The title of this posting describes an important concept when considering claims for expenditure to reduce our tax bills.

By and large, HMRC will accept claims that have been expended wholly and exclusively for the purposes of running a business or fulfilling your employment obligations. But what does this phrase actually mean?

Certainly, if you are making claims based on your employment: subscriptions to professional bodies, travel costs, the cost of uniforms, all of which you have paid for, may qualify for a claim. Pound for pound these expenses will reduce your income subject to tax and your tax liabilities.

Obviously, if your employer or business has met the costs, you cannot make a further claim.

There are certain categories of expenditure that can be recovered in this way. For the self-employed they include:

• office costs, e.g. stationery or phone bills
• travel costs, e.g. fuel, parking, train or bus fares
• clothing expenses, e.g. uniforms
• staff costs, e.g. salaries or subcontractor costs
• things you buy to sell on, e.g. stock or raw materials
• financial costs, e.g. insurance or bank charges
• costs of your business premises, e.g. heating, lighting, business rates
• advertising or marketing, e.g. website costs

The test you need to apply is always: is the expenditure incurred wholly and exclusively for the purpose of your trade or employment.

HMRC recently published a list of the more outlandish claims they received as part of the 2014-15 tax returns. They included:

1. Holiday flights to the Caribbean
2. Luxury watches as Christmas gifts for staff – from a company with no employees
3. International flights for dental treatment ahead of business meetings
4. Pet food for a Shih Tzu ‘guard dog’
5. Armani jeans as protective clothing for painter and decorator
6. Cost of regular Friday night ‘bonding sessions’ – running into thousands of pounds.
7. Underwear – for personal use
8. A garden shed for private use – plus the costs of the space it takes up in the garden
9. Betting slips
10. Caravan rental for the Easter weekend.

Readers who are uncertain if the costs they have incurred can be included in their business accounts, or claimed by employees on their tax return, should call for advice. Although the wholly and exclusively rule applies in most cases, there are situations where the “exclusivity” part can be more of a grey area, for example where there is business and a private use element.

We have advised readers in previous postings that HMRC seem to be intent on digitising the upload of small business accounting data from April 2018. From this date, affected self-employed traders (including landlords) will be required to upload details of their trading activities on a quarterly basis.

On the 31 January, HMRC responded to the consultation with interested parties regarding the way in which the MTD process will work in practice.

Many of the initial features remain unchanged:

• The self-employed will be required to file from April 2018.
• The lower income limit above which filing will be compulsory remains at £10,000 – although we are likely to see an increase in this figure when the legislation enacting MTD is published in the Finance Bill March 2017.
• Traders will need to keep their accounting records in a format that can be uploaded to HMRC. Hopefully, spreadsheet templates and other small business software will be available, but traders will need to ensure that they are organised and ready to comply by the April 2018 start date.

Once the MTD process is activated, the need to file a self-assessment tax return each year will be discontinued. It will be replaced by the four quarterly uploads and an annual final check to ensure that all relevant reliefs and adjustments to accounts data are in place.

This is a huge change in the reporting of information to HMRC. As the April 2018 date approaches we will be working with clients to ensure they are fit for purpose. More than 600 accounting software providers are working with HMRC to ensure that their software will accommodate the uploads to HMRC.

Clients who are concerned by this change and want advice on the implications for their business are welcome to call for an update. Please bear in mind, that until we see formal legislation on this topic later in the year the precise details of who is affected, and how the upload process will work in practice, are still uncertain. What seems to the case, is that we have moved a step closer to Making Tax Digital.

HMRC have the following advice to offer:

“You may be able to claim tax relief if you have to use your own money for travel or things that you must buy for your job. You must have paid tax in the year you spent the money. How much you can claim depends on the rate you pay tax.

You can only claim relief on things that are used just for your work, and which you don’t use in your private life.

You can’t claim relief on things you’ve spent money on if your employer has already provided you with an alternative.

You must keep records of what you’ve spent, and claim within 4 years of the end of the tax year that you spent the money. If your employer has paid back your expenses, you can’t claim tax relief.”

Expenses that you may incur and that you can claim back include:

1. Uniforms, work clothing and tools.
2. A mileage allowance for the use of your own car on business trips (but not home to work mileage).
3. If you have a company car but you have incurred running costs that your employer has not reimbursed, then you may be able to make a claim.
4. You may be able to reclaim business travel expenses that have not been reimbursed. For example:

1. Public transport
2. Hotel accommodation
3. Food and drink
4. Congestion charges and tolls
5. Parking fees
6. Business phone calls

1. You may also be able to claim for the cost of approved professional fees and subscriptions.

This is by no means an exhaustive list. And if you feel that you may have a claim we would be happy to advise.

HMRC seem to be developing a sense of humour. This is a list of failed claims for expenses that they recently published on their website:

1 February 2017 – Due date for corporation tax payable for the year ended 30 April 2016.

19 February 2017 – PAYE and NIC deductions due for month ended 5 February 2017. (If you pay your tax electronically the due date is 22 February 2017)

19 February 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2017.

19 February 2017 – CIS tax deducted for the month ended 5 February 2017 is payable by today.

1 March 2017 – Due date for corporation tax due for the year ended 31 May 2016.

2 March 2017 – Self assessment tax for 2015/16 paid after this date will incur a 5% surcharge.

19 March 2017 – PAYE and NIC deductions due for month ended 5 March 2017. (If you pay your tax electronically the due date is 22 March 2017)

19 March 2017 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2017.

19 March 2017 – CIS tax deducted for the month ended 5 March 2017 is payable by today.

The end of January, self-assessment filing deadline, and the approaching tax year end seem to stimulate fraudulent activity focussing on tax issues.

In particular, increasingly convincing attempts are made to get tax payers to part with their personal bank details or other personal information for nefarious purposes.

HMRC will never ask for your personal details, particularly your bank or credit card information, by email. Accordingly, if you receive an email requesting this sort of data do not respond.

On their website HMRC confirm that they will never use texts or emails to:

• tell you about a tax rebate or penalty
• ask for personal or payment information

They also advise that you should forward suspicious text messages to 60599 or forward suspicious emails to HMRC’s phishing team at phishing@hmrc.gsi.gov.uk.