Real Price Accountancy


Expenses if you're self-employed

When you run your own business you have a number of costs and expenses involved in doing in so. You can claim for some of these and offset them against your income to reduce profit. Profit is what your tax is calculated on. Not all expenses are allowable however and its important to be able to make the distinction as this affects directly how much tax you will pay.

For example

Your turnover is £40,000, and you have claim £15,000 in expenses; however only £12000 of these are allowable.  You will only pay tax on the remaining £28,000 – this is known as your taxable profit.

This does not include money you take out for your personal use. This is not classed as wages but as ‘drawings’ and is added back when calculating taxable profits.

Costs you can claim as allowable expenses

These can include:

  • Premises costs - eg heating, lighting, business rates, use of home
  • Business administration costs - eg stationery or phone bills
  • Travel costs - eg fuel, parking, train or bus fares
  • Staff costs - eg salaries or subcontractor costs
  • Direct costs – stock, materials
  • Personal protective clothing costs - eg uniforms, hard hats, visibility vests
  • Advertising and marketing costs - eg ads, industry/ trade memberships or listings, website costs
  • Financial costs, eg insurance or bank charges

If something has personal use also it cannot be claimed for, only the business usage, e.g. your mobile phone bills for the year total £200. Of this, you spend £130 on personal calls and £70 on business. You can claim for £70 of business expenses.

Capital Allowances

When you buy something you keep using in your business over a period of more than 12 months or for more than just a one off use this is classed as a capital item, eg:

  • equipment
  • machinery
  • business vehicles, eg cars, vans, lorries

This must be claimed in a different way to the expenses listed above. In a sole trader business it is possible to claim for a capital item such as vehicle which has personal use as long as the percentage of personal use is taken into account and discounted.

Premises costs and Working from home.

As well as claiming all costs such as rent, mortgage, rates, and utilities when you have business premises you can often be eligible to claim for working from home

You may be able to claim a proportion of your costs for things like:

  • heating
  • electricity
  • Council Tax
  • mortgage interest
  • internet and telephone use

You’ll need to find a reasonable method of dividing your costs, eg by the number of rooms you use for business or the amount of time you spend working from home. HMRC also allow a flat rate weekly amount which can be claimed.

If you are no longer Self employed

There are a number of things you must do when ceasing self employment – you cannot just walk away!

  • You must tell HM Revenue and Customs (HMRC) if you’ve stopped trading as a sole trader or you’re ending or leaving a business partnership.
  • You’ll need to send final tax returns
  • Inform employees that you’re closing your business.
  • Cancel your Class 2 National Insurancecontributions.
  • Complete and send a Self Assessment tax return SA100 before the deadline
  • If you are in a partnership you must also complete and file a partnership self assessment tax return SA800
  • If you’re a subcontractor or contractor you must also inform CIS

Filing your final tax return                                              

When you send the return, you’ll need to:

  • Calculate your income from your business or trade
  • Work out your allowable expenses – including some of the costs involved with closing down your business, eg phone, internet and postage costs
  • calculate your capital allowances, this could include balancing charges if you’ve sold business equipment or machinery – it can be best to get professional help with this
  • work out if you owe Capital Gains Tax on any assets you’ve sold or ‘disposed’ of
  • calculate your final profit or loss– it can be best to get professional help with this

You might be able to reduce your last tax bill:

  • Entrepreneurs’ Relief can reduce the amount of Capital Gains Tax you have to pay
  • overlap relief - this can prevent you being taxed twice on your profits when you stop trading during a tax year, particularly if you did not have an April to April year
  • terminal loss relief - this can offset a loss made in your last tax year against your profit in the 3 previous tax years

To find out more information about overlap relief, terminal loss relief and other reliefs to reduce Capital Gains Tax that you may be able to claim visit, their outstanding innovative website has now pre-launched offering information, support and accountancy products all in one place.

Do I need to file a tax return? – what is trading?

It can be confusing knowing exactly when you need to file a tax return. What are your obligations, what is classed as a business, and how do you know if you’re self employed or not?

Well let’s start right at the beginning - Starting with what exactly is trading.

HMRC define trading as when you begin to buy and sell goods or services with a view to making a profit.

