sole trader tax, car, perks, help!!!

jam14

Right here goes - I set up 12 months ago as a sole trader, I am partly out on the road and partly in my office (in a dedicated room in the house) My initial car cost £6000 which I loaned from family & have now repaid. I do approx 35,000 miles per year so expect it will need replacing in another 12 months. I am putting money aside each month to afford a new vehicle at that time. I am not vat registered as my turnover is not high enough to require this. Basically all I do is fill up with diesel and pay for the wear and tear on my credit card which is settled promptly at the end of each month - any money saving options?

We currently live off my wifes wage but I pay myself approx £2500 every now and again whilst putting away the expected 20% tax to a savings account, I have heard people speak about dividends rather than wages but I am unsure if this is an option for a sole trader r how it works? I have also heard talk of self employed paying themselves a small amount per month/year to keep under tax levels but again am unsure how this is done and how they extract the actual cash?

I run the car, the home office with several pc's and on top of that have bought as one offs several small pieces of equiptment, I beleive I can claim a small amount towards heating lighting etc.. but am I missing anything else that may help ? depreciation etc..

I am also looking to move house an again a mortgage in April, I have the last 12 months books plus the previous 12 month when I did a small amount whilst still working in my main job, we can probably borrow enough on my wifes salary but what the position on borrowing myself?

If you need to know anything else about my situation please ask, I am obviously new to self employment and appreciate any pointers.

Annisele

I suspect you'd benefit from a discussion with an accountant. (If the £2,500 you pay yourself "every now and then" is monthly, then I'd say you'd almost certainly benefit from talking to an account. If it's every six months, maybe not so much.)

To try to answer some of your questions:

Dividends are to do with limited companies, not sole traders. For some people it's good to set up as a limited company even below the VAT limit, but that's certainly not for everybody. However, I do think that it's best to make an active choice about whether to go down the limited route or not - and at the moment it sounds as though you might have gone the sole trader route by default.

You likely should take depreciation into account in your accounts.

Many lenders are nervous about lending to the newly self employed, and with less than three years I think you may struggle to borrow in your own right.

jam14

thanks, the initial set up was paying off the car and buying kit etc.. this is a quiet time for th etrade so income over Nov-Jan is limited, I would hope to be able to draw on approx 20,000 per year wages if things stay stable, I am not getting an accountant so am looking for any ways to save outgoing

Firefox1975

You can draw the money whenever you want.

At the end of the year you (your accountant) will fill in a Tax Return which details whatever income you have taken from the entity as your own income liable to taxation.

if you have initially input any cash capital into the business this can be disallowed for taxation purposes when drawings are made.

ceeforcat

It is only my opinion but I will never understand why the first expense saving that is considered is on accountancy fees when, invariably, that is the one thing that could save you money and, most definitely, stop costing you money. Their fees are a tax deductible expense meaning that your net cost is 71% of the bill.

From your questionning, you certainly need an accountant in the first year, at least. For example, the money that you draw from your business, whether hundreds or tens of thousands has nothing to do with your profit or your tax liability. If he/she cannot save you at least the cost of the fee in the first year, they are not worth going to.

lincroft1710

If the room in your home is used solely as your office and is never used by yourself or other members of your family other than in connection with your business, then you run the risk of having to pay business rates on that room. If so, your council tax band might (and I stress "might") be lowered as your home would effectively be smaller.

sarahk100574

lincroft1710 wrote: »

If the room in your home is used solely as your office and is never used by yourself or other members of your family other than in connection with your business, then you run the risk of having to pay business rates on that room. If so, your council tax band might (and I stress "might") be lowered as your home would effectively be smaller.

...never heard of anyone saving on domestic council tax as a result of running a business from home! I have however seen people get themselves into all sorts of knots with capital gains tax on their property as they have declared the office as exclusively for business in order to save a few quid in the short term.... in the long run it can cost thousands!! IMO you should see an accountant BEFORE you get yourself into any sort of mess!

