One of the most common questions from people new to business is - what costs can I set against my income when working out my tax bill? This is both completely understandable and largely wrong-headed.
It’s easy to assume that the point of keeping accounting records is to enable you to fulfil your legal obligations - your accounts, your tax return, maybe your VAT returns. They’re useful byproducts of accounting records, without doubt. But the fundamental point of the accounting records is to record how well or badly you’re doing. If you’ve lots of costs, or your profits are low, that’s important information that you might want to address (by considering whether the costs are higher than they need to be, or income/margins are too low, or if you should just get a job, for example). The fact that most or all of the costs may be tax-deductible is really a consolation prize - tracking and contemplating them is the key thing.
To put it another way - would you rather have a) £100,000 of revenue and £20,000 of costs, none of which are tax deductible, or b) £100,000 of revenue and £70,000 of costs, all of which are tax deductible? Hopefully you’d prefer the £80,000 of profit over the £30,000, even if the tax bill is a bit higher!
In fact, most costs that you incur as a result of starting your business are going to be tax deductible, so that extreme example is a bit silly. Hopefully, though, it makes the point - focus on profit, not tax.
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