You’re likely to be trading if you:

  • Buy items to sell to make a profit
  • make items to sell for profit
  • sell online, at car boot sales or through classified adverts on a regular basis
  • earn commission from selling goods for other people
  • are paid for a service you provide

You are classed as trading (this doesn’t include selling your unwanted stuff on EBay or at a car boot sale as a one off) . There are a number of additional key points that define trading such as;

  • regularity of sales,
  • were the goods originally used by yourself for personal enjoyment
  • and if you are selling a number of the exact same items etc
  • was the item modified to make it easier/more likely to sell
  • how was the purchase financed – did you borrow money to buy the item
  • how much time was there between purchase of the item and resale
  • how was the item acquired, was it a gift, an inheritance or was it purchased


These are classed as ‘badges of trade’ and there are a number of these which HMRC use as points to define whether or not someone is trading. Each on their own is neither specific nor conclusive; rather HMRC will look at each them applied to the person or business in question and see how many apply.


HMRC regularly check sites such as eBay looking specifically for traders who are not registered or declaring their income.

If you’re trading, you’re self-employed.  Sole traders and partners are also classed as self-employed by HM Revenue and Customs (HMRC).You’re probably self-employed if you:

  • run your business for yourself and take responsibility for its success or failure
  • have several customers at the same time
  • can decide how, where and when you do your work
  • can hire other people to do the work for you or help you at your own expense
  • provide the main items of equipment to do your work
  • are responsible for finishing any unsatisfactory work in your own time
  • charge an agreed fixed price for your work
  • sell goods or services to make a profit

It’s also possible to be both employed and self-employed at the same time, e.g. if you work for another employer/business during the day and run your own business in the evenings.

Directors Loan Account Overdrawn? Part 2

With small limited companies which are in effect owner managed, the directors often use their limited company as an unofficial loan company, but beware - as we discussed in yesterdays blog HMRC have the power to penalise them for this.

Escaping the tax charge

When you settle the balance on your DLA – directors loan account within nine months of the end of your company’s financial year, HMRC will does not take the 25% tax and it does not need to be declared on the CT600.

For most owner-managed companies the usual way they do this is to pay a dividend which covers the amount owing on the DLA account. But although this seems straightforward and obvious it quite often isn’t or just isn’t carried out. The reason for this is generally because there are so many small transactions that the director has lost track of or has no idea how much has actually been taken, and it’s the accountant who calculates the balance owing at the end of the year – often to a certain amount of shock from some directors! The usual course of action is the accountant advises what dividend can be taken according to the profit available and this clears the amount taken during that financial year.


However there is often a pitfall to this in that by the time this is done it’s quite a few months into the next financial year and more money has been taken. The dividend has cleared the previous year but now it’s overdrawn again though not by as much. HMRC have been known to argue when looking at company records that the DLA actually has never been cleared therefore tax is due of 25%. In theory they are correct as there has always been an amount owing - it’s just been for different financial years and periods.

If you carefully record all the ins and outs of the directors loan account, recording dates and amounts and repayments it will stand you in good stead should you have be queried by HMRC. Also there have been multiple court precedents which say that where you owe money and make a repayment, you can nominate which part of the debt this is set against. That means you’re within your rights to set the full credit from a year-end dividend against the earliest transactions on your DLA record regardless of the argument from HMRC.

In practise it’s very rare they will pursue a case against this argument as even their internal instructions are against it as in the HMRC internal instruction manual at

We’ve seen cases where HMRC argues against this but even its own internal instructions are against it. So if it tries it on with you, point it to the internal instruction manual at CTM61605!, their outstanding innovative website has now pre-launched offering information, support and accountancy products all in one place.

