1 million missed the tax deadline. Did they know they can claim 100% tax on a Tesla? Listen to lear

This week on the Silver Fox Entrepreneurs, we're going to be talking about tax, how much you can save through deductions as a self-employed person, and the impact of the new green car tax policy, which means that you could have a Tesla tax-free as your company car.

Welcome to the Silver Fox Entrepreneurs Podcast.

The show for mature men with enterprise. Simon Robinson, welcome to the Silver Fox Entrepreneurs Podcast. Thank you very much for joining us.

Thank you. Lovely to be here. Thanks. So I work for a firm of accountants based in Chippenham called Leslie Ward and Drew. I myself have worked here for just coming up on 10 years now, having previously worked for a top 10 firm and started my career there. Member of the Association of Tax Technicians and also Accounting Technicians.

Now, speaking of tax, of course, January 31st was filing. How many people managed to file on time, Simon? Share with us some statistics if you've got them.

The figures are— yeah, I think the Revenue are reasonably happy with the figures. So we've got So end of January filing, just over 11.7 million returns were due to be filed, and they believe that about 94% of those were filed online, about 700,000 of them on the last day, on the 31st. And for those who really like to leave it till the last minute—

Right.

About 26,500 in the last hour. And I did manage to find some stats from the previous year suggesting that the last ones to go in then had 17 seconds to go. So very, very much leaving it to the last second.

Wow, you can just imagine. And praying their bandwidth wasn't going to go offline at the last minute as well.

They did, however, have 1 million who missed it, unfortunately. So they have either filed since then or are still yet to do so.

And what happens then if people have not got the filing in on time, Simon? It always fills me with dread, to be honest, the whole tax thing. You help people with that sort of stress reduction. What can people do out there if they have missed the deadline?

Yeah, so my first piece of advice would be not to panic. I mean, ultimately it's happened. So what you're looking to do then is to rectify it as quickly as possible. You know, next tip would be if you're not comfortable doing it yourself, and possibly if you're one of those people who've missed it, that's the case, then, you know, do look to find an advisor or an accountant because for relatively low cost they can not only help you with that but hopefully help you throughout the year and along the way as well and make a lot of other suggestions which would more than cover the costs.

What are the costs? Is there a filing penalty?

There is filing penalties, yeah. So unless you fall into the category of reasonable excuse— this is the Revenue's definitions— reasonable excuse would really only apply to someone who had a hospital stay or family bereavement, or if they themselves have a technical issue, they let you off under those circumstances. They're less forgiving with your own technical issues, but there is an automatic £100 late filing penalty for the return. So that's if you go— if that person in the earlier example was half a minute later, they'd have got the £100 penalty just straight up. £100. If you then don't get your act together before the end of April, so 3 months later, you then start going into the nasty penalty regime, and that's £10 a day up to a maximum of £900. So we can potentially get to £1,000 of late filing penalty.

Wow.

But just before the end of June.

Wow, so really you do need to get your skates on, don't you?

You do, yeah, because it does get worse as well. So they then go on to sort of tax-geared penalties. So at 6 months and 12 months, you're then looking at 5% of the tax due or £300, whichever is the greater figure. So I do actually have an example of how bad this— just a sort of worked example of how bad this could get. So what I want What I've gone with is someone who had a £10,000 tax liability, not an unreasonable figure for someone who's self-employed. They don't file their tax return and they don't file it for the full year. So they decide to finally file on the 1st of Feb 2021 their return that was due now, the previous January. They also don't make that tax payment until the 1st of Feb, so both are a year late. £10,000 of tax, the total amount owing because of that lateness would then become £13,825. So it's very, very expensive. It's £2,000 for sending the return late, £1,500 for paying the tax bill late, and the £325, £326 of interest there. So it really can mount up.

Wow, that's expensive money. So the moral of the story is really to talk to somebody quite quickly. And what— where would people go then, Simon, to find an accountant like yourself?

Yeah, so there's various accountancy bodies. So there's obviously the 2 that I'm a member of, the Association of Tax Technicians and the Association of Accounting Technicians. Then there's also the sort of the next level up from that, if you want, the Chartered Institute of Tax and the ICAEW, so the Institute for Chartered Accountants. They would all have information and possibly lists on their websites, but otherwise it's a good old-fashioned Google search and You know, just, it obviously comes down to whether somebody would like to have someone that's local to them, if they prefer face-to-face contact, or if they're happy to deal with someone electronically. Obviously, that's a growing area for everyone as well. You know, you can have clients from quite far-reaching areas compared to where you're based, as, you know, we do. We can deal certainly with compliance work. We can deal with that Completely electronically.

