It’s Friday night down the pub and you’re on your second pint of Tennent’s. You’re busy chatting about the work week and your pal pipes up with some advice on expenses.
“My accountant says it’s fine to put your summer holiday down as a business expense.”
The thing is, it’s absolutely not fine in the eyes of HMRC. We’ve heard of clients being told it’s okay to claim sofas, shopping bills, lawnmowers and even the home window cleaners costs as business expenses.
If you follow your mate’s advice, you run the risk of your business being subject to serious fines and sanctions. So here is why you should heed this advice – don’t take accounting advice from your mate down the pub.
HMRC has strict criteria for business expenses.
Let’s first look at why people want to put all kinds of weird and wacky expenses through their business. Ultimately, the more expenses you have, the lower your profit will be and the less tax you’ll have to pay.
If you’re scratching your head over whether something can be categorised as a tax-deductible expense, remember the ‘wholly and exclusively’ rule:
In order to qualify for tax relief, the expenses you incur must be wholly and exclusively for your business and must be necessary for its operations.
In other words, summer holidays do not count! Only costs directly related to your business activities and devoid of any personal benefit can be claimed. For more examples of what can and can’t be claimed, check out our blog “What counts as an allowable expense”.
Wrongly categorising business expenses will come back to bite you.
Aside from tax investigations being time-consuming and inconvenient, if HMRC finds anything dodgy in your expenses, you can expect hefty fines and penalties. The ultimate sanction is a fine equalling 100% of the tax, on top of having to pay the actual tax.
For example, if you try to save £2000 in tax by submitting deliberately misleading business expenses, you’ll have to pay the £2000 tax PLUS a further £2000 penalty on top.
That’s not all. Once you’ve got a black mark against your name, HMRC will be all over your business. It’s a prompt for them to lift the lid on everything that goes on. What started as an investigation into corporation tax will soon turn into them delving into your payroll, VAT, personal tax affairs and your own income.
In short, they’ll try to make an example out of you. Taking a shortcut to save a couple of thousand pounds will ultimately cost you so much more. It’s just not worth it.
You wouldn’t take legal advice from people down the pub.
If you were speaking to your mate who knows a bit of legal stuff, you wouldn’t take his advice on what to do about a dispute over some land in your garden. You’d seek the expertise of a qualified lawyer, gaining total certainty from their experienced perspective on your circumstances.
The law is black and white. There are lots of ways accountancy is too, especially when it comes to what can and can’t be claimed as a business expense.
There’s a lot at stake if anything goes wrong with HMRC, and you need to seek the most reliable, qualified advice to protect your business against anything that could derail it. So – please don’t take accounting advice from your mate down the pub!
You can’t verify where they’re getting their information.
As a business owner, you want to be able to sleep at night knowing you haven’t cut any corners. No matter how much you trust your pal or how good his intentions are, you never know how reliable his accountant is.
He might be getting advice from an accountant who isn’t suitably qualified and who’s inexperienced in expenses. They might actually only specialise in bookkeeping. In fact, he might not even have an accountant.
By going to a qualified accountant, you’ll have total peace of mind you’re getting the best advice. You won’t have any nasty surprises from HMRC. Don’t take accounting advice from your mate down the pub.
Assume HMRC will investigate your business.
When we take on a new client, we encourage them to be of the mindset they’ll have a tax investigation from HMRC at some point. If it never happens, great. If it does, everyone’s ready for it.
Tax investigations can happen for a few reasons:
- HMRC chooses businesses at random, and yours could be one of the names they pick.
- If your company experiences rapid growth, HMRC will want to have a look to make sure everything’s above board.
It’s also in the accountant’s best interests to ensure you breeze through any HMRC investigations. The old misconception accountants will help hide things from the tax man couldn’t be further from the truth.
All qualified accountants are registered with a professional body, with whom they have to stay compliant (in fact, we had our latest compliance visit recently). If the accountant advises you to take shortcuts or give iffy advice, it’ll come back to bite them, too.
Following advice from qualified, experienced accountants will ensure you have nothing to worry about when HMRC come knocking.
Rely on experts, not anecdotes.
When you’re a One Accounting client, you have access to our team of qualified experts as your sounding board. You don’t have to rely on your mate at the pub.
If you hear whispers of “I swear this can be put down as an expense” or “HMRC won’t notice if you do this”, run it by us. No extra cost; all queries you have are wrapped into your monthly fee.
You deserve total peace of mind. Get in touch with us to get started.