I saw on Facebook; my mate down the pub said; on Google; my dad said; and so on – we hear these all the time. Here we explain why these statements rarely lead to sound advice!!
Myth 1. Flat rate VAT earns more money!
Well, this used to be true, however HMRC cottoned on to the fact that many companies were abusing this loop hole and stopped it in 2017. The rules have now changed, and flat rate VAT is now very unattractive, and most companies actually lose if they use this scheme now. We have switched 99% of our clients over to standard VAT accounting now, and no longer recommend this scheme.
Myth 2. When going VAT registered you can go back 4 years and claim for backdated purchases.
Well, yes – you can claim for products purchased in the last 4 years if you still own them, plus 6 months for any services purchased. HOWEVER, if you have already had tax relief on the whole cost – i.e. you’ve included the cost in a previous accounting period and tax return, then you’ve effectively already had the benefit of the VAT part of the cost. The cost to re-do your accounts & tax returns, plus doing the actual VAT return would actually be more than you would get back – the process will cost you money. Therefore, unless you are a brand new business but have previously bought items within the set timeframes, we do not include any back dated purchases on your first VAT return.
Myth 3. You can include purchases of clothes in your tax return.
Not quite true! Generally clothing is not an allowable expense. However, there are a few exceptions. If you provide a uniform or costume as part of your business then these can be claimed. Logo’d clothing is also an allowable expense. Protective clothing, i.e. safety helmet, high vis jacket, steel toe cap boots, aprons, etc can also be claimed as an expense.
Myth 4. Dividends are included in expenses.
This one is not true at all unfortunately. Dividends are taken out of the profits left after corporation tax is paid.
Myth 5. You can put all your food and drink expenses through your company.
Food and drink has always been a tricky one, as HMRC argue you need food and drink to live, therefore it is not an allowable expense. However there are a few occasions when you can claim the costs as an expense.
At your home or office – if you are the sole director and employee then you can’t claim the cost of food and drink you buy for when you are working at home or in your usual office. If you do have employees you can claim the cost of basic food and drink for them, and free meals at a canteen – as long as they are available to all staff.
While travelling – you are able to claim for food and drink when you are travelling for work, or for when you are staying away from home overnight for business purposes.
Below is a handy infographic to help determine if you are able to claim your food and drink costs.
If you’re interested in working with PPF and learning more about what you can and can’t do with your company expenses please complete this quick questionnaire, then at the end there is a link to book a discovery call with us.
