Tax Return Tips

[Richlist]

April will soon be on us.......and time to start thinking about tax returns and minimising how much we are prepared to hand over to HMRC.

Thought I'd post a couple of tips based on something I've been working on for own tax returns:

1. Motor Car Tax Allowances.

Most of us probably claim a mileage allowance. Historically £0.40p per mile but now £0.45p. I'm now changing to the capital allowance option as, for me, this now allows me to claim far more that with just pence per mile.

2. Use of Home as an Office

Many of us also make a claim for using our home as an office for running our rental business. Seems I've been underclaiming for years. Apparantly the correct method is to take the total annual costs for mortgage interest + insurance (buildings/ contents) + gas + electric + council tax + maintenance costs and then divide by the number of rooms in your house in which you could work eg bedrooms, lounge, d/room, study, kitchen diner....not bathrooms, cloakrooms, utility rooms, halls or landings. The result is the amount you could claim.

Good luck.

[kerbut]

Richlist

Please would you be kind enough to explain the capital allowance option for tax relief for a car , I have had numerous discussions with my accountant about car usage and she told me to keep a diary of my mileage when using the car for the business and charge it at 45p per mile as you suggested.

We have a room in our house which we use as an office ,my wife has several properties in her name and submits separate accounts and our accountant allows us £160 each on our return for the office.

[Carryon Regardless]

I wasn't aware of the mileage increase to 45p, that's been a while in coming. Is that applicable to years 11 / 12 or earlier ?

A small point is that the rate was applicable to the first 10k miles and then reduced to 25p per mile, is there any change here ?

As I understand at purchase of a car you opt for mileage allowance or capital depreciation and must keep the same option until that vehicle is disposed of.

My vehicles are far from new so the mileage allowance works better for me (less capital depreciation and no need for a balancing charge at disposal).

To apply a journey to business 'or' social can be difficult. Very often I will drive out for business but divert and stop on return for social. I keep an accurate log of business vehicle's' mileage and proportion, much the same as the use of home telephone and mobile telephone is proportioned. There may be some discussion with IR in the future but I see this as being the fairest and simplest.

Some years ago an Accountant told me not to claim too large a proportion of the home as office as at disposal there may be some claim by IR for business capital gain. For recent years that's unlikely to apply anyway but your way does seem more reasonable even if it does ignore the floor area as a proportion.

[Richlist]

Lots of questions......

We have a room in our house which we use as an office ,my wife has several properties in her name and submits separate accounts and our accountant allows us £160 each on our return for the office.

Then you need to ask your accountant how he calculates your £160 each.

You could do a quick calculation yourself using the formula I posted earlier.

My understanding is that ON NO ACCOUNT should you claim for a specific room of your house as an office. This could leave you liable for capital gains tax on your main home when it is sold.

For calculations on capital allowances for cars see:

http://www.businessl...&type=RESOURCES

This year you can claim between 10% & 20% depending on C02 emisions next year from April 2012 its 8%-18%

You can claim £0.45p per business mile or use the capital allowance claim. Obviously we should all be looking at both and seeing which gives us as individuals the best benefit.

I don't make ahabit of arguing with accountants BUT there are good & bad as there are with agents. If you dont understand the numbers question them ad make sure you are getting value for money.

[Richlist]

I wasn't aware of the mileage increase to 45p, that's been a while in coming. Is that applicable to years 11 / 12 or earlier ?

Yes became available from April 2011.

A small point is that the rate was applicable to the first 10k miles and then reduced to 25p per mile, is there any change here ?

No. ......Most unusual for anyone except large portfolio holders to do more thatn 10,000 business miles.

As I understand at purchase of a car you opt for mileage allowance or capital depreciation and must keep the same option until that vehicle is disposed of.

My vehicles are far from new so the mileage allowance works better for me (less capital depreciation and no need for a balancing charge at disposal).

A balancing charge can work both ways. HMRC can make the balancing charge in your favour......as in my case.