CLAPTON

jam14 wrote: »

Right here goes - I set up 12 months ago as a sole trader, I am partly out on the road and partly in my office (in a dedicated room in the house) My initial car cost £6000 which I loaned from family & have now repaid. I do approx 35,000 miles per year so expect it will need replacing in another 12 months. I am putting money aside each month to afford a new vehicle at that time. I am not vat registered as my turnover is not high enough to require this. Basically all I do is fill up with diesel and pay for the wear and tear on my credit card which is settled promptly at the end of each month - any money saving options?

We currently live off my wifes wage but I pay myself approx £2500 every now and again whilst putting away the expected 20% tax to a savings account, I have heard people speak about dividends rather than wages but I am unsure if this is an option for a sole trader r how it works? I have also heard talk of self employed paying themselves a small amount per month/year to keep under tax levels but again am unsure how this is done and how they extract the actual cash?

I run the car, the home office with several pc's and on top of that have bought as one offs several small pieces of equiptment, I beleive I can claim a small amount towards heating lighting etc.. but am I missing anything else that may help ? depreciation etc..

I am also looking to move house an again a mortgage in April, I have the last 12 months books plus the previous 12 month when I did a small amount whilst still working in my main job, we can probably borrow enough on my wifes salary but what the position on borrowing myself?

If you need to know anything else about my situation please ask, I am obviously new to self employment and appreciate any pointers.

in the nicest possible way, from reading this I would say you have absolutely NO idea about tax for self employed people.

whether you live off your wife's income or not has absolutely NO relevance to your tax

how much you 'take out' of the business has absolutely NO relevance to your tax

your tax bill is based on
1. your income (i.e. turnover; money from your customers)
2. less your expenses.. this means the expenses of running your business
3. that gives your profit

you need to save tax and the NI (both class 2 and class 4 ) based on your profits so you can pay this when required

Note the tax and NI are based on your PROFIT and has nothing to do with what your 'takings' are

a. have you registered as self employed with the HMRC
b. are your paying class 2 NI contributions
c. do you understand the two different ways you can claim your car/travel expenses as a business expense?


If you gave some indication of the sort of work your do and the total income etc people may be able to help a little more

chrismac1

See an accountant! Three reasons:

1. Your post suggests you don't really know the basics. Screw up a tax return once and you'll regret not hiring one - I have several clients who went DIY but it turned into BIY - botch it yourself! HMRC can be very nasty, one of them came to me in tears about it.

2. You are on the borderline for benefitting from running a limited company. A forum like this is not the place to make such a decision. A decent accountant will ask about all your finances - including the rest of your family's - and spell out the pros and cons of this step.

3. You should save money doing so, and at the same time greatly reduce the prospect of the sort of unwelcome HMRC attention mentioned in point 1.

lincroft1710

sarahk100574 wrote: »

...never heard of anyone saving on domestic council tax as a result of running a business from home!

You only "save" on Council Tax when that part of the house used exclusively for business purposes is assessed for Non Domestic (or business) Rates and the value of the part still occupied as living accommodation is less than the minimum value of the existing CT band.

Most "one person businesses" operating from home do not use a room exclusively for their business. After the day's business use the room is used for living purposes, thus avoiding Non Domestic Rates.

jam14

ok guys lets start over
I have someone doing my ac!!!!s not an accountant but someone experienced in sorting the paperwork and I have already submitted 2 returns with no issues. My annual turnover is say 35,000 - with 10,000 of that being spent on equipment, hotels, car upkeep & mainly diesel. This is paid by credit card and settled at the end of each month. I charge a flat £25 per hour rate be it driving onsite or in the office to keep things simple for clients and this balances itself out over the week.
I would like clarification on the best way to claim business mileage I was under th eimpression this was only up to a certain level, I do approx 35000 miles per year.

Bearing in mind I am saving for a new car in 12 months when it gets to April what is best to do with the £6000 I will have saved up in my business account? leave it there or withdraw as earnings?

I am sucessfully managing everything merely looking for a few hints on things I may be unaware of, sorry for any initial confusion but I am noy totally clueless as I may have appeared!! thanks