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|UK income tax question|
Can Adwords expenses be deducted from tax base?
I run a few hobby sites with Adsense on them. Because my earnings have significantly increased recently, I decided to register with Inland Revenue as a self-employed. I am in full time employment at the same time, I'm not going to give up my day job - well, not yet.
I made a quick calculation of how much tax I can expect to pay - and it's a lot! :(
So, my question for the more experienced is: can I invest a portion of my Adsense earnings into Adwords and claim it as expenses to lower the taxable base? Will Inland Revenue accept Adwords expenses as valid?
I know I should ask an accountant, but your personal experience will be satisfactory for me for the time being.
My other option is to found a company in my home country (which I am a citizen of) with flat 19% income tax and keep all the earnings there.
I'd be intesterested in knowing what you mean by founding your own company Jay as i am having the same dilemma myself at the moment and was horrified to see how much money the Inland Revenue were going to shaft me out of if i registered as self-employed.
What type of company did you have in mind? Limited? Private? "trading as"?
As for your other question, i do know a little more about this and as long as you can show that your investment in adwords is to generate profit or revenue for your main business and can show receipts etc: (from Google , obviously) then there is no problem with making it tax deductible.
>>Will Inland Revenue accept Adwords expenses as valid?
|I'd be intesterested in knowing what you mean by founding your own company |
I ment registering an Ltd company in my home country - should not be a poblem, in theory. But I am no accounting expert (as I just demonstrated here). :)
Anyway, I prefer the first option (being self-employed in the UK), although it means the Government could take as much as 40% of some of my earnings. It's less hassle.
Hi and good question - I am in exactly the same situation - I work full time (and have no intention of stopping) and am wondering if I should go the hassle of registering as a Ltd company.
Can anyone out there (who has done this maybe) confirm that you only need pay coporation tax if you take the profits as dividends rather than paying the full whack of income tax. i.e can you get away with paying just 19% on all those company earnings rather than 40%?
Learn hard "The company is poor, the company has to pay everything"
A part of Your apartment dedicated for work
A part of the operating expenses of Your apartment
Most of telepone fees
Most of car
Traveling expenses related to Your earning web sites
Shure Your AdWords expenses
When You are a correct accountant, You must wail after You booked all Your expenses about Your poverty.
Invest in a some hours talk with a good accountant, his fees are also company expenses.
I'm also in a similar position. I also work full-time and have had to register as self-employer.
This my point.
If you spend revenue on Adwords, then that is an expense - fine. But why?
If it doesn't generate new traffic and additional revenue, you may as well take it and pay tax on it. If it does generate traffic and revenue, then you'll have to pay tax at some point.
See what I mean?
I'm in the same boat. I'm employed full time, but am registered as also being self employed because of the odd bit of freelance work I do, and my adsenese income.
Anything you spend on running the site which brings in income from adsense is legitimate business expenditure, and therefore is tax dedutable. This includes hosting as well as any advertising (eg, adwords), regardless of whether the advertising works or not (it would be unfair not to be able to claim back tax on advertising just because it didnít bring in a high enough income!).
However, that said, I have to wonder why youíd want to spend money on adwords if you donít expect it to increase your adsenese earnings by at least more than you spend. Even if youíre paying tax at 40%, then surely 60% to you is better than nothing?
I expect that opening a ltd company might be more efficient if your adsense earnings are high enough, but remember that youíve then got added expenditure such as accountants. Being self-employed makes filling in your tax return nice and easy (IMO), having a limited company is far more complex! (I know, Iíve had 3!).
Iíve transferred one of my websites into my wifeís name, as sheís currently a full-time mother and therefore is not using her tax allowance. That means that the first £4,500 (ish) of income is tax free. Iím not recommending that BTW, as it could be seen as tax evasion, but in our case, the website in question was her idea anyway, and itís her who does most of the work on it.
|A part of Your apartment dedicated for work |
You have to be careful with that one, as they can hit you for a capital gain when you sell the place. That is for the business part of the apartment.
If you're planning to set up as self-employed, then your best bet would be to register with IR as a sole-trader - which doesn't mean you can't have employees. You are taxed solely on your profits, not on your turnover.
