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#1 07-10-04 16:43:47

kieth
Guest

tax issues

I am hoping to qualify next yr, i am doing lots of research at the moment. I have never been self employed before. Two ADIs I have spoken to have both said that I pay more tax in a month than they pay in a year.Surely this cant be true even if they were exaggerating a bit is something naughty going on???? Also I am the only earner in our home. BIG QUESTION - Do you experienced guys think the average ADI and family can survive all year round on an ADIs wage. Again sorry for basic questions but its obviously very important to me 

cheers

07-10-04 16:43:47

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Re: tax issues



#2 07-10-04 18:20:40

Anonymous
Guest

Re: tax issues

yes and no depends how much you need . after deductions you will have about 10k and we dont pay alot of tax because we dont have big enough profit . any one else want to add to this question?

#3 07-10-04 19:57:54

dth-adi
Verified Member
Registered: 19-09-04
Posts: 1,402

Re: tax issues

I will add that people in all walks of life are on the fiddle with their tax and the ADI profession is no exception.

It is also true that some ADI's take great delight in lying about everything from the prices they charge, through to the Grade they are(always 6), through to the number of clients they have waiting for their services (I know of very few people who if they want to drive now would wait 3 months for a particular instructor), through to the amount of tax they pay etc etc.

Young lads who pass their test often exagerate how few D/Fs they got and even that they passed first time even though it was on their 2nd or 3rd attempt (how could it be proved otherwise?). Men generally have little idea how long 8" is from what you hear them saying!!

You will get out of this job what you put in and the more you put in the better will be the returns but unless you are one of the very few, it will never make you rich beyond your dreams.

You can claim an awful lot and virtually whatever you fancy to reduce your tax liability but whatever you claim may not be what is finally allowable after a tax investigation. The IR knows very well what an ADI can earn and when they see evidence of lots of exotic foreign holidays and excessive personal expenditure and can see that the mileage claimed for the car does not relate to what they consider to be an average mileage for an hour's lesson, they begin to smell a rat. They are not stupid and many people will be caught sooner or later if they are on the fiddle unless they are lucky. When they are, will they still be considered to be 'a fit and proper person' as far as the ADI licence is concerned?

You need to ask your local helpful and honest ADIs around you what work is likely and work out carefully your commitments against likely income before committing yourself to jumping over the cliff. Cos if you ain't got a safety net, you will fall to the bottom and find it difficult to climb back.

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#4 07-10-04 21:21:10

Anonymous
Guest

Re: tax issues

i agree with dth adi there is a hell of alot of bull s...s in this job as for being investaged by pritty slim chance they are after biger fish but they do check from time to time and they also get  tip offs from banks and other ways taught a tax inspectors daughter once she had about 40 lessons then fell out with me still waiting for the knock on the door lol

#5 07-10-04 22:13:06

dth-adi
Verified Member
Registered: 19-09-04
Posts: 1,402

Re: tax issues

The IR works on targets as much as any other organisation. One target is self employed people whose main income is in cash. Investigations are much more common than in times gone by and are often just random rather than tip-offs.

If they find even one error in an ADIs accounts, there will have been at least one target that they will have met and been able to report to their masters as part of their target- meeting requirement.

Investigations are also triggered by unusual movements up or down in income or claims for tax deductions. They will want to know why and will hang on like a terrier until they get their answers and regardless of dishonesty or otherwise, the person investigated will have paid a pretty penny either in accountant's fees or in time taken to provide all the information/proof requested by the IR.

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#6 09-10-04 14:20:14

hampshirebabe
Verified Member
Registered: 27-06-04
Posts: 82

Re: tax issues

I just qualified this year, so haven't had to pay any tax yet. But I find it very confusing, and although I've asked loads of people about it, I still dont know how to work anything out or know what I should keep and be able to claim for. For eg I keep my petrol receipts, but not the milage, (I have anohter car so all the miles in this car are business) but then dth-adi mentions "mileage claimed does not relate to an average mileage for an hour's lesson" So does this mean I should be keeping a record of all the miles I do as well?
I wish someone could recomend a book to show what I can claim for, there seem to be so many small things.

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#7 09-10-04 14:54:52

dth-adi
Verified Member
Registered: 19-09-04
Posts: 1,402

Re: tax issues

Have a look at the IR site and go to the'Driving Instructors' section whichl advises IR officers what to expect from Driving Instructors.

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#8 09-10-04 16:57:42

Hilary Hughes
Verified Member
From: Stockport, Manchester
Registered: 25-06-04
Posts: 1,232
Website

Re: tax issues

I use an accountatnt and have insturance against an investigation.

I got the accountant's address from a list of those who specialised in smaller businessesI on a small business course I did with the local TEC (Training Enterprise Council).

This course was free, but I don't know if they still do them.

In all, I guess we're talking a about 2-3 hundred a year for this. Some people think it's unnecessary but I have peace of mind.

