glazers use our address as the registered office
for their companies.
· Company Secretary - every company must appoint
a secretary. Whilst public companies usually have a qualified
company secretary, it is usual for smaller private companies
to appoint one of the directors, or perhaps a member of their
staff or family, as the company secretary.
· Company Directors - there must be at least one
company director, but two are required if the company secretary
is also a director. There are legal obligations placed on company
directors, details of which are available from Companies House.
· Company Stationery - the company's letterhead
must show the company's registered number, the address of its
registered office and the country of incorporation. You do not
have to show the names of the directors on the company stationery,
but if you do show any of them, then the names of all directors
must be shown.
· Statutory Records - all companies are required
to keep a statutory register, showing the names of its directors,
secretary and shareholders, and recording all changes. Minutes
of shareholders' meetings must also be kept. The statutory records
also include the Certificate of Incorporation (effectively the
company's birth certificate), and the Memorandum and Articles
of Association (the company's constitution).
· Filing of Returns - every private company must
submit a set of its accounts to Companies House each year. In
addition to this, an Annual Return must be submitted showing
details of the directors, secretary and shareholders. Although
it is the responsibility of the company's directors and secretary
to deal with all statutory matters, Glazers can handle this
on your behalf.
· Auditors - finally, the company may need to
appoint independent auditors, depending on the size of its operations.
The auditors are responsible for reporting on whether the company's
accounts are prepared in accordance with standard accounting
practice and whether they comply with the Companies Acts. Where
relevant, we normally carry out the audit for our client companies
in conjunction with the preparation of their annual accounts.
We shall be pleased to advise you on all aspects relating
to companies, such as company formation, preparation and audit
of accounts and maintaining statutory records.
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BUSINESS
TAX AND ACCOUNTS CALENDAR
| Date |
Event |
Applies
to |
| Business year-end |
Accounts to be prepared to this date |
Individuals, partnerships and companies |
 |
| 9 months after company year-end |
Corporation tax for the year to be paid |
Companies only |
|
| 10 months after company year-end |
Company accounts for the year to be filed with
Companies House |
Companies only |
|
| 12 months after company year-end |
Company accounts for the year to be filed with
the Revenue, together with corporation tax return form CT600. |
Companies only |
|
| Annually on anniversary of company incorporation |
Annual Return showing details of Company Directors,
Secretary and Shareholders to be filed with Companies House,
within 28 days, together with filing fee |
Companies only |
|
| Quarterly (unless monthly or annual accounting
opted for) |
VAT Return to be filed with Customs, together
with VAT due |
VAT registered individuals, partnerships and
companies |
|
| January 31st |
Tax Return for the previous year ended 5th
April to be filed with the Revenue |
Individuals and partnerships |
|
| January 31st |
Balance of income tax for the previous year
ended 5th April to be paid |
Individuals and partnerships |
|
| January 31st |
First income tax payment on account to be made
for the current year ending 5th April, if applicable |
Individuals and partnerships |
|
| April 19th |
Any arrears of PAYE and National Insurance
due for the year ended 5th April to be paid |
Individuals, partnerships and companies who
pay wages or salaries |
|
| May 19th |
Employer's PAYE return form P35 for the year
ended 5th April to be filed with the Revenue |
Individuals, partnerships and companies who
pay wages or salaries |
|
| May 31st |
Copies of forms P60 (year-end payslips) to
be given to all current employees (and to any ex-employees
who request them) |
Individuals, partnerships and companies who
pay wages or salaries |
|
| July 6th |
Forms P11D (returns of benefits in kind and
reimbursed expenses) for the year ended 5th April to be filed
with the Revenue |
Individuals, partnerships and companies who
provide benefits in kind or reimbursement of expenses to
directors or employees |
|
| July 6th |
Copies of forms P11D to be given to all current
employees (and to any ex-employees who request them) |
Individuals, partnerships and companies who
provide benefits in kind or reimbursement of expenses to
directors or employees |
|
| July 31st |
Second income tax payment on account to be
made for the year ended 5th April, if applicable |
Individuals and partnerships |
|
| 19th of each month |
PAYE and NI for the previous month to be paid
to the Revenue |
Individuals, partnerships and companies who
pay wages or salaries |
|
| 14 days after each calendar quarter and 14
days after company year-end |
Form CT61 to be filed with the Revenue if any
interest paid with income tax deducted at source |
Companies only |
|
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TAX
DEDUCTIBLE EXPENSES
There is often some misunderstanding about which items of business
expenditure are deductible against profits for tax purposes,
and which are not. The following list covers the items most commonly
requiring explanation. The list iswritten in general terms, so
specific advice should always be taken.
| Item |
Deductible
Against Profits |
Not
Deductible |
| Normal business expenses generally |
Expenditure incurred wholly and exclusively
in the course of business |
Personal expenditure and all entertaining except
staff |
|
| Capital items (i.e. items expected to be used
for more than 1 year) |
An annual capital allowance is available on
most items of equipment |
Freeholds and long leaseholds of most non-industrial
premises |
|
| Computer software |
If bought separately from hardware |
Otherwise, capital allowances available |
|
| Gifts to customers |
Gifts costing up to £50 and bearing the business
name |
Any item of food, drink or tobacco |
|
| Home expenses |
Reasonable proportion of home running expenses,
depending on he extent of use of home for business |
Domestic expenses not related to the business |
|
| Telephone bills
| Business proportion based on calls |
Private element and home line rental |
|
| Motor expenses |
Business proportion based on mileage |
Private element |
|
| Travel expenses |
Business travel |
Travel between home and normal place of business |
|
| Subscriptions |
Professional subscriptions, relevant magazines
and journals |
No-business related subscriptions |
|
| Wages and salaries |
Staff (including family where duties genuinely
carried out) |
Proprietor's own drawings and gratuitous wages
to family |
|
| Bank charges and interest |
Charges on business accounts and business related
loans |
Interest for personal overdrafts and loans |
|
| Other interest |
Interest on business loans |
Interest on income tax paid late and interest
paid to proprietors |
|
| Insurance |
Business related policies |
Life assurance, self-employed NI, health and
sickness insurance |
|
| Bad debts |
Specific bad debts from business transactions |
General provisions and debts written off voluntarily |
|
| Accountancy fees |
Normal business related fees |
Costs of unsuccessfully defending a Revenue
investigation |
|
| Legal fees |
Most business related advice |
Partnership agreements, company formation,
property acquisition and renewing long leases |
|
| Personal expenditure |
Modest subsistence expenses in certain cases
when working away |
Lunches, private expenses and bills, gifts,
clothing (unless a uniform) |
|
Top
CONCLUSION
We hope you have found this brief guide useful.
Getting good professional advice is essential if your business
is to start on the right footing. Why not telephone one of our partners on 020
8458 7427 to arrange an appointment with us? Or alternatively
send an email to quality@glazers.co.uk
We will be pleased to hear from you and help you on the road
to success.
Meanwhile, if you would like further start-up information, visit
the 'Links' section
of this site where you will find some useful web addresses including Business
Link, set up by the Department of Trade and Industry to
help small businesses.
© 2007
This guide has been written for general interest. It is therefore
essential to take advice on specific issues. No responsibility
for loss occasioned to any person acting or refraining from action
as a result of the material in this guide can be accepted by
the partners of Glazers.
