Trying to Understand Tax
Discussion
So, I'm looking at going self employed, and for some reason am finding it hard to understand the way that you pay the tax. I know that it is paid at the end of the year, but you can claim expenses on the tax return to lessen it. The way I have been told it works today is that for example: I owe £500 in taxes to HMRC. Therefore, if I go and buy a truck specifically for work for £500, it would mean that I do not owe the tax office anything, as it is for the business and not for personal use.
Is this correct or am I being a complete mong?! Any help greatly appreciated, I think I'm definitely going to need an accountant!
Is this correct or am I being a complete mong?! Any help greatly appreciated, I think I'm definitely going to need an accountant!
MOTORVATOR said:
Yes you are and yes you do. 
The truck or whatever is regarded as an expense and comes off the income line. Not necessarily all of course but you would then calculate tax owed on what remains of your income.
I'm guessing you're an accountant?! I'll chuck you some hard earned come tax time if so!The truck or whatever is regarded as an expense and comes off the income line. Not necessarily all of course but you would then calculate tax owed on what remains of your income.
I'm afraid you are being a complete mong 
If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
Eric Mc said:
I'm afraid you are being a complete mong
If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
I haven't started being self employed yet, so no need to notify HMRC yet! And I'd also have to pay class 4 NI contributions as well, as I'll be earning over £7,474 or whatever the limit is set at wouldn't I?If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
But I would still be able to claim back 100% of the vehicles value against my tax, if I bought something like a Ford Ranger? As far as I understood it, anything bought for business use, you could claim back on tax. So if I were to get broadband for the business and for home, I could claim back the business percentage of the broadband usage on my tax return and pay the home usage out of my own pocket?
I will definitely get an accountant to sort it for me, but I also want to have an idea of what I can and can't claim for so that I don't get myself into trouble with the taxman through buying too much stuff thinking I can claim it all back on tax!
samu23 said:
Your expenses are deducted from your income, which will give you your profit, tax is then calculated on your 'Profit'.
Your expenses do not get deducted from your tax charge.
Also the purchase of a van/truck etc is not considered an expense so it is further complicated.
Jesus, I'm confused. Numbers aren't for me. Definitely going to get an accountant for this stuff!Your expenses do not get deducted from your tax charge.
Also the purchase of a van/truck etc is not considered an expense so it is further complicated.
Just to complicate matters : This truck ? You'll only use it for work related stuff ? If you use it for private use, then surely it comes under the complexities of company car tax, and IIRC commercial vehicles get a tax liability of £3k, so assuming you were on a 10% tax rate, you'd pay 300 quid tax for the privillage. If your commercial vehicle were new and expensive then yes, not an issue, but .......
Or you could buy the truck, but charge yourself 45p a mile tax free.
Or you could buy the truck, but charge yourself 45p a mile tax free.
MOTORVATOR said:
This self employment. Doesn't have numbers involved in the work you carry out does it? If so we need to offer further advice. 
To be honest he seems less confused than my first accountant, who my new accountant has tried to be professionally polite about, whilst putting right the errors. MOTORVATOR said:
This self employment. Doesn't have numbers involved in the work you carry out does it? If so we need to offer further advice.
Christ no! Use of a tape measure occasionally when I'm fencing and that's about it! Oh, and counting the cash in my pocket to see if I've got enough for a pint at the end of the week 
New POD said:
Just to complicate matters : This truck ? You'll only use it for work related stuff ? If you use it for private use, then surely it comes under the complexities of company car tax, and IIRC commercial vehicles get a tax liability of £3k, so assuming you were on a 10% tax rate, you'd pay 300 quid tax for the privillage. If your commercial vehicle were new and expensive then yes, not an issue, but .......
Or you could buy the truck, but charge yourself 45p a mile tax free.
Company Car rules only come into effect if the business is being run through a limited company and the company owns the car and the director uses the car for private purposes.Or you could buy the truck, but charge yourself 45p a mile tax free.
If the business is a sole trader, than Company Car rules do not apply.
Sole traderships DO have to take into account private useage of cars (or any other business assets for that matter) but they do so in a diferent way to the manner in which such matters are handled in limited companies.
expensivegarms said:
So, I'm looking at going self employed, and for some reason am finding it hard to understand the way that you pay the tax. I know that it is paid at the end of the year, but you can claim expenses on the tax return to lessen it. The way I have been told it works today is that for example: I owe £500 in taxes to HMRC. Therefore, if I go and buy a truck specifically for work for £500, it would mean that I do not owe the tax office anything, as it is for the business and not for personal use.
Is this correct or am I being a complete mong?! Any help greatly appreciated, I think I'm definitely going to need an accountant!