Yeah, well, that is how you and I met, of course, when you were handling our affairs when we were in China, right? We were those people that were always behind. And what fees should people expect to pay? Is it based on, you know, how much they've earned or on how much time it takes, how complex it is? What's the sort of charging structure in the industry?

It should really be based on the time spent. Because obviously it wouldn't really be fair for someone to charge more simply because there's a couple of zeros extra on the numbers. So really, it's going to depend on 2 factors. One would be the level and sort of quality of the firm that you've gone to to do the work.

Mm-hmm.

And I think then the other factor would be level of complexity of that individual's tax affairs themselves. So obviously there's a big difference between—

Yeah.

Someone who might, might be working predominantly for one other business, maybe 12 invoices a year and a few expenses. That's a relatively straightforward case compared to someone who, who might have thousands of customers and lots of data to to work through. So, but obviously in both those circumstances, they, on the face of it, they're in the same scenario. They're in business in their own account, but it's a very different scenario.

And presumably a big part of the cost comes from being disorganized. And there are more and more of these services like Crunch that are kind of offering to keep your books up to date month to month. What's your view, Simon, on that? Because that does seem to be a large amount of the cost is where, you know, in December, people are January trying to collect all the old receipts and rush them across to you. So what's your view on what's best to use as a software, for example, or an approach?

I think software probably comes down to the user because the most important— there are lots of options on the software front. You've mentioned Crunch the Zero, QuickBooks, There's a lot of firms out there now, both new to the sort of bookkeeping and accountancy software and the previous desktop-based, very much accountant-based software providers are now also doing online cloud-based systems that people, you know, very much intended for the end user, the client, rather than their advisor. So really that, that comes down to how, how much you feel you can get out of it and, and how it might link in with your other software. You know, that often it's the case that if you're using another, you know, maybe a time recording piece of software or a payroll piece of software, you want them ideally to be able to talk to one another so that you can transfer the data across.

Yeah.

So they, they all do roughly the same thing. What's, what's important is Is, as you said, the approach is getting people to use them as they're incurring these costs, as they're raising these invoices.

Yeah.

Because the sooner you enter that information, the easier it's going to be. You, you've, you've just done the job, you— it's all fresh in your mind, you know what you were doing and when you were doing it. You can put all that information in there.

Yeah.

And then forget about it, essentially. Whereas if you're trying to do the catch-up, as you mentioned, in December, you had a pile of receipts, you don't remember what half of them are for. So the chance of making a mistake or missing something is much higher. And a lot of them give you sort of real-time data as well. So you can really monitor the performance of the business.

Yeah.

Much more accurately than you would do with just sort of bunging it all in a carrier bag and taking it in at the last minute.

Yeah, and do people know, do you think, what they can claim for? Because I've just moved back from overseas and I'm not quite sure of the expenses I can claim for. Can you give us sort of a top 10, top 5 ways that an entrepreneur can save money, or what can they claim for?

Yeah, sure. I mean, obviously it does very much depend on the nature of their business, but let's say they're away from the obvious stuff of obviously if you sell a product, obviously the cost of that product is there as one of your expenses. Let's say you're selling your time, some kind of advisory business. It's less obvious then what you can charge for. One of the easiest ones to charge for would be a use of home as office, if of course you do work from home.

And how much can you claim? Because I think a lot of people do— I do that a couple of days a week, for example.

Yeah, so with no evidence whatsoever, the Revenue, they give away various sort of rates and allowances. A lot of them are very historical and the The figures haven't been changed for a long time, so they don't always sound all that generous. But no evidence whatsoever, you can claim £4 per week use of home as office.

Wow, £4, right, so £600, £200 a year.

All of that, yeah. But, you know, in their defence, that's with no evidence. If you want to claim more, you can do, but you have to start thinking about, you know, calculating it properly on the basis of, like you said, length of time that you were working at home, floor space that you're using, and taking a proportion of all the bills. So it's a bit more of a convoluted calculation, but it's possible.

And can I charge for the desk and computer that I bought for the office at home and the camera and all those things?

So it would depend very much on whether you, or if it was a separate company, whether it was the company that owned the asset. So if obviously the company wanted to buy it, then yes, it could claim it as an expense. If you were buying a personal laptop and then using it for business some of the time, what you'd probably do is claim a proportion of that. Okay, and if you're a sole trader, what do you do if you're a sole proprietor? So that would be the case there. If you bought a laptop and let's say you bought 2 laptops, one's for personal use, one's for your business, in that case you could obviously claim 100% of the cost of the business laptop. If you just bought the one, you'd look at how often are you using it within the business? If it was 50/50, you could claim half of the cost of it. So it's just about sort of fair apportionment of the cost based on how long you were using it in that business.