There's no need whatsoever for you to go down the Limited Company route, and to be honest in your case, the disadvantages far outweigh the advantages.
jetteroheller's advice is good. Your "business" has many expenses which can be offset against income - one major advantage of self-employment over employment.
The only difference here in the UK is the "apartment" factor. This may well be different in Austria, but here while you can offset part of your home against the business, when you come to sell it, you're hit with Capital Gains tax.
While I don't know what your sites are about, there are probably all sorts of expenses you can legitimately claim against the "business", including your expenditure on Adwords, which dramatically reduce your "profits" and thus your tax liability ;)
>>>>There's no need whatsoever for you to go down the Limited Company route
Well I was strongly advised to go down the limited company route by my accountant.
Best to talk to an accountant :)
>>> Well I was strongly advised to go down the limited company route by my accountant.
Well yes, you would be. He stands to make a lot of money out of you!
|If it doesn't generate new traffic and additional revenue, you may as well take it and pay tax on it. If it does generate traffic and revenue, then you'll have to pay tax at some point. |
See what I mean?
Wonderstuff - you seem to be a little confused!
If you set up as self-employed, then all the expenses incurred in running your sites become legitimate business expenses, including most of the items already listed by Jetteroheller.
If an Adwords campaign doesn't generate new traffic and additional revenue, then your business might even make a loss, and you will pay no tax at all :)
As a very simplistic example, if you earn $100 from Adsense, but your business has spent $110 on Adwords, then the business has made a $10 loss. You only pay tax on profits ;)
>>>Well yes, you would be. He stands to make a lot of money out of you!
Lol - No
His charges were the same for me being self employed or a limited company :). OK the company had setup costs but it really is peanuts in comparison.
I dont think wonderstuff is confused - the opening posters question:-
>>>>>>>So, my question for the more experienced is: can I invest a portion of my Adsense earnings into Adwords and claim it as expenses to lower the taxable base?
Seems to suggest that he wants to make a loss on Adwords - surely the aim would be to invest in Adwords to make more money not to reduce your taxable base.
>>>> As a very simplistic example, if you earn $100 from Adsense, but your business has spent $110 on Adwords, then the business has made a $10 loss. You only pay tax on profits ;)
But, but, but... Why is there a smilie after that comment!
If you're self employed, and your business makes a loss, then *you* make a loss.. and that's bad!
I could understand it if you were buying new computer kit and claiming tax against that, because at least you'd have some new toys, but you *really* don't want to make a loss on adsense/adwords. That's mad! :-)
>>>> His charges were the same for me being self employed or a limited company :). OK the company had setup costs but it really is peanuts in comparison.
Okay. Fair enough! :-)
I'd still think really carefully about going down the ltd company road though.
If you had a ltd company, you'd have to pay corporate tax on all company profits. You'd then also have to pay income tax on any income you took out of the company. Even if you took it as dividends, you'd still need to put it on your tax return (which youíd have to do because youíd be a company director), and although the tax break might be slightly better (eg, AFAIK, no national insurance on divies), youíd have to be carefully about it because HMRC are really cracking down on small companies paying no (or very low) incomes, but a lot in dividends. IR35 springs to mind immediately.
Personally (and it really is just a personal opinion), it really isn't worth all the hassle, especially if HMRC decide they want to investigate you because a large amount of your outgoings are via dividends.
|Well I was strongly advised to go down the limited company route by my accountant. |
There may be compelling reasons peculiar to your particular business which led to your accountant offering this advice.
However, the fundamental difference between a limited company and a sole-trader is this.
Although you might well be the limited company, you are in fact an employee of that company, and will pay tax on your wages from that company, quite apart from other taxes on profits made by the company itself. You will pay employee's NI contributions on those wages, AND you (as the company) will also pay the employer's NI contributions on the wages you get as an employee.
Creative accounting may well limit the profits of the limited company, but that makes no difference to the tax which you pay as an employee of said company. You are no better off from a tax stand-point than if you're in any other paid employment.
