Finance: tax returns deadline looms

The annual tax return is due by January 31 each year and is based on the profits you make in the 12 months to April 5 the previous year. Payment is also required in full by January 31.

The question for self-employed licensees is whether they try to do it themselves or engage the services of a licensed trade accountant. Whatever you decide, you should bear in mind a number of common mistakes made by publicans in calculating their tax liability - it could save you a lot of money!

Claiming capital allowances on fixtures and fittings​

A percentage of the cost of in-goings may be written off each year from the bottom line. Any depreciation deducted as an expense should be added back and the correct capital allowance written off. Some IT-related items may be fully written off in the year of acquisition. This deduction is frequently omitted or not claimed in full.

Capitalising small items​

Most licensees will capitalise small items rather than write them off as repairs. However, items below a certain figure, say £100 to £250, may be written off as an expense in the year of acquisition.

Claiming petrol costs rather than business mileage​

It may only cost a fiver for three or four trips a week to the local cash & carry, but HM Revenue & Customs permit a 40p a mile claim. Even if you do only 20 business miles a week it's worth claiming mileage. Keep a log of your trips for a month and use it as typical for the whole year, deducting the expenditure from your profit.

Claiming interest on borrowed funds​

New licensees taking on a lease often remortgage their private property to do so - but they do not always claim the interest element as a business expense. Borrowings that can be directly linked to the financing of the pub property is an allowable business expense.

Re-analysis of sundry expenses​

Spending that does not neatly fit into an expense heading is usually posted as sundry expenditure. But a high figure here may trigger questions from HM Revenue & Customs. Better to look through the account at the end of the year and re-post larger items elsewhere.

If you decide to hand the job over to a licensed trade accountant there are some areas where a professional can offer specialist help.

Reconciliation of turnover​

Most licensees have their VAT quarter date coterminous with their tax year-end. This enables HM Revenue & Customs to match declared annual net sales in the accounts to what is reported in the four VAT returns. Any significant discrepancy might trigger further investigation. An accountant will make sure your annual turnover agrees with the figure in your VAT returns.

Reasonable gross profit margin​

HM Revenue & Customs will expect certain wet and dry margins dependent on location and whether your trade is fully tied, partly tied or free of tie. A licensed trade accountant will ensure your gross profit margin is right for your area.

Private apportionment for own consumption​

Licensees often forget to adjust their accounts for private consumption, which can distort your reasonable gross profit margin. Grossing up for this often returns your wet and dry trades to acceptable margins.

Private apportionment for accommodation and related costs​

Typically a licensee's rent will include 10 per cent for their private accommodation and the same percentage is applied to utility bills and other costs where a private element needs to be added back in the tax computation. However, the typical licensee may only be using their private accommodation for a third of the day so the amount to be added back may be less than 10 per cent. A specialist accountant will legitimately reduce add-backs and minimise the tax bill.

Peace of mind​

For around £200 if you are a sole trader, or £300 for a partnership, a licensed trade accountant will review a set of accounts and compute your tax in a way that should avoid unnecessary queries from HM Revenue & Customs. Peace of mind is delivered for a relatively small charge that is often exceeded by the licensee's tax savings.

Mike Marsh is a partner at Swindon-based Accounting for Hospitality, which specialises in licensed trade accountancy, in particular for newcomers to the pub trade​

www.accounting4hospitality.co.uk​