Thanks for the response, of course if i could AFFORD an accountant i would take it, but its a luxury I cant afford!.... Im doing the self assesment thing, Ive always deducted the diesel before? I might well be using the wrong phrases but im sure you know what i mean????
Ive always been told to keep all my receipts and then claim back the VAT? is that not right then?... What SHOULD I do? and yes I have to do it my self!
The word "
claim" appears to be confusing things, as there are two taxes involved: VAT and Self-Assessment (income) tax.
1.
VAT:
To "
reclaim" the VAT on purchases, the business must register for VAT with HMRC. This (usually) means charging VAT on sales to customers and claiming back VAT on purchases. This in turn (usually) results in VAT being paid over to HMRC every quarter. In this case, when you are doing the taxation computations, you only deduct the net amount of any expenses (e.g. diesel costs, excluding the VAT element) from the total net sales, and tax the resulting profits.
2.
Self-Assessment (income) tax:
If the business does
not register for VAT with HMRC (and when sales exceed £67k in any 12 month period this is compulsory on pain of financial penalties), then the VAT becomes part of the expenses of the business. All the expenses (e.g. diesel costs, including the VAT element) are all deducted from all the sales, to yield profit which - as Jenni said - is taxed as self-assessed income. In a sense, therefore (I suppose), you are "
claiming" the deductions.
The confusion between 1. & 2. above is understandable (if you are forced to do the returns yourself) and it is a nonsense to say that tax doesn't have to be taxing. The only people who can take the difficulty out of tax are the ones making it more complex: Gordon Brown & co!
So, assuming only 2. above applies to you, is it possible you have deducted from sales the full (VAT-inclusive) amount of the diesel receipts, then deducted the VAT total again? If so, this is an error and if HMRC ever check, you could be penalised for the error on top of the additional tax liability to be repaid to HMRC when the error is corrected. Fortunately, there is no VAT on car insurance or road tax, so you should have deducted the correct amounts for these.
As for the receipts, you should keep them as evidence of the expense, otherwise HMRC might say that you are not allowed to deduct the expense from the sales (resulting in higher profits and therefore a higher tax liability). If you are or ever will be VAT registered, you will also need your receipts as evidence for your 3-monthly VAT returns.
Hope that helps?
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PS: as for using an accountant, the other respondants here are probably right that it will save money in the long run - mainly using the information in those leaflets that have confused you. But I can see that the fees are a concern. Perhaps a good idea would be to visit a few local accountants and ask for a "fee quote" for doing different things. If they have nothing to offer you or the price is too high, you can then just walk away. But you might also be pleasantly surprised ...
