Murray Associates Accountants Limited: Queen of profit, Gloria Murray.

Murray Associates


The ‘Queen of Profit’ answers your questions

This edition I received two questions from a lady who is in the process of setting up in business. I thought the questions are relevant to anyone in the same circumstances, so I’ve answered them both. The answers are generic as your individual circumstances really matter. So please do take specific advice on this from a good accountant..

Q: What expenses can I claim against tax if I’m working from home

That will depend on whether you’re a sole trader or the director of a limited company. I don’t want to complicate matters by going into real detail, so will keep it as brief as I can. As a sole trader you can apportion your household costs by your percentage of business use. So you could claim a portion of telephone/broadband, heating/light, mortgage interest, insurance etc. The one caveat is to ensure your room is not used 100% for business as this could prevent you getting your principal private residence exemption for capital gains tax if you sell your house or flat. Any equipment or furniture you buy specifically for business can be claimed too, but this needs to be done through the capital allowances section in your tax return.

As a limited company you are an employee of the company and the company is a completely separate entity from you. You have to behave as if you are an employee and there are certain things which could be seen to be a benefit in kind (which you’re taxed on). You can claim a flat rate of £4 per week and any other costs (like telephone or broadband) if the bill is in the company name and it’s used for business purposes. If it’s used both for business and personal (like household insurance) then you can’t claim it. However if you had specialist insurance just for the office part and this was in the company name it would be allowable.

Q: What structure is best for my enterprise – sole trader, partnership or limited company?

There are a lot of factors to take into consideration before deciding what is the best option for you. In general becoming a sole trader or partnership is the easiest option as you register with HMRC any time within 3 months of starting to trade (making sales). There is less paperwork to do and you do not have to register with Companies House (unless you are setting up a Limited Liability Partnership). As a partnership you are liable for any debts your partner may run up, so it’s important to have a partnership agreement. There could be tax advantages to starting as a sole trader or partnership initially, but this depends on individual circumstances.

As a limited company, the director has specific duties to fulfil and the company must register at Companies House. The accounts and an annual return must be filed each year by a specific time and if the accounts are late you will be fined. The fines start at £150 and rise to £1,500. As a small limited company forget about limited liability in your first few years of trading – most suppliers and all banks will ask for a director’s guarantee before giving you credit. There can be tax advantages to being a limited company, but this depends on individual circumstances.

As you can see, tax is taxing and I can only scratch the surface on both topics. Please get individual advice from an accountant specialising in small business. I have a specific service aimed at new start business, it’s called SureStart and its aim is to get you off to a flying start.