Also, I hate maths and am happy to leave it to the guy, quite honestly.

Hialry.


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#9 09-10-04 21:22:14

Ron
Member
From: South West London
Registered: 19-08-04
Posts: 9

Re: tax issues

A colleague had a lush new kitchen fitted.
Somebody, probably a neighbour in a fit of jealousy, reported him to the Inland Revenue.
Result, a vicious investigation.
Although he satisfied the Inspector entirely, it almost brought on a breakdown.

Cheers
Ron

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#10 05-01-05 12:04:08

althorpdt
Verified Member
Registered: 02-01-05
Posts: 223

Re: tax issues

If all the mileage in your car is business, then you can record all the fuel used in that car as legitimate business expense and no need to deduct anything as "disallowable".  You don't need to record mileage if the car is not used for any personal mileage at all.

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#11 05-01-05 14:45:33

Anonymous
Guest

Re: tax issues

But, the inspector will expect you to deduct 10% for private use.  The reason is because if you stop off on the way to a client and buy a paper, sweets, drink or get a haircut then that element is private.  Hard to quantify so a good accountant will recommend approx %10 as private.

#12 05-01-05 15:22:52

ITSGroup
Guest

Re: tax issues

Hi Im an accountant involved in the ADI industry.

Some of the points in this thread a very true.

Their is now a very good chance of being investigated by the Inland Revenue, I think it currently stands at around 1 in 7. However those small businesses involved in a cash based environment tend to have a big bullseye attached to them.

Once an investigation starts it can drag on for an uncomfortable amount of time (in many instances well over a year) even if the individual is innocent of any wrong doings this can be extremly stressfull.

The Revenue inspector will look at industry averages (eg lesson rates etc) and also look at other averages (eg car fuel consumption, engaged mileage etc etc). Generally if you dont fit into the 'average ADI' criteria, you will have to prove otherwise.

The best way to keep this process as stress-free as possible is to keep very good records. A couple of years ago I designed a book-keeping process that is in the first instance a pupil diary system, but it also doubles up as a sound book-keeping system that can simply be sent to your accountant for your year end stuff etc. This kind of system works well  if you ever do get investigated as you wont be guessing engaged mileage, pupil databases etc etc, everything the revenue loves to attack driving instructors on.

The belt and braces approach would be to take out Tax Investigation Insurance, normally this will cost around £100 per year, another option is to join the FSB (Federation of small Businesses) they offer this service and much more (eg legal assitance etc) for around £100 per year.

As for what can be claimed in terms of tax relief, its the obvious stuff really.

Vehicle Capital Allowances (25% of book value of car)
Servicing/Repairs/Insurance/RFT
all the above is calculated on your business useage (therefore if 90% was for business then you could claim 90% of the above.

Other Expenses include
Prof Subs
Business Phone
Stationery
Use of residence as office (normally a nominal amount per week)
Car valeting
Training aids
prof fees

In terms of how tax is paid. I'll try and offer a brief example:

Your financial year end is 5/4/2004.

Your tax would be due on the 31/01/2005, at this time you would also pay 50% of your estimated tax on account for 5/4/2005 year end, and the other 50% on the 31/07/2005. If their was any additional tax to pay for 5/4/2005 then this would be payed on the 31/01/2006.

E.g

Your tax due for 5/4/2004 is £5000

You would pay £5000 on the 31/01/2005 less any payments you had made on account.

You would then pay the Following on account for next year:
£2500 on the 31/01/2005
£2500 on the 31/07/2005

If say your tax due for the following year showed that you owed £7000 (5/4/2005) then you would pay (£7000 less the £5000 paid = £2000) on the 31/01/2006.

Hope this makes sense!

#13 05-01-05 16:42:28

buzdriver
Guest

Re: tax issues

AVRAGE adi accounts goes like this sales based on 30 lessons per wk at 19 pounds per hr sales will be 27360 on a 48 working year.fuel based on 55 pound per wk is 2640 per year insurance 500 per year postage and stationary about 200 per year.advertising about 1000 per year phone 650.accountancy 290 per yr bank charges 300 per yr depreciation on car about 1749.total 7329 that leaves you with 20031 then take away your tax alowance  i thinks its 4500. that leaves you with 15531 which is the figure you pay income tax on. as you can see that there is not a pot of gold in this buisness. does any one agree with these figures have i missed anything.

#14 05-01-05 18:33:29

corfi
Guest

Re: tax issues

an accoutant is the only way to go at least for the first year there are many things you can claim back and you will find that he or she will save you more than there fee in the first year or two make sure you take there advice and you wont go far wrong
ps the only way to make good money is to work all the hours god sends remember its a job not a way of life big_smile

#15 06-01-05 16:41:13

althorpdt
Verified Member
Registered: 02-01-05
Posts: 223

Re: tax issues

I would like to ask question about tax treatment of ADI car insurance and car tax (vehicle licence).  Do we have to deduct a certain amount for "personal" use of car in relation to these items or can the whole cost of them be deducted as legitimate business expenses.  It would be very time consuming to have to work out exactly how much of the insurance/vehicle licence related to personal use.  In fact, the lady we saw at IR last year said that if the car was fitted with dual controls (which it is) and as the insurance is a specific ADI policy, then the car is effectively being run completely as a business and so only personal mileage is deductible and we did not need to make allowances for personal use of vehicle for other reasons.  Your comments on this would be appreciated.

