Below are the most common questions we have been asked regarding tax and accountancy. If you cannot find the answer you are looking for, please click here to contact us directly.
There are many expenses that can be claimed against taxable income. Everyone runs their business in a different way and they will usually incur some expenditure that is particular to them.
The following list is not exhaustive but gives an indication of the general expenses that can be claimed by a driving instructor:
If you have expenses that are not shown on this list, you may still be able to claim them.
Keep a full record of ALL expenses and discuss them with your accountant. They may be tax deductible
*Unfortunately the costs of training to become a driving instructor cannot be claimed against your tax.
If your clothing is protective or it has a business logo embroidered on it, the cost of buying these items could be claimed. Also, cleaning costs may be shown in the accounts. The clothing must be clearly identifiable as work wear, and is ‘wholly and exclusively’ used for the business. You would not wear it other than for work. However if you bought ordinary, everyday clothing from, say, M & S the answer is "No". Under current legislation these items are regarded as having a dual purpose, ie., you could wear them outside of work and no one would be able to identify that they are your work clothes. They would therefore not be classed as tax-deductible expenses.
Paying your spouse or partner is possible but rules apply. Where a spouse or partner has little or no other income there may be tax advantages in paying them for their assistance in running the business.
It is fairly common. However, this has to be treated in exactly the same way as you would any other person working for you. The wages have to be for actual work done; the wages have to be physically paid and the rate of pay must match the duties performed.
In order to justify any such payments, it may help to create a job specification first.
Simply list the tasks that are involved, making appointments, doing the bookkeeping, arranging tests etc. Then you need to establish the market rate for such a job.
How much would you have to pay someone else to do these tasks for you? Keep a simple diary note of the hours worked per week, then make regular payments via cheque for the wages due in relation to the hours worked.
As mentioned above, you need to pay the going rate for the job. If this exceeds either £112 per week or £486 per month you may need to operate a full payroll scheme, which would need to be registered with HMRC. If you do set up a payroll scheme there may be advantages as your spouse or partner would then be entitled to national insurance credits against future state pension entitlement.
It is recommended that you speak to your accountant before you make payments to ensure you do not breach any rules.
Unfortunately, the answer is probably not. This is based on the test case - Norman v Golder (1944). Mr Norman was a shorthand writer working in the courts who had suffered from a severe illness and had incurred medical expenses. He claimed that his illness was a direct result of working in unfavourable conditions and therefore the expenses should be tax deductible as they were wholly and exclusively incurred in connection with his professional work. The courts ruled that no claim was due and the judge advised:
'It is impossible to argue that doctors bills represent money wholly and exclusively laid out for the purposes of the trade, profession, employment or vocation of the patient. True it is that if you do not get yourself well and so incur expenses to doctors you cannot carry on your trade or profession, and if you do not carry on your trade or profession you will not earn an income, and if you do not earn an income the Revenue will not get any tax. The same thing applies to the food you eat and the clothes you wear. But expenses of that kind are not wholly and exclusively laid out for the purposes of the trade, profession or vocation. They are laid out in part for the advantage and benefit of the taxpayer as a living human being.'
There will almost always be a personal purpose in wishing to enjoy a better health. Expenses of this nature are regarded as a dual purpose and therefore not allowable. You should always discuss your case with your accountant who can advise you further.
You should keep comprehensive records with supporting receipts. Anyone who has undergone an investigation will know that HM Revenue & Customs can spend months looking through your records, asking probing questions and wanting what might seem as meaningless information about your business affairs.
This can be both time consuming, stressful and very expensive, not just in terms of tax but in terms of lost lessons due to the time spent dealing with any investigation.
Prevention is of course better than cure. One recommendation is to have a separate business bank account.
If a credit card is preferable, then again, separating business and personal transactions into two separate cards could be helpful.
Separating your business and personal life will not only help your accountant but it will also help in the event of an HMRC investigation. There are three general forms of transaction to record:
When deciding on how to record these transactions provision should be made to identify which receipts / payments are cash, bank or credit card.For cash receipts, it is important to identify any cash not deposited in the bank but used for sundry cash expenses or general living expenses.
There are various methods of bookkeeping, such as cash books, excel spreadsheets or online versions.
Personal drawings from the business should also be easily identified. One area HMRC looks at is funding of personal expenses. If you have separate business and private accounts, either make transfers between accounts or write yourself a cheque from the business account. Mileage records are also important. Even if you use your car almost exclusively for business some form of record should be kept to validate this. HMRC are keen to challenge business mileage where records are not complete.
Given that a high proportion of your mileage will be business related, one method is to record your car's total mileage at the start of your accounting year and only record your private journeys made during the year. At the end of the accounting year, work out the total mileage and deduct the private mileage. The difference is your business miles. If you do not have sufficient evidence to support your business expenses then an investigation can mean an increased tax bill.
HMRC may also make similar adjustments to the previous years tax bills, add on interest charges and impose penalties. Please also bear in mind that bookkeeping records and supporting receipts should be retained for 5 year 9 months after being submitted to HMRC.
The rules on gifts are similar to those on business entertaining in that such expenditure is not tax deductible. Taking a business contact to lunch is not tax deductible, and by the same logic giving a gift to a student is not either.
HMRC's rules are at first quite clear: 'You should give no deduction unless it can be shown that there is some contractual obligation to offer the gift' However, there is a grey area. In the same instructions it also says that some gifts may in fact be part of a sale. In such circumstances the cost of the gift is allowable.
In the example given, a customer buys a new car and the garage presents him with a bunch of flowers on collection. The cost of the flowers is tax deductible, as there is an assumption they have been paid for by the customer. What about driving instructors?
The rules on entertaining would probably mean in reality the cost of a gift would not be allowed.
However, if the gift was a form of advertising 'A mug or pen with your driving school name and logo on it', you may be able to claim on the basis that it is advertising and promotion. Alternatively, if you gave your student a bunch of flowers on passing their test then this could be tax deductible on the basis that the "gift" had in effect been bought as part of the fees paid to attend the test.
As always, you should ask your accountant.
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