Sole trader advice needed

[ROB_GTR]

Can someone, in laymans terms please explain to me how this works when buying certain equipment....

I have registered with HMRC as a sole trader and have just started working for myself.

I need a Laptop to be able to do a lot of work at home and a place of work.

Can I claim back the full cost of the laptop or only the VAT when I do a TAX return?

I also need a few other bits such as PPE and do I still have to buy then claim only the VAT back?

Is there any benefit to becoming a limited company over a sole trader as I only intend to be in this situation for a few months?

TIA

[Fastpedeller]

You can't claim any VAT back unless you are VAT registered (don't go there unless you have to). Remember that you aren't saving the whole amount of the amount you spend on any equipment, only the tax on it. To explain(simplified), if your turnover is (say) 30k, with expenses (Purchases for resale or other) of 16k then you have a taxable income of 14k less your personal allowance (about 11k), so you pay tax on 3k at 20% = £600. If you spend an extra 0.5k on computer equipment your taxable income will be 2.5k, so tax at 20% will be £500. People often think They are paying nothing (because the business buys it), but all you save is the tax element on it.
The above is simplified, and certain things eg computer equip, may or may not be reclaimable against tax in one year, and may need writing down over time.

ETA.... If your income is (say) 25k, and your expenses 16k, then you'll be inside your tax allowance (25k-16k = 9k) of about 11k, so if you buy a computer for 0.5k, your tax bill will still be zero (under personal allowance still) so you won't "gain" anything.

Edited by Fastpedeller on Friday 23 December 16:58

[Eric Mc]

ROB_GTR said:

Can someone, in laymans terms please explain to me how this works when buying certain equipment....

I have registered with HMRC as a sole trader and have just started working for myself.

I need a Laptop to be able to do a lot of work at home and a place of work.

Can I claim back the full cost of the laptop or only the VAT when I do a TAX return?

I also need a few other bits such as PPE and do I still have to buy then claim only the VAT back?

Is there any benefit to becoming a limited company over a sole trader as I only intend to be in this situation for a few months?

TIA

If you don't understand the difference between VAT and Income Tax, you cannot be expected to complete sole trader accounts and submit self assessment tax returns that would be anyway correct.

You need help. Talk to an accountant.

[ROB_GTR]

Thanks for the simplified reply.

No real need to be clever is there Eric!

I have never worked for myself and have always been employed by a company who supply all equipment and paid my TAX for me.
So to anyone in my situation it is a little daunting and I'm clever enough not to need 'HELP' as you say.

I have previously bought things for the company I worked for and not paid VAT so I assumed I would get TAX relief and VAT taken off as its for work but being a sole trader that doesn't seem applicable.

I will be earning well into the upper TAX bracket but I've never had to buy my own equipment and wondered what I would get back against the full cost of it, if anything at all.

[brman]

if you are earning well into the upper tax bracket then I think Eric's advice of "talk to an accountant" is still valid, if perhaps for the wrong reason.
You can learn it all yourself but to be honest, life it too short. And a decent accountant will save you more than he costs you.

The trouble with the internet advice approach (however quick a learner you are) is you never get the full picture so are always missing something......

[Sir Lord Poopie]

Eric Mc said:

Talk to an accountant.

Yes because when an accountant's taken your money they're definitely going to take great time and care in submitting a correct set of accounts.

[Simpo Two]

As has been said, VAT registration is a thing on its own, and not connected with whether you're a sole trader or a limited company.

Being VAT registered means that you can claim back the VAT you pay on purchases, both for equipment and anything you resell. Great! The flip side is that you then also have to charge VAT to your customers, which makes you 20% more expensive. So you have to decide how much you'll save vs how much trade you might lose. If you buy in lots of stuff and your customers are VAT-registered, great, because you'll save and they can reclaim. If however you only need to buy a laptop, and your customers are the public, it's not so smart.

Below a turnover threshold of c.£80K you can choose whether or not to be VAT registered. Above that you have to be, and you will be responsible for collecting the VAT from your invoices and sending it to HMRC every quarter via a VAT Return.

Starting a limited company, known as 'incorporation', usually only makes sense IMHO if you regularly make profits of £40K+ as you can take some income as dividends and save some income tax.

That said, I'm not sure there's much point in doing anything for only 'a few months', certainly not if it's only to get the VAT back on a laptop.

ROB_GTR said:

I have previously bought things for the company I worked for and not paid VAT..

I suspect you were quoted net of VAT and just never saw it. It would have been on the invoice (assuming it was a vatable item), and paid and then reclaimed by your employer.

Edited by Simpo Two on Friday 23 December 17:35

[Fastpedeller]

brman said:

if you are earning well into the upper tax bracket then I think Eric's advice of "talk to an accountant" is still valid, if perhaps for the wrong reason.
You can learn it all yourself but to be honest, life it too short. And a decent accountant will save you more than he costs you.

The trouble with the internet advice approach (however quick a learner you are) is you never get the full picture so are always missing something......

I'm not sure I agree with "a decent accountant will save you more than he costs you", as you can offset exactly the same expense items against tax as the accountant will. Having said that, I agree that using an accountant is probably your best route, especially if you are in the high earnings bracket (I'd like to be). If you are earning large amounts it's probably better to spend your time doing that, whilst the accountant does the necessary - otherwise you'll spend valuable time tearing your hair out rather than earning!

