Very small business and very large tool cost

fluffymuffy

I'm self employed, part-time, in two very different types of business. Mostly I'm an architect and sell my services as advice to another company. This makes for a very simple tax return form which I can do myself. I add up all my invoices and deduct the cost of government registration and professional indemnity insurtance - both of which are compulsory. I don't have any other costs which are unique to my work. I don't need an accountant as I'm sure that any tax they might save me would be less than their fee.

The other thing I do, on a very small scale, is teach people to play the piano. I earn £52 a week (usually) from this and have no expenses. I use the digital piano in my parents house and they don't charge me anything.

I'm moving house soon and will have the extra space to have a dedicated music room and so will be able to teach from home. This isn't possible where I live now as it's too busy here with children about, and I don't have a piano. I'm starting to worry that I'm imposing on my parents' space and what started as a bit of fun is becoming more serious as I collect more pupils.

If I buy a piano to go in my new house is its cost a tax deduatable expense against my teaching income? A tool of my trade? I don't need one for any other purpose than teaching my pupils and my own practice to keep my skills keen. But the cost of a piano is rather greater than I'm going to earn by the end of this tax year. I could certainly spread the cost over two tax years. Am I allowed to do this? Is is simply a case of listing it on my tax return as "part payment" and "final payment".

I know I can claim the cost of tuning, and I figure that if I sell it one day I'd have to pay the tax. But I could sell it and get a better one for business purposes. I can't imagine ever stoping teaching. This is something I can do into very old age so it's something of a retirement plan too.

Am I thinking on the right lines?

fengirl_2

Are you sure you don't incur travel costs in both of these businesses?
The cost of a piano will not be allowable as a one off deduction, but you will be able to claim capital allowances on your tax return. The allowance is 50% in the first year and 25% pa thereafter, but you have to discount private use - how much is up to you, but you will need to justify it if challenged by HMRC. Cap allowances will therefore be claimed each year until the value reduces to nil, or you sell it. There is no income tax on the sale of the piano, but there may be a claw back of capital allowances - unlikely if you keep it for years.

fluffymuffy

No - I don't incur any travel costs. I work from home or my parents' house - which I vist a lot anyway.

I thought the 50% thing ended last April?
I'm trying to make sense of this - New Annual Investment Allowance http://www.hmrc.gov.uk/budget2008/bn12.pdf
It seems to be saying I can claim 100% in the first year up to £50,000.

fluffymuffy

Thanks very much jimmo - I didn't know I could carry forward a loss. I'll do that. I'll be buying the cheapest new acoustic I can find.

How complex? I really don't want to make it any more complex than what I can manage sort out for myself. Erm, with help from MSE folk, that is.

johnllew

jimmo wrote: »

I am afraid that I could not track down any mention on the HMRC site that the Finance Act 2008 has received Royal Assent. It may have, but I do not know.

The Finance Act usually receives Royal Assent in July. This year's received assent on Monday 21 July 2008.

fluffymuffy

johnllew wrote: »

The Finance Act usually receives Royal Assent in July. This year's received assent on Monday 21 July 2008.

Which I presume means I can claim the whole cost in one tax year (I'm planning to spend about £2000) and if my income from teaching doesn't cover it I'll just make a loss and carry it over.

I'm not planning to allow anything for personal use. I don't need a piano and won't be playing for personal pleasure but to keep myself up to speed with what I'm teaching. No one else in my household will get to play it either.

mrkbrrws

You could also set any loss against your other income for the year, or against your income of the previous year.

fluffymuffy

mrkbrrws wrote: »

You could also set any loss against your other income for the year, or against your income of the previous year.

Really? It's starting to sound complex now. I've always tried to keep my incomes separate and submitted a single page statement of accounts for each activity with my tax return. I'm not sure I want to cross over between them like that.