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only companies, so do get in touch for advice in this area.
Claiming expenses
You will pay tax on your taxable profits, so a crucial element of tax planning is to claim all deductible expenses, many of which will be included in your accounting records.
If you are self-employed and carry on your business from home, you can claim tax relief on part of your household expenses, including insurance, repairs and utilities. You may also be able to claim for the cost of travel and accommodation when you are working away from your main place of business, so you should keep adequate business records, such as a log of business journeys. In addition to ensuring that your accounts are accurate, these records may also be requested by HMRC.
As part of Making Tax Digital for VAT, most taxpayers are required to use an appropriate computer package to aid concise and effective record-keeping and to enable them to meet their Making Tax Digital and VAT obligations. We can advise you on suitable software to meet your business needs.
You may also wish to consider the optional cash basis for calculating taxable income for small businesses, which allows eligible self-employed individuals and partnerships to calculate their profits on the basis of the cash that passes through their business. Businesses are eligible if they have annual receipts of up to £150,000 and they will be able to continue to use the cash basis until receipts
reach £300,000. Allowable payments include most purchases of plant and machinery, when paid, rather than claiming capital allowances.
Unincorporated businesses are able to choose
to deduct certain expenses on a flat rate basis. However, this is worth discussing before opting for it, as the flat rates are not generous.
Capital allowances
‘Capital allowances’ is the term used to describe the deduction we are able to claim on your behalf for capital expenditure, such as business equipment, in lieu of depreciation.
Annual Investment Allowance (AIA)
The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on a portion of expenditure on most types of plant and machinery (except cars). The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims.
The AIA temporarily is currently £1 million but will reduce to £200,000 from 1 April 2023. Businesses with accounting periods which straddle 1 April 2023 will need to calculate a hybrid allowance using
the two rates. It is therefore important to time the purchase of plant and machinery carefully, in order to make the most of the increase.
Businesses are able to allocate their AIA in any way they wish, so it is quite acceptable for them to set their allowance against expenditure qualifying
for a lower rate of allowances (such as integral features).
Plant and machinery – super-deduction
Between 1 April 2021 and 31 March 2023, companies investing in qualifying new plant and machinery benefit from first year capital allowances.
Under this measure a company is allowed to claim:
• a super-deduction providing allowances of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances
• a first year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances.
This relief is not available for unincorporated businesses.
Writing Down Allowance (WDA)
Any expenditure not covered by the AIA or super- deduction generally enters either the main rate pool or the special rate pool, attracting WDA at 18% and 6% respectively for 2022/23.
The special rate pool applies to higher emission cars, long-life assets and integral features of buildings, specifically:
• electrical systems (including lighting systems)
• hot and cold water systems
• space or water heating systems, powered systems of ventilation, air cooling or purification and any floor or ceiling comprised in such systems
• lifts, escalators and moving walkways • external solar shading.
Business Tax
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