Untangle those tax websites
THE JULY 2013 meeting of London Freelance Branch will hear from accountant Eric Longley about the ins and outs of tax for freelances. To get us warmed up, Humphrey Evans produced a quick guide to some of the advice out there.
FREELANCES WHO like doing their own tax returns, if "like" is the appropriate word, continually seek out advice on what they can and cannot claim as allowable expenses. One of the wonders of the tax system is that no one, not even top level tax accountants, ever seems able to give a definitive answer, but anyone can throw in their two-ha'pence and argue the toss if they feel like it. It helps, however, to have some idea of what underlies the decision-making.
What follows is not tax advice - far from it - but it gives you a starting point and some websites to trawl for guidance. If there is any advice it is this: don't try to get clever with Her Majesty's Revenue and Customs.
A good place to start is with www.which.co.uk/money/tax/guides/tax-for-the-self-employed . That gets you into the appropriate area of the Which? magazine website and opens up things like their tax calculator.
You'll find a list of the basic kind of things that might be taken to be tax allowable expenses - but once you start working out how these apply to your own situation you're going to come up against the concept of something being "wholly and exclusively" a business expense and whether wholly and exclusively for part of the time is an arguable concept.
You'll also come up against the notions of allocating a proportion of the costs, say when you're working from home, and of indivisibility, where you can't split costs proportionally because it's just you doing stuff.
The Revenue itself provides a wide-ranging description of allowances and reliefs available to the self-employed at http://www.hmrc.gov.uk/incometax/relief-self-emp.htm and goes into greater detail on expenses that can be claimed at http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf.
You'll still find, however, that all these categories require interpretation, and that's what sends you off in search of more specific examples which give you a sense of how things apply to a real working life.
One such website is http://taxaid.org.uk/situations/self-employed/expenses-with-private-and-business-use. This gives an instance of a self-employed painter travelling by train from Oxford to Edinburgh to see a client and then staying on for a week's holiday. Any freelance, whether writer, reporter or photographer, can see how that might come about. The unfortunate kicker is that it says that because there is no separately identifiable cost it is not permissible to treat the travel as a business cost.
Beyond that lies the temptation of tracking down the court cases and other decisions that constrain HMRC's decisions on what is and is not allowable. For example, there's an article on the Taxation website, at http://www.taxation.co.uk/taxation/articles/2008/10/01/6923/win-or-lose, which provides some description of bon viveur Michael Winner's battle with his tax inspector as to whether or not the cost of meals he ate as a restaurant reviewer could be claimed as an allowable expense, and then goes on to consider the case of Mallalieu v Drummond.
Mallalieu v Drummond is the one where a judge decided that self-employed barrister Ann Mallalieu could not claim the cost of the black and white clothes that she wore in court on the grounds that she would have had to have worn something for the purposes of warmth and decency.
However, HMRC does specifically note that self-employed people can claim the cost of a logo'd uniform, which brings to mind the notion of overalls with "NUJ freelance" stencilled on the back, and somewhere in between comes the idea that a self-employed television interviewer can claim the cost of a suit acquired solely for use before the cameras.
Of course, anybody heading off into that kind of detail risks descending into madness - and would probably be better off hiring an accountant in the first place. As it happens, I'm just about to lie down in a darkened room with a damp towel over my forehead in order to think about what the word "reasonable" might mean in this quote from the HMRC website: "The reasonable costs of meals taken in conjunction with overnight accommodation are allowable, whether or not paid on the same bill."