You the individual and you the limited company are two entirely separate entities.
As a self-employed sole-trader or partner, you pay tax only on the company's profits.
I would strongly suggest anyone needing to register as self-employed consult with SEVERAL different accountants prior to deciding to go down the Limited Company route :)
|I could understand it if you were buying new computer kit and claiming tax against that, because at least you'd have some new toys, but you *really* don't want to make a loss on adsense/adwords. That's mad! :-) |
Sure. What I ment is this: if my tax base was likely to be e.g. £2000 and I spent £1500 on a new computer, broadband, web hosting, etc., can I throw £500 to Adwords, hoping it would increase my Adsense profit? Will Inland Revenue consider this to be a valid expense?
My questions have been answered to my satisfaction. Thank you.
|But, but, but... Why is there a smilie after that comment! |
If you're self employed, and your business makes a loss, then *you* make a loss.. and that's bad!
LOL! That's true if self-employment is your only source of income, but the OP said he was in regular employment too.
So depending on your business, you could enjoy not only your wages from employed work, but you could also claim as expenses many things you would pay for in every day life anyway - internet connection, phone calls, car etc, while your self-employment makes a loss. Every cloud can have a silver lining ;) It just depends how you look at it!
Yes, but what Company Directors in this situation typically do is pay themselves upto the Personal Allowance and then pay themselves dividends.
I therefore dont pay Income tax as I am below the personal allowance threshold.
The Company however pays corporation tax at 19% and I pay myself dividends, aslong as I dont push myself into the higher income bracket then no further taxation is due on those divvies.
As adds says circumstances change in the future of course - but then you make changes when you come to those circumstances.
>>>>you’d have to be carefully about it because HMRC are really cracking down on small companies paying no (or very low) incomes, but a lot in dividends.
By cracking down, you mean changing the rules, closing loop holes. Yes, be prepared to change if things do change - but for now there is nothing wrong with running your business in that manner.
The take home message on this thread is really to speak to an accountant.
[edited by: Dayo_UK at 1:28 pm (utc) on Feb. 22, 2006]
>>>> So depending on your business, you could enjoy not only your wages from employed work, but you could also claim as expenses many things you would pay for in every day life anyway - internet connection, phone calls, car etc, while your self-employment makes a loss. Every cloud can have a silver lining ;) It just depends how you look at it!
Yes, that's true. Although again, you need to be really careful about what you claim on. You couldn't, for example, buy a car unless you had real good reason for it within your business, and didn't use it at all for personal use. You could however, claim mileage of your own car *if* you used it for your self employment business (except for getting to and from a place of business).
Likewise, you shouldn't really deduct your internet connection in full, because the chances are you use that for personal stuff. Although you could claim, say, 10% of the cost, depending on your circumstances.
Web hosting is okay, because that's obviously 100% for the business.
If you work from home, you can deduct a percentage of your bills (power, phone etc), but I doubt you could do that with adsenese unless you prove you spend a lot of time working on it at home (and even then, it's a grey area if you live with someone else, or work onto in the evenings because the IR may well say "Ah, but the house would be heated at that time of day anyway).
Even if you buy a PC, you can't deduct all of that if you ever use it for anything else. And even then, you can't deduct it all in the first year because it's an asset. You can only deduct it's devaluation over a period of (I think) 3 years.
Basically, you've got to be *real* careful about it because "they" can come down on you like a ton of bricks if they like. IMO, the simple answer is "be honest, and don't take a piss" :-)
>>>>Personally (and it really is just a personal opinion), it really isn't worth all the hassle, especially if HMRC decide they want to investigate you because a large amount of your outgoings are via dividends.
Yes, but if they investigate you - there is nothing you have done wrong.
Paying up to the Personal Allowance and then recieving dividends - nothing wrong with this. No minimum wage for a Company Director - you can pay yourself what you want.
This link might help people:-
(hope this link is ok for this forum - seems to be a UK Tax Help service.)
|Yes, that's true. Although again, you need to be really careful about what you claim on. You couldn't, for example, buy a car unless you had real good reason for it within your business, and didn't use it at all for personal use |
Best You have a logbook and write every journey.
