UkLegacyT

just a quick question, if during the first year of business as a sole trader you earn say £20,000 for example, but expenses (new van, tools etc) outweigh this, and as a result you have lost money during the first year, how does this affect the tax?

cheers
ian

GC8

I assume that you dont have an accountant? If your allowable deductions exceed your profit then you wont pay any.....

UkLegacyT

cheers for the quick reply, thats good to hear

have got an accountant sorted, but am only doing my books over christmas when off, last minute i know and realised expenses are gonna outweigh profits, so just thought id ask on here whilst i was on.

thanks again
ian

GC8

You need to speak to the fellow more; a good accountant does an awful lot more than your tax return at year-end... Money spent on stock isnt deductable btw.

Phil

Who says ?

Account deleted by request

You do cash work then

chop

fast bloke

depreciateabe, but not deductable. same for vans and tools. (otherwise you would just buy a mahoosive pile of stock and a new scoob on the last day of your FY every year - avoid tax completely)

Phil

Depends on the basis that the accounts are prepared

fast bloke

If you are deducting stock costs as an expense and not including them somewhere else (assets? ) you should start praying that you don't ever ever get an IR audit

Phil

Surely as a small trader cash accounting is still allowed ?

fast bloke

cash accounting should still be making an allowance for stock/assets. If you do it cleverly you can defer when you have to pay the tax, but when the crunch comes, you still have to pay it.

MikeCardiff

iTrader: (2)

Ian, you'll find different things you have bought can be claimed at different rates - for example, with the new van, you cant deduct all the cost of this against from your profit, IIRC for a 1st year sole trader you will be able to claim for 50% of the cost this year, then 25% next year and 25% the year after.

You need to ask the IR about capital expenses and what you can claim for different things - in simple terms, anything you buy for the business that you are keeping ( van, tools etc.... ) will be a capital expense.

You 'can' get to the end of the year and buy loads of stock, a new car etc... but these will become assets of the business in the next years account, so you still end up paying tax on them - all buying up stock does is delay when you have to pay the tax, you STILL have to pay it !

Accounts for Self Assessment are pretty simple if you arent turning over above £60K ( the VAT threshold ).

If you have made a legitimate, claimable loss then you wont pay any tax this year, and the loss will show as a minus figure at the start of next years books and come off of that years tax ( assuming you make an overall profit in that year ).

GC8

Any accountant that you care to ask Phil. As FB has already stated, if not youd spend all of your profit at year end on further stock.......... Think about it.


Simon

MikeCardiff

iTrader: (2)

I think one important thing to learn from this thread is that different people have different ideas on how to prepare your accounts - some of these people will be correct, and some will end up with heavy fines or going to prison ( esp when VAT is involved !!!! ).

The one thing you should learn is that there isnt really any excuse to fxxk up your accounts and how much tax you pay - if you cant do it yourself, get a proper accountant ! I do my own tax returns and accounts, and they are correct for what I DO, but each business is different, so there isnt a definitive answer that anyone on the board can give, and its not them who will end up paying your fine or doing your time if you follow their advice and they are wrong.

OP - if you have an accountant, let them tell you what you owe - all you need to give them is all your records and receipts etc... and they'll sort it all out and you dont need to worry - if they need more info from you they'll ask, and you'll know at the end of it all that you are paying the correct amount.

It is actually quite rare for sole traders not to pay any tax in a financial year, unless they are fiddling like mad or have had a really really crap year - the fact you have taken enough money from customers to buy a van and invest in tools means you've almost certainly made enough profit to pay tax on.

One way to look at it is that the more tax you pay, the more you have earned - as a sole trader its just you - the profit figure at the end of the year is all YOUR money for you to spend ( minus the bit you have to bung to the Inland Revenue ) so dont worry if your tax bill is big.

An accountant can find ways to save you paying unneccesary tax, but they arent magicians, so you will still have to pay.

MikeCardiff

iTrader: (2)

And re post #8 - I think you'll find the 'basis the accounts are prepared' isnt one that HMCE would consider as legal ;0)

ODB

iTrader: (1)

It is, as its deemed to be an allowable selling expense. However it is likely that if you spend all your 'profit' for the year on stock then it will be knocked off your profit in the P&L or if your policies allow, it can be accrued or prepaid in the accounts. So either way you don't get away with it.

Back to the real question, if you have spent £20,000 on tools, vans etc then you need to check with the IR as to which will qualify for Capital Allowances, this replaces your depreciation charges that you lose in your D1 (the van will but you'll need to check on the tools). Your accountant should be able to work all this out and if the end result is that you haven't made a profit then you won't be paying any Tax (that is unless you have paid yourself a salary as well).

StickyMicky

IMO its worth going for an acountant that can help you sleep easy at night.
i am happy with mine

UkLegacyT

thanks for the replies

to be precise, i live at home with parents and only pay out a small amount. the money i have earned in the first year was spent on van/tools (woodworking machinery-top stuff not crap) for the business, diesel and a small amount for meals, going on the **** etc. i havent paid myself a seperate salary, as i have counted all earnings as my own.
also, i do cash jobs here and there, but its cos i may have needed the money asap rather than clearing cheques, and have declared it all.

before i started out i had some money, and at end of first year i hadnt, but not worried cos now 3 months into 2nd year of trading and earnings have doubled due to reputation.

any info appreciated
ian

StickyMicky

most of my payments come in as cash, i dont get that many cheques to be honest, i do not pay myself a salary, i just keep what is left at the end after all the outgoings.

the whole carwash setup is all 100% computerised for every wash, which means the vat returns are very easy to work out, i can drop of the quarterly figures for the wash and the valeting buisiness/recipts etc etc and the acountant spends a few days checking eveything over, he will then come back to me with any advice, questions regarding cheques paid out and confirms how much i owe the collector of taxes

TBH he is worth his quarterly charge down to the last penny, let somebody else sort out all that mathmatical waffle stuff, while you go out and earn more/spend more

UkLegacyT

thats a fair point, i aint gonna **** about with the figures for too long, got a simplex 'd' book so am just gonna fill that in and give to accountant, dunno whether ive left it too late, she may not do it for me now, only 4 wks til deadline

UkLegacyT

one more question lol

i started out sept 20th 2004, do i do the books for:
sept 04 -5th apr 05
or
sept 04-sept 05

?

cheers

Butty

iTrader: (2)

My one piece of advice from experience for the first year is that as much equipment/assets is "brought into" your business.
If you have accumulated specialist tools and equipment over the previous years, say in doing work part time before you commited to sole trading, then these can be "introduced" without accurate receipts or records as to where they came from and their value.
Timing of business start-up is also crucial as you may be able to defer tax payment of the first year for up to another 9 months? - although it means paying a double wack later on. This can help out with surviving with the first year.

I'd really advise sitting down with an accountant to explain how to manage the first year in as favourable- but legal - tax position as possible.
If subsequent years follow the same pattern as previous ones then deal with your own tax returns but fall back to an accountant for one off advice.

Nick

UkLegacyT

thanks for the advice.

i remember about introducing etc, i had about £2000 worth of tools and £5500 van that i bought before starting out, as joinery/woodworking was an interest, then realised i could make a thing of it.

cheers

UkLegacyT

ps as not to confuse about van, px'd that original one in march for a brand new vw van.

fast bloke

do sept 04 to sept 05. If you have made a loss you will pay nothing this year and nothing next year (Jan 2007) - Start bunging away a few quid for Jan 2008 though - I started in Oct 02 and face my first tax bill on 31 Jan. Its gonna hurt, but not as much as having to pay it last year would have

UkLegacyT

great

thanks for all your replies, will post back what i get stung for lol

cheers