And what about things like travel, car rental, leasing?

Yeah, so obviously any any sort of one-off travel cost, a taxi, a train fare, a hotel stay for a business trip, is fairly obviously allowable. If you were running your own car privately and doing business mileage, either as a sole trader or as a director shareholder of a limited company, you could claim a mileage rate. Now that one, That one can be quite lucrative. Obviously, it does depend on the vehicle that you're running, but it's 45p per mile for the first 10,000 miles, which an average, you know, sort of standard car, you should be able to run a car for that rate and maybe sort of make a few pence on that one. It's 25p after 10,000 miles, so it It does drop, with, I think, the logic being that obviously some of the fixed annual costs, like your road fund licence, your servicing, and insurance, drop away a little bit as you go into a higher mileage. Advice there would just be to keep a mileage log.

Is there a software for that, or is it you just keep an Excel?

I'm not aware of a standalone one, yeah. I mean, Historically, people have done it with, you know, maybe a notebook in the car because then it's with them all the time. But you don't have to record the whole mileage of the car if you don't want to. Obviously, that's a very definitive record. If you just wanted to keep a log of the business trips, that's fine. And I would, I would say, you know, perhaps a spreadsheet list, it would be absolutely fine for that.

And that's not going to and from the office, right? That's going out to a meeting from the office. You can't claim for the daily commute.

That's absolutely right, yeah. So that would be if you do have a base away from home. Obviously lots of people who work for themselves are based permanently at home, so for them it would be a case of pretty much all business journeys would start from home. If you are based elsewhere, you've rented some office space or whatever, then you're absolutely right. It starts from there effectively.

Okay, right, that's great. What else can we save? That's great, so we're racking up now.

Yeah, a little bit of a plug— accountancy costs. So if you did choose to appoint an advisor, obviously their costs, either paid by you as the sole trader or paid by the company, are allowable. So obviously that's useful in bringing that cost of that advice down slightly.

Yeah, and I think that's really worth pointing out, that actually it's an investment then, isn't it? There's no point saving money to get a cheap accountant because you can claim that money back against tax anyway.

The tax savings certainly helps, doesn't it? And as I say, I think if someone's in business by themselves and they don't have an adviser, I would be a bit disappointed in the advisor if they couldn't find some way to help them save them some time.

Yeah.

Point out something that they're not claiming, something there that they could help with. Because ultimately, particularly for your subscribers, they want to focus on doing what they want to do, not dealing with the compliance that has to come with that. It's better to focus on what you're best at and leave the other bit to someone else.

And what if people are in this position with this off-payroll working where some people are, if you like, almost semi-permanent but freelance with one employer? Could you just talk us through the changes to this new— what is IR35, Simon? Because that must be affecting quite a few people.

It stands to affect quite a lot of people, yes. So IR35 is a sort of revenue code, if you like, for a directive that they released some time ago, around about 2000, and it was basically to combat what became known as the sort of leave on Friday, start on Monday principle where employees would leave their employment and then rejoin, carry out exactly the same role, exactly the same task the next week. It's just that they would do it with a personal service company in between, so a limited company of which they're sole director and shareholder, and they invoice their previous employer via that company for the work that they're doing. That allowed them to extract their money rather than just having a potentially quite high salary and suffering the high tax rates upon that. They could shelter their earnings in the company and choose to take it as salary and dividends. They could adjust the rate accordingly. It saved them a lot of tax potentially.

Yeah, yeah.

In most cases. Now obviously—

So what's the new situation then?

So that's obviously not a great situation as far as the Revenue are concerned because it dropped their tax revenues, and I think also it doesn't really represent the true relationship. The true relationship continued to be one of an employer and an employee. What's happening more recently is that the IR35 rule, which was a calculation to try and bring those type of companies back into the— a bit more of the employer-employee situation, it's changing who is responsible for carrying out the assessment. So up until now, it's been the personal service company so the individual effectively, to sort of self-certify, if you like, and apply the rules. And as you can imagine, very few people have applied these rules to themselves, and it's very, very hard for the Revenue to chase it down. There's been infamous cases in the courts, and they just can't win. So what they've done is that they're now placing the emphasis on the engaging company to say you need to work out whether this person is effectively still an employee and whether these rules apply. And if they do, even if you're paying their personal service company, you have to treat it as if it's being paid as employment income. So what's going to happen there, of course, is all of the engaging companies who previously weren't interested in what happened taxation-wise. Right, it wasn't their responsibility before, right? Exactly, yeah. They could just pay the invoice, have the work done, they weren't interested. It's now become the case that they very much do need to be interested because they have to withhold the tax, they have to then pay that tax over to the Revenue, and they have to make submissions via their, their own payroll scheme about those payments. So it's, it's given them a real vested interest in, in getting it right, um, and it's highly possible that a lot of relationships that have gone on for a number of years in this way, that the payments are now going to have to change because they're—

Yeah, yeah. They're going to fall into this Well, presumably, yeah, and presumably some, some companies may almost throw their freelancers under a bus a little bit if people don't comply, right? Because otherwise they create a liability on their own books.