Some years ago an Accountant told me not to claim too large a proportion of the home as office as at disposal there may be some claim by IR for business capital gain.

Thats correct

For recent years that's unlikely to apply anyway

Why ?

[Carryon Regardless]

I've been using the mileage allowance since 05 / 06 and each year at 80% proportioned I am over the 10k miles. This year has been significantly less miles but should still just pass the 10k. The majority of my properties are 80 miles away.

There are reasons for the reduction, 1 being I'm consciously doing less to properties waiting to see reason for encouragement. The low interest is encouraging and with some likelihood of this being for a further 12 months + I might well push on some again next year.

Doing most of my own motor maintenance and repairs helps reduce the outlay that could be claimed for, the mileage claim at 40p / 25p has been significantly more attractive. I still track all motoring costs and the calculation for comparison is easy.

BTW having checked the only change to the allowances is from 40p up to 45p as you stated, the 25p remains the same as do other allowances for smaller vehicles, I use my motor bicycle to travel to Wales sometimes in summer.

So at £4,500 allowable just for 10k miles it would be a very nice car with 10% capital depreciation allowance to compete. Such a car is more than I would want to take to my properties. I know the other motoring costs are to be added to the capital depreciation but still a nice car none the less.

There is already resentment of me in my 6 year old C Class estate with 145k miles and worth far less than a vehicle the state will finance for some one pretending the need for disability. It goes well though, I anticipate with it's 3 litre efficient diesel engine it should serve well for another 10 years.

The "why" is that as most properties are losing value since 2008, there won't be any capital appreciation (well unlikely anyway) to see any Capital Gains tax.

Thanks for the pointer on office use calculation, I've been proportioning at 20% as suggested some years ago. Use wise that's probably not silly, but as a proportion as you suggest it's excessive, so reason for some consideration there.

[Richlist]

It works for me because I just bought a car for £40K+ and claim around 50% business use.

I usually change my cars every 3 or 4 years and so the balancing charge is likely to be in my favour as the sale price is likely to be lower than the unrelieved balance from my capital allowances. In my case the capital allowances far exceed anything I can get using the £0.45p per mile claim & together with a positivebalancing charge makes perfect sense......for me.

I suspect its also likely to work for lots of other landlords but either they don't know about it or their accountant is taking the easy option. Lets face it it doesn't take much effort to calculate £0.45p X mileage covered BUT takes a lot longer to sort out capital allowances due.

So, this is just a heads up for people .....don't assume your accountant is always right.

[axil23]

Very handy. Thanks Richlist

[CH1]

Very useful points to consider RichList.

April will soon be on us.......and time to start thinking about tax returns and minimising how much we are prepared to hand over to HMRC.

Thought I'd post a couple of tips based on something I've been working on for own tax returns:

1. Motor Car Tax Allowances.

Most of us probably claim a mileage allowance. Historically £0.40p per mile but now £0.45p. I'm now changing to the capital allowance option as, for me, this now allows me to claim far more that with just pence per mile.

I have been claiming mileage in past years. However, switching to capital allowances may be much better for me as 3/4ths of my properties are within 15 mile radius, so I am actually not doing much mileage, but do have many repeated short trips...all adding wear and tear to the car. My car is 6 years old and not the most economical to run, but I like it. If I opted for capital allowances what factors could I incorporate? I have not bought new cars every 3-4 years, can servicing costs, car insurance cost, wear and tear items eg tyres, brake pads be added to this?

2. Use of Home as an Office

Many of us also make a claim for using our home as an office for running our rental business. Seems I've been underclaiming for years. Apparantly the correct method is to take the total annual costs for mortgage interest + insurance (buildings/ contents) + gas + electric + council tax + maintenance costs and then divide by the number of rooms in your house in which you could work eg bedrooms, lounge, d/room, study, kitchen diner....not bathrooms, cloakrooms, utility rooms, halls or landings. The result is the amount you could claim.

Good luck.

