New Sole Trader with lots of questions

daddy_bro · 5 September 2017 at 3:57PM

Hi guys
I was recently made redundant from my job as a computer engineer and used some of the money to buy a computer delivery and installation business. I paid the previous owner £2k for the business and £6k for a van. I'm happy enough with the value I paid but my questions are more about tax and running a small business.
As a keen moneysaver I want to avoid having to hire an accountant if possible, hence coming here with a few questions.

1. My wife doesn't work but helps me on occasion when I'm moving kit and with book keeping etc so I believe I am justified in paying her a small salary which will help us pay less tax, but I'm a little confused about what is the best amount to pay her.
If I pay her under £11,500 she won't pay any tax but will pay some national insurance
If I pay her under £8,164 (primary threshold) she won't pay national insurance either but has some benefits.
If I pay her under £5876 (lower earnings threshold) she won't pay national insurance but will loose the benefits mentioned above.

From the point of not paying out more tax than we need to, which would be more beneficial for us as a couple?
Will I have to register for PAYE even if she isn't elegable to pay tax?
What are the benefits she gains if I pay her the middle amount?

2. I know I can claim tax relief on allowable expenses and am trying to figure out whether I'm better off claiming for the purchase of the van and all expenses seperately or to go with 45p/25p per mile. As I don't get any extra money for mileage I'd be elegible to claim back tax on the full 45p/25p which I think is 9p for the first 10,000 miles and 5p thereafter. It's looking like I'll be driving around 18,000 miles per year so I think short term the first option would be best but long term maybe the second. Any thoughts? Should I even claim against the entire £6k purchase of the van in the first year if I go the first route?

3. The van is used solely for business use so can I claim for all miles travelled including when travelling from home to a base to pick up parts? I'm currently doing work for the Post Office and have to collect parts from a base 25 miles away but this will probably only be for a few months so does that count as commuting? I've seen elsewhere on this site, 2 years cutoff being mentioned but can't find it mentioned in the HMRC documents.

4. I use my office for around 25-30 hours per month so am claiming £10 per month against tax. Does that sound right?

5. I'm just using a spreadsheet for all incoming and outgoing money. Is there any real benefit to forking out for software?

Lots of questions here so thanks for looking. I suspect these are very common questions but I've spent hours going through this and other websites looking for the answers TNA.

00ec25 · 5 September 2017 at 5:54PM

1. rather than write it all out again read this re wages for the wife:
https://webcache.googleusercontent.com/search?q=cache:zb9iXQUeFjwJ:https://www.taxinsider.co.uk/227-Keeping_it_in_the_Family_Wages_for_Spouses_and_Family_Members.html+&cd=1&hl=en&ct=clnk&gl=uk&client=opera

2&3. you have a choice:
either claim purchase cost (*) of the van and all its running costs (servicing, repairs etc), plus fuel in full and then do an adjustment for the % of personal/non business use on a mileage logged basis
or claim the mileage rate only on business miles

NOTE once you select a member you cannot change it from year to year for as long as you have that specific vehicle. You can change only when you get a replacement vehicle.
* the full 6k purchase cost of the van can be claimed as an annual investment allowance on your first year's set of accounts. For the purposes of AIA a van is not classified the same as a car. That may result in you making a loss which can be useful for tax purposes if you lost your employee job in this tax year so have PAYE against which to offset.
https://www.gov.uk/capital-allowances/annual-investment-allowance

which is best depends on your numbers - use the calculator
https://www.gov.uk/simplified-expenses-checker

4. £10 OK
https://www.gov.uk/simpler-income-tax-simplified-expenses/working-from-home

5. if you employ your wife you must use payroll software to report her earnings to HMRC as explained above

for your accounts themselves, no you do not need software but i really think it would be wise to see an accountant to get started in your first year as there are many things an accountant can advise you on besides the snippets you will get from a forum

daddy_bro · 5 September 2017 at 6:51PM

Thanks for the reply. I was hoping to avoid paying for an accountant as getting started has been a very expensive. However I take your point that for the first year at least it would be wise.
As for the calculator I went through it and am more confused than when I started. At the end it calculated the claim for the simplified method at £6500 which I had already worked out. But then working out by actual costs at £1080. Where on earth did that come from? Are they spreading the cost of the van over ten years?
Re employing SWMBO, I think the link you posted looks like it's ten years out of date so the numbers are wrong but I guess the rules still apply.

Snozzle · 5 September 2017 at 10:00PM

Hi - if it's any help I have been on several free courses run by Business Gateway (in Scotland) - one of which was an evening one by an HMRC employee - he couldn't have been more helpful and gave loads of great tax-saving advice. At the end he provided an accounts disc that I still use to this day to do my accounts - saving myself a small fortune each year. Business Gateway have loads of courses - preparing for self-assessment, marketing, book keeping, introduction to taxation - the list goes on and on. Perhaps there is something similar where ever you live. It was a very beneficial evening (some are even on weekends if you're working).

