Bitsy

Join us on Wednesday, January 26th at 2pm for a live Q&A with plain-speaking accountant Emily Coltman.

Post your questions for Emily here, and keep hitting refresh to see Emily’s responses.

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Another stray question, Emily! This time from Lorraine:

“Hi Emily, Sorry I won’t be able to join in at 2pm due to prior commitment but I would like to ask a question if that’s okay? I wanted to know about how depreciation (I know, I know, I hate this!) is applied and shown in the accounts when purchasing an item of capital equipment e.g. a computer. Assuming the full expenditure of the item is shown in first year, what then happens in subsequent years?

“Hope that question makes sense and look forward to reading your reply later today. Many thanks.”

Hello all!

Let’s dive in to the early questions!

@Claire: If you don’t have a dedicated “home office”, then you can claim a proportion of the running costs for your home, including:
– Rent if your home is rented
– Mortgage interest (but not capital repayments) if it’s owned
– Council tax
– Electricity / gas
– Water
You need to work out how much is a reasonable percentage, using a ratio such as the number of hours you spend working and the number you spend not working, and the number of rooms you use for work.
So say you have 10 rooms in your house, and you think you spend about 40% of your time working in your spare room, you’d add up all the costs listed above and multiply by 0.1 and then by 0.4 – and claim that amount.
Make sure you use real billed costs not estimates or HM Revenue will jump on you!

@Lorraine: When you buy a computer, you’re usually entitled to claim full tax relief on it in the first year under Annual Investment Allowance – but that’s different from depreciation in your accounts. Depreciation is intended to show how the value of the asset is used over a number of years. So if you think the computer’s going to be useful in your business for 3 years, you’d post a third of the cost of the computer as depreciation in the first year, a third in the second and a third in the third year.

@Tom: Rather than multi-currency you’d need to think about:
– Who are your customers – businesses or individuals? It sounds like it would be businesses but would they be registered for VAT? If they are then it wouldn’t be an extra cost to them if you registered, if they’re not then it would be an effective price increase to buy from you if you registered.
– Where are your customers? It sounds like a lot of your customers are overseas so your sales would be zero-rated or out of scope to them anyway.
– As you have minimal costs (and therefore not much that you can reclaim VAT on) then it could well be more aggro than it’s worth to register for VAT.
– If your taxable sales go over the current limit of £70,000 a year in a rolling past 12 months or are going to go over £70,000 in the next 30 days you’ll have to register anyway.

Just a quick introduction while I’m waiting for the next question to come in!

I’m Emily Coltman, chief accountant to FreeAgent http://www.freeagentcentral.com where we make online accounting software that aims to take the pain away from bookkeeping for small service-based businesses, freelancers and contractors.

I’m here to answer your questions about accounting, tax, bookkeeping and the like – so fire away!

M

Thanks for the introduction, Emily! And for the question, Clare. If this conversation slips onto a second page, and you’re looking for the latest response, you should start to see some page numbers at the top and bottom. If you need any help you can contact me through my Bitsy profile (by clicking on my ugly mug to the left!).

Hello Clare!

HMRC have some FAQs here http://www.hmrc.gov.uk/yourquestions/index.htm#4 and their self assessment helpline is 0845 900 0444

They won’t let you know if you make a mistake, that’s unfortunately why it’s called “Self Assessment” – they expect you to get it right, which can be a tall order!

If you spot that you’ve made a mistake, here’s how to correct it http://www.hmrc.gov.uk/sa/correct-repay.htm

HM Revenue are much more likely to impose interest and penalties if you deliberately hide income or increase costs than if you just make an honest mistake.

My suggestion is don’t panic!

Can I ask a question, Emily? And it’s another one about expenses: travel. Sometimes when I travel for work, like seeing Emma in Shrewsbury, I stay at my mum’s house. Does this mean I can’t count it as a business trip?

Go ahead, San!

If the purpose of your trip is to visit Emma, then yes, you can count it as a business trip, and claim the cost of your train journey and any food or drinks you had on the train.

What HM Revenue look at is why you made the journey.

If any of the costs are definitely private, e.g. taking your mum out to dinner, then you can’t claim those costs. But any costs that were for business, can be claimed.

Ideally, make sure you can clearly define which costs were for business and which were personal.