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#16 06-01-05 16:50:24

buzdriver
Guest

Re: tax issues

you can put down buisness car is used 100 percent of the time. or 90 percent of the time.

#17 06-01-05 18:18:46

ITSGroup
Guest

Re: tax issues

Business use is business use! Doesnt make any difference what you are driving. You can only claim 100% on expenses that are wholely and exclusively needed to run your business. The Inland Revenue like to look at mileage and build a picture of expected turnover. For example if you are running your school part time and do a total of 20k miles a year but only 10k was in relation to business, then if or when you got investigated they would estimate your turnover based on 20k miles if you insisted you had no private useage of the car.


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#18 06-01-05 23:55:17

Airmiles
Guest

Re: tax issues

If you drive to the shop on Sunday morning to buy The Sunday Times you can claim the mileage against tax, as well as the cost of the paper. It's Driving Supplement is essential reading for all ADIs.

Same if you read The Telegraph on Saturdays.

And Auto Express on Wednesdays.

The list is endless, and all perfectly legitimate. 100%.

At the end of the year the sum is quite considerable and helps reduces your tax bill.

Make sure you keep all the receipts

#19 07-01-05 13:55:19

ITSGroup
Guest

Re: tax issues

Good luck when you get investigate then. All I would say is that the Inland Revenue are sharp in this day and age, they run themselves just like a business. You have to be very sharp to pull the wool over their eyes.

I would say that any individual that pushes things too far and tries to get away with claiming anything and everything (in the business we call this an agressive attitude towards Tax), then all you are doing is waving a big flag at the revenue and inviting them to have a closer look at you.

#20 07-01-05 14:34:26

Airmiles
Guest

Re: tax issues

I thought you claimed to be an accountant.

If you are not advising ADIs to claim for relevant magazines and newspapers which are directly linked to their business, they should get a new accountant who would do so, and save themselves money.

And check with DIA, as the IR rules as per their web site were drafted by the DIA, and agreed by IR.

ADIs can even claim for Top Gear magazine, if they really want to read such claptrap.

#21 07-01-05 14:59:26

ITSGroup
Guest

Re: tax issues

I think you missed the point somewhere. If you purchased a newspaper is this wholely & exclusively a business expense just because it has a driving suplement? In most cases not.

If an expense is for business use then fine. Magazines relating to your profession are an allowable expense. Incidentally I havnt read top gear for a while, is their much relavence towards being an ADI in that mag?

In any event, if you split all of your mileage down on an itemised basis (to the point where you are writing a log of driving to the shop to buy a paper so you can save around 10p worth of Tax) dont you think this a bit of a waste of time? Not that im saying you shouldnt log your mileage on some kind of basis but not to this extent. Common sense needs to be used in this kind of situation.

#22 07-01-05 20:42:43

dth-adi
Verified Member
Registered: 19-09-04
Posts: 1,402

Re: tax issues

Help me someone!! I am missing something.

I go out and spend x pounds on Item A for which I can claim 100% from the revenue for business expense. In order to do this I have to spend x pounds in the first place. Unless I really want Item A because it is vital to my business, I have spent x pounds which I could have kept in my pocket.

Should I go out and spend lots of my profit on things I don't really need in order to reduce my tax bill?

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#23 07-01-05 21:36:45

buzdriver
Guest

Re: tax issues

NO it would be a silly thing to do if you spend 100 pounds on somthing that you dont need. then you have just lost 100 pound but if you payed your self the 100pound and the taxman would only take 22percent of thatyou would be left with 78pounds. better than 0 .

#24 08-01-05 10:37:56

ITSGroup
Guest

Re: tax issues

DTI

I cant remember saying in my post that you should spend your profit just for the sake of it. If I did please feel free to quote me..

At the end of the day the argument is still the same, you can only claim 100% of an expense if it is wholey and exclusively in relation to your business activities, if it isnt then you need to proportion on a fair basis between business and private.


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#25 08-01-05 12:23:59

jgarbutt
Verified Member
From: Driving Instructor in Horsham,
Registered: 26-04-04
Posts: 380
Website

Re: tax issues

So does anyone know what sort of mileage per hours tuition do the IR consider reasonable?

I also fail to see how they can make this judgement, as it depends on where you are based, the area you cover and the sort of pupils you teach, surely?


Jason Garbutt
DSA Approved Driving Instructor
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Tel. 01403 251662 - www.GreatDriver.co.uk

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