[thebraketester]

AFAIK if you are buying PPE (i.e consumable) equipment for use in your business, then you just write the total cost of the stuff down in your "expenses column"

Same as the computer, providing you use it solely for your business then you can put the full amount through.


Do not be afraid to call the HMRC if you are not sure on things, they are usually helpful.

[Fastpedeller]

thebraketester said:

AFAIK if you are buying PPE (i.e consumable) equipment for use in your business, then you just write the total cost of the stuff down in your "expenses column"

Same as the computer, providing you use it solely for your business then you can put the full amount through.


Do not be afraid to call the HMRC if you are not sure on things, they are usually helpful.

Yes The total amount is the expense, - but is this the classic 'mistake' of thinking it costs nothing though? All you "gain" is the the income tax offset by this (could be 20%, could be 40%, could be zero)

[2 sMoKiN bArReLs]

ROB_GTR said:

No real need to be clever is there Eric!

He wasn't. What he was saying is if you are asking such really basic business questions you need help & soon. (before you get in a royal muddle)

Good luck

[thebraketester]

Fastpedeller said:

thebraketester said:

AFAIK if you are buying PPE (i.e consumable) equipment for use in your business, then you just write the total cost of the stuff down in your "expenses column"

Same as the computer, providing you use it solely for your business then you can put the full amount through.


Do not be afraid to call the HMRC if you are not sure on things, they are usually helpful.

Yes The total amount is the expense, - but is this the classic 'mistake' of thinking it costs nothing though? All you "gain" is the the income tax offset by this (could be 20%, could be 40%, could be zero)

Absolutely. It can be confusing.

[Eric Mc]

2 sMoKiN bArReLs said:

ROB_GTR said:

No real need to be clever is there Eric!

He wasn't. What he was saying is if you are asking such really basic business questions you need help & soon. (before you get in a royal muddle)

Good luck

That's precisely what I was saying.

There is a very real reason why HMRC are trying to engineer accountants out of working with taxpayers to save them money.

The proposals for Making Tax Digital are effectively removing tax help from the regular submissions taxpayers will be making every four months. HMRC also don't want accountants to be able to check the tax payer's position on a regular basis.

The fact that HMRC are going to such trouble to make life difficult for accountants indicates to me that they really do think accountants must save their clients too much tax.

I had an example in the last week of what happens when an ordinary person decided their accountant is too expensive. I was charging under £400 per year to cvomplete a set of self employed accounts and the related self assessment tax return.

To save themselves money, they decided to submit their own 2015/16 return. HMRC sent me the tax calculation based on what the client submitted. I calculate that this decision has cost the client over £2,000.

Edited by Eric Mc on Friday 23 December 20:31

[dartissimus]

You have set yourself up as a sole trader in a particular field, able to earn a decent living.
Does that make you a tax expert as well.
Stick to what you know about, and look on the accountant's fee as a tax saving investment.

[mdianuk]

ROB_GTR said:

No real need to be clever is there Eric!

He's not being clever, he's making a valid point. You've confused two fundamental parts of tax and it could put you in a right mess. One thing I learnt very early on in business was that an accountant worth his weight will save you more in efficient use and understanding of the tax system than you pay them, so hear a few out.

[Eric Mc]

I admit I was a bit curt.

However, the sentiment I wanted to express was that, no matter how simple you might think your affairs are, the tax man has conspired to make them a lot more complex than you can possibly imagine.

[ROB_GTR]

Thanks for all the advice.

So if I were to seek advice from an accountant, what would be a reasonable price to pay for one?

I'm currently contracting on a day rate but for an unknown amount of time but will be less than 6 months.

I've registered with HMRC as a sole trader but are there any benefits to being a sole trader or do I take the money, pay TAX at the end of the year and treat it as a regular job?

I want a laptop for work but also some home/pleasure use too.

[thebraketester]

My wife pays about 400 to do a years worth of account. I DIY mine.

[Eric Mc]

ROB_GTR said:

Thanks for all the advice.

So if I were to seek advice from an accountant, what would be a reasonable price to pay for one?

I'm currently contracting on a day rate but for an unknown amount of time but will be less than 6 months.

I've registered with HMRC as a sole trader but are there any benefits to being a sole trader or do I take the money, pay TAX at the end of the year and treat it as a regular job?

I want a laptop for work but also some home/pleasure use too.

I would think anything between £300 to £400 would be reasonable for a small sole trader.

As you are now set up as a sole trader, the way it works is as follows -

HMRC will give you a Unique Tax Reference (UTR)

After 5 April 2017 they will contact you telling you that you must submit a self assessment tax return for the tax year 2016/17

That return must be submitted to them on or before 31 January 2018

Any Income Tax and National insurance arising on your sole trader profits will also be payble in full on or before 31 January 2018.

Hope that helps.

[fridaypassion]

Its rare for accountants not to be worth their fees. In my very early days I did it DIY and there are questions that come up when its new to you that are not illy questions at all such as the OPs it doesnt mean that hes a simpleton or whatever the system is confusing especially at first glance.

Sling it in DIY. If the business works and you are making some proper money always get the professionals in.