I think they, I think they, they'll have to. Um, that, and, and of course what a lot of them are, are doing to, to avoid the risk and, and the, the unknown, if you like, um, they're they're saying— they're sort of going back and saying, we just want to take people on as employees because then everybody knows where they stand and there's no risk of anything coming up in future. So it happened in the public sector first. So that's been going on for a while and we have heard of cases like with the BBC.

Yeah.

And ironically enough, the Revenue themselves, who were using a lot of contractors for their IT work, And, you know, they've either had to say, you're all coming back on as employees, or like in the revenue's case, they've really struggled to get stuff done because their entire IT and coding staff, of which they need quite a few, were all freelancers and they've all turned around and said, well, we'll go and work somewhere else. They obviously had that option, which is great for them individually, but for the revenue, It's left them a bit short.

Well, there's some irony. I didn't know that. So as a solution, should then sort of these people that are freelancers group together then to make proper companies? What would be a solution then for those people? Or is it simply they just have to file and maybe increase their prices? Presumably they're having to pay more tax now and getting net less income.

Yes, yeah, so the obvious and easy answer, albeit the expensive one, is to either accept an employment role if one's available, or as you say, to accept this change of calculation and either adjust the price or take the hit.

Right, and what would that be from a percentage point of view? Would they need to increase their price by 10%, 15%, 20%?

It's very hard to say, to be honest. It would depend on how much we were talking about. But I mean, income tax is your personal allowance and then 20% up to around about £50,000 of earnings, 40% thereafter until you get way above £100,000. Whereas dividend tax would be the same personal allowance, First £2,000 of dividends, no tax. And then instead of your 20% basic rate, it's 7.5%.

So a big difference, right?

Big difference, yeah. There's obviously the— if you've got the company entity in the way there, that does have a corporation tax bill to factor in as well. But then you don't pay National Insurance on dividends because that's the bit that a lot of people forget about when they talk about taxation is, you know, a basic rate taxpayer isn't really just paying 20%, they're paying more like 32% if you include the National Insurance, which is tax by all but name. So, you know, it does still work out that it's cheaper to do the, I'll take a small salary and the balance of dividends. from my own company rather than just a full salary. So it's still better to be in that status. Yeah, it can get very complicated.

So people really should seek some advice. And then is there something that you think that entrepreneurs could take advantage of?

So quite a topical one for me would be considering a switch to an electric car.

Tell me about that. That sounds—

From April, the rate for a pure electric car— so this is not hybrids for a second, they've got some different categories— but one that has no tailpipe emission at all will be 0%. So there will be no, effectively no benefit-in-kind value for next year for an electric car. So the company could buy that vehicle It would get 100% capital allowances on that vehicle. So in year 1, it would be able to set the cost of buying that vehicle against its profit, so it would save corporation tax. It would then provide it to you. Any running costs— tyres, servicing, etc.— can be paid for by the company. and claimed against corporation tax, and you as the individual would pay nothing in tax.

And does it apply to sole traders? So an individual sole proprietor could buy an electric car and then use the car and offset that against their income?

So they— it wouldn't work in quite the same way for them. They would still be able to claim the capital allowances against their business profits, absolutely. If the— but what you look for there, because obviously the business is still in their name, so, you know, they and the business are one entity as opposed to the business being a separate entity within the company. It would be a bit like the laptop example we had earlier on. It would be a case of looking at how much of the use of the car is personal and how much is business, and the capital allowances and the running costs would be apportioned So Simon, if people want to find out more about you and all the fantastic information you shared today in a very short amount of time, how can people find out about you? So they're more than welcome to give us a ring or drop me an email, srobinson@leslie.co.uk, which is L-E-S-L-I-E. wardanddrew.co.uk, and our telephone number is 01249 660088.

Simon, thank you very much for sharing so generously with the Silver Fox community, and we look forward to hearing from you again. For more information about our entrepreneurial community, visit silverfoxentrepreneurs.life.