I do use a room at home to carry out rental business, but have never so far included the above -it would be quite a sizeable amount if the above is allowed, taking into account council tax, mortgage interest, gas/electric costs. Do you take a percentage of total or do the above and get the result. What section of self-assessment would this be filed under? Other expenses? Has anyone any example or have done this before? Thank you.

[Richlist]

I have been claiming mileage in past years. However, switching to capital allowances may be much better for me as 3/4ths of my properties are within 15 mile radius, so I am actually not doing much mileage, but do have many repeated short trips...all adding wear and tear to the car. My car is 6 years old and not the most economical to run, but I like it. If I opted for capital allowances what factors could I incorporate? I have not bought new cars every 3-4 years, can servicing costs, car insurance cost, wear and tear items eg tyres, brake pads be added to this?

Best to talk to your accountant.....its a complex subject and will generally depend on how many properties you have and what percentage of your mileage is done running your rentals. You can't normally claim additional costs for road tax, insurance, servicing etc. I think the argument runs along the lines that you'd be paying for those items anyway if the car was 100% private use.

I do use a room at home to carry out rental business, but have never so far included the above -it would be quite a sizeable amount if the above is allowed, taking into account council tax, mortgage interest, gas/electric costs. Do you take a percentage of total or do the above and get the result.

The calculation used is clearly shown in my previous post but again your accountant should advise you. Obviously there is a big difference between someone with a couple of rentals and another with 20+.

What section of self-assessment would this be filed under?

Box 27 I believe.

[CH1]

Best to talk to your accountant.....its a complex subject and will generally depend on how many properties you have and what percentage of your mileage is done running your rentals. You can't normally claim additional costs for road tax, insurance, servicing etc. I think the argument runs along the lines that you'd be paying for those items anyway if the car was 100% private use.

What section of self-assessment would this be filed under?

Box 27 I believe.

Thanks. I think I will speak to an accountant. No I wasn't considering road tax, but there are some running costs and wear and tear items with running a car that I wondered if a proportion of the full cost could be included...

The argument regards you would be paying for those anyway, I think nowadays the same could apply to phone calls, with so many inclusive call tariffs and line rentals, whether on landline or mobile that's it harder to allocate actual call costs to business.

Thanks, given me lots to think about.

[Richlist]

No I wasn't considering road tax, but there are some running costs and wear and tear items with running a car that I wondered if a proportion of the full cost could be included...

Its the same difference wether you claim £0.45p per business mile or capital allowances.......the calculation includes all the car running costs.

The argument regards you would be paying for those anyway, I think nowadays the same could apply to phone calls, with so many inclusive call tariffs and line rentals, whether on landline or mobile that's it harder to allocate actual call costs to business.

Now phones is something I know about.

* For home phones, personally I claim 50% of the costs.

* For mobile phones I claim 50% of the cost of the phone and then it kinda depends on your tariff. If you pay a monthly fee then you can't claim anything as you'd be paying the fee anyway if it was 100% private use. If, like me, you operate pay as you go then, I claim a reasonable amount of annnual top up costs.

[CH1]

Now phones is something I know about.

* For home phones, personally I claim 50% of the costs.

* For mobile phones I claim 50% of the cost of the phone and then it kinda depends on your tariff. If you pay a monthly fee then you can't claim anything as you'd be paying the fee anyway if it was 100% private use. If, like me, you operate pay as you go then, I claim a reasonable amount of annnual top up costs.

Was considering including a proportion of phone costs, but my mobile is pay monthly and similarly the landline also has inclusive calls, so there are very few extra calls that get billed.

I also was wondering regarding the self assessment if one had a loss from last year carried forward, would this be entered under Income Tax Losses 1) earlier years losses 2) total unused losses carried forward, then Box 36 would show Adjusted Loss and/or Box 37 would show the tax loss as entered above in 1). i.e it doesn't seem to matter whether the loss is entered under Income tax losses or solely in Box 36. My figures are correct, just some of the questions seem to be asked more than once. Yes, I know I should be asking an accountant and will be doing so.