Filling the Self Assessment Tax Return Detailed Profit and Loss Account
A self employed business enters the income and expenses on page SE1 of the self assessment tax return form if the total sales of the business for the financial year were less than 15,000 pounds. Only the totals of turnover, expenses and net profit are required.
When turnover exceeds 15,000 pounds totals are required of the sales and business income and then deducted from that total the cost of sales which is split into three categories of expense. Cost of sales is the direct costs of purchases which are resold, these purchases usually being physical materials but should also include any services which are bought for resale.
In particular reference to taxi drivers and haulage contractors the vehicle costs would be included in this cost of sales category as the items being resold are transportation costs. Other types of business who principal business is not the resale of transport would enter vehicle running costs in the motor expenses expense category. Another example would be an IT consultant who purchased and installed software for clients and would enter his software costs as a cost of sale as that is the service they are reselling while other businesses would enter software costs in general administration charges.
Subcontractors costs is the second category while other direct costs makes up the third area of the cost of sales. Other direct costs is a useful category in which to include all costs of the business not analysed elsewhere which are basically the costs of operating the business other than items being purchased for resale. The difference between the turnover and the sum of the three costs of sales categories is the gross profit.
Other income and profits is where the business would enter such items as rental income or for start ups taxable new deal payments. Bank interest would not go in this box as nit can be entered elsewhere on the tax return. Also business start up grants and enterprise allowances would not be entered in this box as there is a separate box in which to enter these receipts.
The remaining and main body of the inland revenue self assessment tax return form concerns an analysis of the expenses. The majority of the expense categories are self explanatory in the title. Additional expense analysis other than the prescribed headings on the self assessment tax return is unnecessary for the vast majority of self employed business.
Employee costs include the wages, salary, pension and employers national insurance contributions for all employees. Also include in this section any costs associated with employees such as recruitment fees and staff benefits. Excluded are the self employed own wages and taxes as these are not included in the inland revenue self assessment tax return form at all being a distribution of net profit after tax not a tax deductible expense.
Premises costs would include rent, rates, gas, electricity, power costs and items associated with the business premises such as property insurance. Also included in this section would be the portion of home costs being claimed as business expenses. Household expenses can be claimed as business expenses to the extent that the costs represent the proportion of the home that is used exclusively for business purposes.
Repairs include the repair, maintenance and renewal of plant and machinery. Vehicle repairs would not be entered in this category but in the motor vehicle category.
General administrative costs telephone, postage, stationery and general office expenses. Also in this section would be included all other general operating costs of the business not entered elsewhere.
Motor expenses include the running costs of the vehicles being fuel and oil, repairs and maintenance, tax and insurance, parking charges and membership of breakdown services. Parking fines should not be included as these are legal fines and not deductible expenses.
Travel and subsistence includes all travel costs excluding those included in motor expenses. Typically these items would be air and train fares, toll fees, hotel costs and subsistence costs incurred on business journeys. Receipts should be presented for all subsistence costs claimed where possible.
Advertising, promotion and entertainment expenses include all types of expenditure related to the promotion of the businesses products. Entertainment of clients to obtain business is allowed while the entertainment of staff is not and is a disallowed expense on the self assessment tax return.