The website is currently in the consultation phase where we really want to hear from small business owners about what they would like. To take part in this consultation process where Real Price would like to hear your views or Cloud Accountancy, or to cut the cost of your own accountants fees visit:

Directors Loan Account Overdrawn? Part 1

With small limited companies which are in effect owner managed, the directors often use their limited company as an unofficial loan company, but beware - HMRC have the power to penalise them for this.
Anti-avoidance rules introduced in over the last few years enable HMRC to charge tax where a director borrows money from their company.
This makes it more important than ever to make the distinction between what’s salary, what’s dividend and what is a loan. You must have a good paperwork trail. What’s the best way to do this?
What is a Directors loan?
This is the director’s loan account (DLA). As a director it’s almost certain that at one time or another company will owe you money or you’ll owe the company money, for example where you draw money from the company’s bank account for personal use or where you’ve paid for something which is for the company such as postage.
Where you owe money, HMRC refers to this as having an overdrawn director’s loan account (DLA), and this is when they like to get involved.
25% tax charge
Where your DLA is overdrawn at the end of your company’s financial year, and the amount overdrawn is not repaid within 9 months of the year end (by the time the accounts are due to be filed) it has to pay tax at 25% of the amount outstanding and declare this on the CT600 tax return. The good news is that this will be repaid by HMRC but not until nine months after the end of the financial year in which you repay the money you owe to the company and declare this on the CT600 tax return.
Read the rest of the article tomorrowto find out how to avoid this pitfall and end up possibly paying this tax charge unnecessarily., their outstanding innovative website has now pre-launched offering information, support and accountancy products all in one place.
The website is currently in the consultation phase where we really want to hear from small business owners about what they would like. To take part in this consultation process where Real Price would like to hear your views or Cloud Accountancy, or to cut the cost of your own accountants fees visit:

Casual workers and ‘take home’ pay.

We often have small businesses asking about casual workers. They want to take someone on who they have agreed what their take home pay as opposed to an actual salary or amount per hour.
This is generally because either its someone they know or they aren’t sure what their options are. Unfortunately it’s not always the best option for the business and can cause problems.
The correct term for this is a ‘Net pay scheme’. They used to be used regularly for jobs such as relief staff and domestic helpers, etc. .It’s an arrangement where the employer agrees to pay a set amount of take home pay to the employee regardless of PAYE and NI deductions.
With the usual payroll agreement you simply calculate the tax and NI, deduct it from the agreed wage and pay the balance to the employee. The tax and NI is paid to HMRC along with employer NI contributions. If there are any changes in their tax code or the rates of tax  this can affect the employee but doesn’t generally affect the employer. But with net pay schemes that’s not the case.
The trouble with these schemes is that if, for any reason, HMRC decides to increase the tax they pay on their wages, you’ll be footing the bill for this. Additionally, it increases the NI you’ll have to pay. Their pay will not change as you’ve agreed that with the employee.
If you do have any employees on this type of scheme then make a change using their current pay as a guide to what it should be.

Working for yourself – business plans and record keeping

Business Plan
You may already have thought long and hard about what your business is doing and where you want it to go, but have you written it down? Sometimes business owners tend to think a business plan is just a load of projections and possibilities put together to keep the bank manager happy.  But a good business plan is a roadmap of your business. It’s a template you can refer to periodically to remind you where you want to be and what the basis of your business is. It will cover everything from your business goals to how you intend to achieve them
The forecasts should include, profit and loss forecasts which you can see what the realistic earning potential of your business has. The cashflow forecast should show you the potential weak spots in your business over a period of time where cash will be low so you may need extra funding. It means these times don’t just sneak up on you, you’re prepared.
It’s essential to help convince potential funders of how viable your business is.

Record Keeping

It’s important from the start to carefully track all your spending and income. This allows you to know where your cashflow is, what is the money coming into and out of the business. It will help you calculate the profit or loss.
Even spending just 30-60 mins each day entering your paperwork details onto a spreadsheet can make a big difference. You have all the figures you need at your fingertips. It allows you to measure costs, mark up and margins, and exactly how much profit is being made.
It also forms a crucial part of your business plan – without the record keeping or book keeping being done then figures are very difficult to put together.
There are many options for doing this from, entering your data onto a simple spreadsheet yourself, using accountancy software such as Xero, Sage, QuickBooks etc, or paying a book keeper or accountant to enter it for you.

Working for yourself – set up your business

Once you’ve had your idea, decided on the product,sourced your supplier, tested your market, its time to look at the business structure itself and start to get set up.

How do you want to run and operate your business? Is it just you or are others involved? How much control do you want? Then look at your finances – do you have enough capital (initial start-up money) to get going. Can you support yourself for the first year or two?