To use your example:Is this correct or am I being a complete mong?! Any help greatly appreciated, I think I'm definitely going to need an accountant!
You earned £8,000 in a year (your income)
You spent £5,000 in the same year on desiel, tape measures, road tax (your expenses)
Which means you made £3,000 profit, so you have to pay £500 tax
So you buy a truck for £500. thinking it will offset your tax. Nope!
What it does is it means you actually spend £5,500 in expenses, so you made £2,500 in profit and will have to pay tax on that (say £400)
Now as already has been pointed out a truck is an asset and not an expense etc. etc.
Hopefully that gives you a better idea and yes you need to use an accountant.
There may also be local courses in managing Small business's that you could go on?
Eric Mc said:
I'm afraid you are being a complete mong
If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
If you are in business to earn a living, which most businessmen are, you need to concentrate on the crucial issues to your business and business well being.If you are self employed you need to do a number of things -
- notify HMRC that you have commenced trading within three months of then commencement of trading
- start paying monthly or quarterly Class 2 National Insurance contributions
- when you get to the end of your ACCOUNTING year prepare as et of accounts. These normally consist of a profit and loss account and balance sheet although HMRC will accept a simple profit and loss account only for small traders.
You can chose any date you like to set as the date up to which you make up your annual accounts - although for convenience sake you can chose the tax year end date as your accounting year i.e. 5 April - although HMRC will accept 31 March and that makes a bit more sense for a business.
Regarding your example of buying a business vehicle, vehicle are NOT expenses and you cannot simple deduct the cost of a vehicle against your income. Vehicles are fixed assets and if you buy one tax relief is obtained through claiming the relevant Capital Allowance. Commercial Vehicles such as trucks, vans, pickups etc are treated as Plant and Machinery and the relevant Capital Allowances are either an annual claim of 20% (reducing to 18% on 6 April) or a one off 100% claim under the Annual Investment Allowance rules.
Motor cars are NOT eligible for these deductions, Capital allowances on cars have a different et of rules.
Get an accountant, it's easier.
Eric Mc is absolutely spot on. That is golden advice.
Get rid of the nuisance of trying to deal with a series of problems that you can safely leave to someone better qualified within that expertise.
Get an Accountant. Concentrate on your business. That must be your priority.
lestag said:
To use your example:
You earned £8,000 in a year (your income)
You spent £5,000 in the same year on desiel, tape measures, road tax (your expenses)
Which means you made £3,000 profit, so you have to pay £500 tax
So you buy a truck for £500. thinking it will offset your tax. Nope!
What it does is it means you actually spend £5,500 in expenses, so you made £2,500 in profit and will have to pay tax on that (say £400)
Now as already has been pointed out a truck is an asset and not an expense etc. etc.
Hopefully that gives you a better idea and yes you need to use an accountant.
There may also be local courses in managing Small business's that you could go on?
So on that basis, if I spent £3000 on a truck, then I wouldn't have made a profit... so no tax, right? So basically, make a profit until the last month before the tax/accounting year is up... then spend it all! You earned £8,000 in a year (your income)
You spent £5,000 in the same year on desiel, tape measures, road tax (your expenses)
Which means you made £3,000 profit, so you have to pay £500 tax
So you buy a truck for £500. thinking it will offset your tax. Nope!
What it does is it means you actually spend £5,500 in expenses, so you made £2,500 in profit and will have to pay tax on that (say £400)
Now as already has been pointed out a truck is an asset and not an expense etc. etc.
Hopefully that gives you a better idea and yes you need to use an accountant.
There may also be local courses in managing Small business's that you could go on?
To some extent, yes. Part of the normal tax planning service an accountant will give a client would be advice on whether to spend money on certain types of fixed assets and when to do so to obtain best tax relief. It's what we do.
To make maters even more complicated, the type of finance used to acquire a fixed asset will also determine the type of tax relief that can be claimed on that asset. So, a client should always consult with their accountant BEFORE they go ahead and get an expensive asset as they could save themselves a lot of tax purely by chosing one type of asset over another or one type of finance over another.
To make maters even more complicated, the type of finance used to acquire a fixed asset will also determine the type of tax relief that can be claimed on that asset. So, a client should always consult with their accountant BEFORE they go ahead and get an expensive asset as they could save themselves a lot of tax purely by chosing one type of asset over another or one type of finance over another.
expensivegarms said:
So on that basis, if I spent £3000 on a truck, then I wouldn't have made a profit... so no tax, right? So basically, make a profit until the last month before the tax/accounting year is up... then spend it all!
Yup! (ingoring the fact it is an asset and you will only be able to claim a portion of it each year as depeciation)..... but then, you would have no money to feed yourself 
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