Sole trader self assessment question
Discussion
Hope someone can advise...
I've set up as a sole trader and have currently made a few quid, but not yet recouped my initial expenses. The ongoing plan is I buy myself lots of tasty kit and use the business to pay for it, thus freeing up my normal income for boring stuff like food and bills and mortgage payments and maybe a TVR.
So the question is, if the business never turns a profit and instead just covers costs the whole time, do I need to still declare it all on my self assessment forms? For information, it's a "hi-tech" industry that can arguably justify the continuous purchase of high cost items.
Ta in advance!
I've set up as a sole trader and have currently made a few quid, but not yet recouped my initial expenses. The ongoing plan is I buy myself lots of tasty kit and use the business to pay for it, thus freeing up my normal income for boring stuff like food and bills and mortgage payments and maybe a TVR.
So the question is, if the business never turns a profit and instead just covers costs the whole time, do I need to still declare it all on my self assessment forms? For information, it's a "hi-tech" industry that can arguably justify the continuous purchase of high cost items.
Ta in advance!
Short answer - yes.
Long answer - see below:
You are under a legal obligation to notify HMRC that you commenced Self Employment within three months of the commencement date. Failure to do so will result in an automatic penalty of initially £100.00.
If you commenced your Self Employment activity before 5 April 2006, you will definitely have to submit a 2005/06 Self Assessment tax return - whether you made trading profits or not.
This is not all bad.
For a start, I doubt if you really have broken even. In tax terms, "Break Even" literally means an exact Profit/Loss of "Nil". Most businesses who look on themselves as "breaking even" will in reality have made a small profit or a small loss. If the profit is small, then the tax will be small. If the business made a loss, then that loss can be utilised to reduce your tax liabilities in other areas or it can be to carried forward for offset against future profits from the business. You might find yourself in the position of being able to claim a tax refund for 2005/06!
You seem to be indicating that you assume "break even" will be achieved by investing "surpluses" in additional equipment etc. Please note that purchases of equipment are generally not treated as tax deductable business costs (such as Purchases of Materials, Labour Costs or General Overheads). This type of expenditure is treated as "Capital" and, at the most, will be only claimable for tax purposes as "Capital Allowances", not direct expenditure. Capital Allowances are a % of the original cost, not the full cost of the equipment. The current maximum % allowable is 50% in the first year of ownership and 25% thereafter. Capital Allowances on motor cars are much more restricted too.
I would therefore suggest that you WILL have trading profits for your first year with the possibility of some Capital Allowance s which may or may not result in a "taxable" loss.
You need an accountant.
>> Edited by Eric Mc on Friday 5th May 09:29
Long answer - see below:
You are under a legal obligation to notify HMRC that you commenced Self Employment within three months of the commencement date. Failure to do so will result in an automatic penalty of initially £100.00.
If you commenced your Self Employment activity before 5 April 2006, you will definitely have to submit a 2005/06 Self Assessment tax return - whether you made trading profits or not.
This is not all bad.
For a start, I doubt if you really have broken even. In tax terms, "Break Even" literally means an exact Profit/Loss of "Nil". Most businesses who look on themselves as "breaking even" will in reality have made a small profit or a small loss. If the profit is small, then the tax will be small. If the business made a loss, then that loss can be utilised to reduce your tax liabilities in other areas or it can be to carried forward for offset against future profits from the business. You might find yourself in the position of being able to claim a tax refund for 2005/06!
You seem to be indicating that you assume "break even" will be achieved by investing "surpluses" in additional equipment etc. Please note that purchases of equipment are generally not treated as tax deductable business costs (such as Purchases of Materials, Labour Costs or General Overheads). This type of expenditure is treated as "Capital" and, at the most, will be only claimable for tax purposes as "Capital Allowances", not direct expenditure. Capital Allowances are a % of the original cost, not the full cost of the equipment. The current maximum % allowable is 50% in the first year of ownership and 25% thereafter. Capital Allowances on motor cars are much more restricted too.
I would therefore suggest that you WILL have trading profits for your first year with the possibility of some Capital Allowance s which may or may not result in a "taxable" loss.
You need an accountant.
>> Edited by Eric Mc on Friday 5th May 09:29
Agree with Eric Mc here.
A decent accountant shouldn't be that expensive for your scenario. Plus they'll be able to give you a 'heads up' on tax situation months before you get a letter form the IR.
I've been a Sole Trader for ten years, did my accounts for the first two years, just not worth it for the cost of outsourcing.
A decent accountant shouldn't be that expensive for your scenario. Plus they'll be able to give you a 'heads up' on tax situation months before you get a letter form the IR.
I've been a Sole Trader for ten years, did my accounts for the first two years, just not worth it for the cost of outsourcing.
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