00ec25 · 5 September 2017 at 10:04PM

daddy_bro wrote: »

Thanks for the reply. I was hoping to avoid paying for an accountant as getting started has been a very expensive. However I take your point that for the first year at least it would be wise.
As for the calculator I went through it and am more confused than when I started. At the end it calculated the claim for the simplified method at £6500 which I had already worked out. But then working out by actual costs at £1080. Where on earth did that come from? Are they spreading the cost of the van over ten years?

the calculator is treating the "actual" cost as a capital allowance subject to 18% writing down allowance (on a reducing balance basis in subsequent years).
https://www.gov.uk/work-out-capital-allowances
That is not however how an accountant would do it given your circumstances as an AIA claim would be better

daddy_bro wrote: »

Re employing SWMBO, I think the link you posted looks like it's ten years out of date so the numbers are wrong but I guess the rules still apply.

the principle remains, that is why it was pointless writing it all out again

daddy_bro · 5 September 2017 at 10:16PM

00ec25 wrote: »

the calculator is treating the "actual" cost as a capital allowance subject to 18% writing down allowance (on a reducing balance basis in subsequent years).
https://www.gov.uk/work-out-capital-allowances
That is not however how an accountant would do it given your circumstances

the principle remains, that is why it was pointless writing it all out again

I see, another good reason to look for an accountant then.
I guess I'd better start calling accountants now, is it normal to ring round asking for estimates of the likely costs. I know this will depend to a large degree on how good my records are but should they be able to give me a rough estimate?

00ec25 · 5 September 2017 at 11:25PM

daddy_bro wrote: »

I see, another good reason to look for an accountant then.
I guess I'd better start calling accountants now, is it normal to ring round asking for estimates of the likely costs. I know this will depend to a large degree on how good my records are but should they be able to give me a rough estimate?

insist on fixed price, do not allow them to quote an hourly rate. As you are a "simple" sole trader (not a ltd co) then all you need is someone to convert your bookkeeping (assuming you are willing to do some) into a tax return and offer advice on tax efficiency. The latter must be done before the tax year end so any action required is done in year, hence the point of getting the advice in year one, particularly if it involves the treatment of first year losses as that can be technical.

most certainly if your records are organised, summated, and presented in a clear format, that should influence the final cost.

Obviously depending on location if you get a "local" accountant expect between £400 - £1,000. Less if you use an online sweat shop, but IMHO the latter is counter productive as you want readily accessible advice, not "cheap'n cheerless".

daddy_bro · 6 September 2017 at 9:03AM

Thanks for the advice, it's very much appreciated. I was pushed into my current situation by my previous employer selling off it's engineering department to the cheapest bidder. Thankfully I was able to get voluntary redundancy as the new company isn't doing too well and my job would have changed fundamentally for the worse anyway.
It's a very steep learning curve for me but it's great to be able to get advice here.

daddy_bro · 6 September 2017 at 9:06AM

Snozzle wrote: »

Hi - if it's any help I have been on several free courses run by Business Gateway (in Scotland) - one of which was an evening one by an HMRC employee - he couldn't have been more helpful and gave loads of great tax-saving advice. At the end he provided an accounts disc that I still use to this day to do my accounts - saving myself a small fortune each year. Business Gateway have loads of courses - preparing for self-assessment, marketing, book keeping, introduction to taxation - the list goes on and on. Perhaps there is something similar where ever you live. It was a very beneficial evening (some are even on weekends if you're working).

I'm in Northern Ireland but I'm sure there are similar courses here. I'll look into it thanks.

bingo_bango · 6 September 2017 at 10:59AM

Couple of places for you to start then.....

https://www.investni.com/support-for-business.html
https://www.enterpriseni.com/business-support/business-growth

I'm pretty sure each of the local councils has their own suite of workshops as well so worth checking in with them.

Invest NI should be able to advise if there are any HMRC courses available.

Harry_Jewes · 14 September 2017 at 6:16PM

After 40 years in business as a sole trader, director, bankrupt, start again, sole trader, director, sole trader, retired and still working.
Talk to an accountant. I have had the same gut for 30 years. Believe me, they will save you more than they cost you. Have a talk and come to a deal where they go easy on you for the first few years.
They are pros. Would you try to pull your own teeth out or treat yourself for an illness? No get a pro and sleep at night.
Best of luck with the venture

New Sole Trader with lots of questions

Comments

Confirm your email address to Create Threads and Reply

🚀 Getting Started

Categories

Is this how you want to be seen?

Get our FREE Weekly email full of deals & guides - and it’s spam-free