Top tax author, Carl Bayley BSc ACA, gives his top ten tax deductions for property developers, the first being interest:

"Whether your interest is tax deductible or not generally depends on the use to which the money is put. It does not, as many people seem to think, depend on which property the loan is secured on.

If Robert borrows £25,000 by re-mortgaging his home and uses the money as a deposit on a buy-to-let flat he can claim the interest because it has been used for business purposes.

And here's an interesting tax tip. If you intend to put your former home into your property letting business, consider re-mortgaging it before you do. The whole amount of any interest should be tax deductible.

For example, let's say Robert's brother Vincent has a property worth £500,000 and an outstanding mortgage of £200,000. He remortgages the property and raises £250,000 which he uses to buy a new home.

He now starts to rent out his £500,000 property. The entire interest payable on the whole of Vincent's £450,000 mortgage will be allowable as a tax deduction."

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Our small business clients often ask us which bank to use.   There are no hard and fast rules, but if you want a High Street bank, both Abbey and Alliance & Leicester seem to be popular.  The Co-Operative Bank do a good deal for FSB members and you can pay in cash at your local Post Office.  

If you don't need to pay in cash or use branch facilities, Cater Allen Private Bank offer a very good account, which for our clients, offers an even better deal of good interest rates and free banking.  Our clients benefit from an extra 0.25% interest, no minimum operating balance, and no minimum opening balance.  Just keep your account in credit and don't exceed the maximum number of transactions per month, you'll pay no charges and earn a very competitive interest rate.  Look at their website and then ask us for details.  To benefit from our special deal, you must apply through us and not directly through their website. 

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Many small businesses "work from home",  so I thought it useful to review what a small business owner can and can't claim.   There are different rules as to what can be claimed depending on whether you are a sole trader or partnership as opposed to being the director of your own private limited company.

Firstly, as a director of your own private limited company, your claim is limited to the "EXTRA" household costs you incur as a result of working from home.  That is, you can claim the extra power, insurance, water rates, etc. that you have to pay.  You cannot claim ANY of your fixed costs that you would incur whether you worked from home or not.  HM Revenue & Customs require you to keep records to prove your claim.  By concession, to reduce your record keeping costs, they allow a fixed amount of £3 per week for 2008/9 (previously £2 per week up to 2007/8).  For more details and examples, see the HMRC website.

Secondly, as a sole trader or partnership, your claim is potentially far more valuable.  Not only can you claim the extra household costs you incur but you can also claim a proportion of the fixed costs of your home, depending upon the time and space you use for business.  Fixed costs may include rent or mortgage interest.  For more details and examples, see the HMRC website.

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The latest in our series helping small business owners to grow their business and increase their profitability (and business value) is now available on our website.

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