I had 2004 about 95% company use of the car.
You drive to a computer dealer to look on some new notebooks for Your business? Shure company expenses.
A business has a car.
I know opposit cases.
Somebody wanted to put in the bilance the car expenses by fixed km costs. About 30 cent per km in Austria.
But for people driving a lot, the real expenses are usual lower than the 30 cent per km. Normal, this method is only allowed for employees and their privat car, or cars used less than 50% for the company.
The IRS clerk proofed in this case, that he had used the car more than 50% for the company and that he had to use true costs instead of 30 cent per km.
>>> Paying up to the Personal Allowance and then recieving dividends - nothing wrong with this. No minimum wage for a Company Director - you can pay yourself what you want.
You're right, but it does depend on the business. For example, when I use to contract, IR35 came in. That basically meant that if I had a contract which was effectivaly like being employed (eg, working 9 to 5 at the same place, but being paid via my own ltd company), then I couldn't pay myself mostly in dividends.
My understanding (which may well be wrong), is that if the IR consider your companies income to be coming from one party (eg, adsenese), then you are not able to pay yourself in dividends.
If adsenese is merely a part of your companyís income (eg, it also does other paid work throughout the year for other customers), then you should be okay.
I don't know the in's and out's of it, but I do know from experience that you really have to be very, very careful!
Ask your accountant about business asset taper relief.
If you manage to get to the stage of selling your business (this works for both sole trader and limited company), then business asset taper relief can reduce your final tax bill to 10% on the capital gain you make selling your business (it takes 2 years to get to the maximum 10% taper relief).
And the reason you need to speak to an account is ...
To get the full taper relief, it is important to note that, as a general rule, any asset held by the company must be used in the "trade of the company". So..if you sell widgets, then it's good to own lots of widgets, but bad to own an investment property that has nothing to do with selling widgets (But..you can own the property from where you sell the widgets) If you end up with too many "non-trading" assets in the company, you end up paying more tax.
So..speak to an accountant and when the time comes to sell your business, you only pay 10% tax.
Here's an example pitfall of not speaking to an accountant.
If you retain too much cash in the company, the revenue can view the cash as a non-trading asset and you won't be able to claim full taper relief when you sell the company,
The revenue argue this on the basis that you kept the money in the company to save paying a dividend or salary...with the aim of just paying the 10% tax after taper relief.
In your defence, you could say something like - "I had to keep £#*$!x's in the company in case we had a bad year. Providing this isn't more than, say, 15% of the total value of the assets of the company, the revenue should agree with you.
So...read up on tax on the internet, and then speak to an accountant!
On a slightly different note, there will be those amongst us that have decided to keep Adsense income as their little secret. I registered self-employed this year - but it was tempting to keep quiet.
My view was that G would be audited by US tax authorities, and that the IR would have an available database of UK-based owners. Any thoughts?
just fyi, we're having a similar discussion over here:
Regsitering an offshore company could be the way out
On a slightly similar note:
I do have a Ltd company, which is also VAT registered.
My concern is simply over the fact that I spend on Adwords, which I do in US, as bids and increments are smaller.
I also earn on Adsense, which is in US$, and then paid in £.
The Adwords is charged via Dublin, but no VAT is added under EU charging rules, as they have my VAT number.
ATM, Adsense = Adwords X 10 (approx), but I'm looking at upping my Adwords spend by a factor of 2-3 (assuming that the rumoured damage to my organic rankins will not be a problem, but I think there's another thread on that).
So, in effect, I'm having $ converted into £ and then back to $.
I'm looking at getting a US$ account or credit card, which would only mean one payment was made each month (hopefully still from $ to £). However, these all have their running costs - is there any way that Google can charge Adwords against Adsense, or that Adwords can be paid by a funds transfer from a $ current account, rather than a credit card?
|However, these all have their running costs - is there any way that Google can charge Adwords against Adsense, or that Adwords can be paid by a funds transfer from a $ current account, rather than a credit card? |
I've e-mailed the AdSense support desk more than a year ago to ask if this is possible and the answer was no.
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