Set up your business

Think about which business structure is the right one for you.  We’ve covered this in more detail in other blogs, e.g. Limited company, Partnershipor Sole Trader. Clicking on the links takes you to more information about these.

Once you’ve decided then make sure you get registered with HMRC and that everything is in place to fulfil your statutory obligations.

Think about getting an accountant who can help not just with the set up but with advice on setting up and getting started.


Explore sources of finance if you feel you may need it; everything from bank loans to government grants and schemes. There are various options to look at ad you need to consider if any are available for your business as they can be area specific and trade specific, and also if this is the route you want to go down as you’re usually committing yourself to a large amount of debt.

Banks and any other financial institution will want to see your business plans and cash flow forecasts. They may want security or a personal guarantee such as your home if you own it. If you don’t keep up payments then this will risk you losing your home. So consider carefully before committing to these.

Investment is often preferable as this can be anything from selling shares in your business to third parties (however this can risk your control and dilute future profits) to government grants which generally do not need paying back but may need to be match funded, meaning you put in say £1000 and they will match it by giving you £1000 usually for a specific purpose such as training or such as with the voucher scheme for help business plans and forecast.


Working for yourself – on the shelf

Working for yourself is hard.And trying to get a product to market is even harder when it’s just you. You need good suppliers you can work with. People you can trust.


How would you like to be sure you have the best price from the best supplier?


There is no magic wand to be sure this happens unfortunately, just a lot of groundwork you have to do before you even decide who you’re going to place your orders with.


Source suppliers

Do as much research as possible into who can provide your product or parts at what price. Don’t just get quotes from 1 get at least 6 then narrow them down. Ask for their best prices. Talk to who you will be working with, request samples (you may have to pay for these) as they’ll give you an idea of the quality. Research your supplier; check up on their business;


  • How long have they been trading?
  • Where do they work from e.g. UK or abroad?
  • Are they specialist suppliers or do they do other stuff?
  • Do they have qualifications/accreditation/registration where necessary?
  • Do they have company bank details for payments etc?
  • What are the minimum quantities you can buy in?
  • What are the break prices – what quantity makes it cheaper?
  • What are the lead times – how long from order to delivery?
  • What are their payment terms?
  • What are delivery terms and costs?

Don’t plan on holding lots of stock on your shelves with a product. Calculate what you realistically think your sales will be over the first 6 months. Look at stock as money – you don’t want it just sat around losing value, you want it working for you.

Aim to have stock on your shelves for a short a time as possible – you want it sold and gone so you can re-invest in more.


Make sure you take your time with this, don’t panic and think you need to place your order with the first supplier who gets back to you with a half decent price.


Going to trade shows and walking around talking to suppliers can be really helpful. You can get your info in one place and meet the people at the same time. You can see how they react with other potential and existing customers.

Working for yourself – product development & market research

You’ve had your ‘Eureka’ moment; you have a business idea that will work and now you want to set up your own business. How do you take the first and next steps, how do you turn the resolutions into reality? We covered in yesterday’s blog about what you should consider before going ahead. The next stage is to look more carefully at your actual idea – the service or product. How good is it? Is it a viable business?


Product Development

Think about what could make your business different to what’s already out there.
If you’re in retail you could try different opening hours or home delivery. You could target specific customers who aren’t being targeted by other businesses, or make something that’s easier to use than other available similar products.

If you’re starting a retail business, think about testing your idea by taking a short-term lease on premises for a few weeks or months.

Try out your product/service with a small group of pilot customers. Get their feedback, make any changes then re-test. This gives you a chance to develop your idea whilst still making some money to cover the costs of it. As long as you let the customers know this is a pilot phase and especially if there is a reduced cost for them you’ll find it easy generally to get customers willing to try it.


Market Research

You need to know who your customers would be and where your potential market is. Is there either a need for your service or product or can you build and big enough ‘want’ for it? Remember Customers don’t necessarily buy things they ‘need’; they’re more likely to buy things they ‘want’. Think about the supermarket shopping – how often do you come out with just the things you need and not other items you wanted?


Talk to people you feel match the criteria of potential customers. Get their opinion – but remember it is just that –an opinion, and as such is personal to them. What would they be happy to pay for your product/service?

Once you have your product you then need to look at getting it made.