If you are in business you can claim tax relief on your business expenses. The difficulty many business owners face is working out what and how much they can claim.
HMRC publishes guidance for business owners together with its internal instruction manuals online. However, you will find that that there are five problems in placing undue reliance on HMRC:
You need different types of guidance depending on whether you are a sole trader, partnership, company or an employee. The precise tax treatment of expenses differs depending on your trading style: each is covered by different tax rules.
If you are a sole trader and you make a loss when you start trading, you may carry it back against your income of the previous three years. If you start trading via a company you may only carry forward your opening year losses.
HMRC's manuals reveal only HMRC's interpretation of current tax law. The courts often disagree with HMRC.
A business owner followed HMRC's manuals and he claimed tax relief on travel and accommodation when working away from home. HMRC investigated his tax return and its officer disagreed that the manuals applied and disallowed all the expenses. The Tax Tribunal also ignored HMRC's manuals; it decided that some expenses were allowable.
Tax law does not stand still; it continually evolves according to the decisions of the courts so there is always a time delay in HMRC updating its guidance following any changes. In any case, HMRC always has a tendency to be highly selective about which cases it does include in its manuals.
The First Tier Tax tribunal hears hundreds of cases per year, although the tribunal may often refer to previous decisions made by it, HMRC may only include in updates to its guidance decisions that it wishes to be bound by.
HMRC may allow a tax deduction for certain expenses by concession. A concession is something decided upon by HMRC informally; generally a concessionary treatment is made available because someone once decided that it would make a certain aspect of tax run more smoothly. If you wish to rely on any of HMRC's concessions and HMRC decides it does not, you cannot appeal the matter to the Tax Tribunal. This is because of course, a concession is not tax law.
If you run a B&B you may sometimes obtain a local ruling from HMRC with regard to add-backs for private use: HMRC does not publish them and they are by concession only - if you can still find a local office.
Sometimes HMRC will allow tax relief on different types of flat rate expenses. There will nearly always be an additional restriction that accompanies that type of tax treatment. This means that a business owner will need to weigh up whether it is more beneficial to claim a flat rate or an actual expense. HMRC does not do the calculations for you and it may take several years for you to release that you have made the wrong choice.
If you claim HMRC's autorised mileage allowance you cannot claim capital allowances on your vehicle. You may find that you have lost out on a large balancing allowance when you dispose of the vehicle.