Capital Gains & Sole Trading Question

Dusty6969

Hello, I am posting on behalf of a colleague who isn't internet friendly yet (!) but who would be grateful for any accurate feedback.

Completion of a first self-assessment form for 2010-2011 was requested.
She has made no profit yet, but made considerable outlays and only recently formed her sole trader business.
From 2009 to spring this year, she did a part time course which consumed all her time.

Her 87 year old grandmother wanted to help and give her £14,500 to live on, pay for expensive research books, course fees, printing for aborted advertising, travel to course classes etc. She is totally unsure about the capital gains situation and how to claim backward for any costs over the year or two to work towards this point.

Taking course fee only into account, the first course was in 2009 and cost about £900.
The second was 2010 to 2011 and cost about £2,500.

Autumn 2010 she saw 1 client 3 times, charging only £10 per hour in order to get an idea of how the work felt. She wasn't ready to do it properly and returned to her studies. It was so informal that she didn't consider setting a business up at that stage.

Then, after qualifying she set up the business this last summer. She is still learning and so has only seen 1 client, but rents a room now by £60 monthly membership fee and £15 per hour when needed.
She has so far paid no tax or NI as she KNOWS she is in loss. She has claimed no benefit throughout. Instead her grandmother gave a very kind 14,500 towards the business and to pay for living costs and course costs. She wanted to help, but now there are uncertainties:

1] Will the money be counted as capital gains (beyond the allowed 10,600)
2] Can she claim backwards on any of the costs previously paid to work towards establishing her treaining and business retrospectively, even if the business didn't exist formally until recently.
3] Can she set previous costs for courses and printing etc. against any capital gains tax that she may be liable to pay?

With such losses she is very reluctant to see an accountant, as that would just add to the loss mountain in her eyes, since there isn't *any* profit at this early stage.

Any insights appreciated. She wants to do it right, but also wants to avoid further charges etc. I would really like to help her as she has worked so hard to turn her life around.

Many thanks in advance,
Jason.

chrismac1

Firstly capital gains has nothing to do with this, and there is no gift tax in the UK. There may potentially be inheritance tax to pay if her grandmother dies within 7 years. The one thing I'd be asking her is whether she is genuinely trading with a view to making a profit? I'd be looking to help her come up with a business development strategy to make a profit in the year ahead. From a tax point of view, the costs incurred can be treated as a trading loss, the one caveat being HMRC may challenge this if there is no real income at some stage - their question being whether she is genuinely trading at all?

http://www.hmrc.gov.uk/helpsheets/hs227.pdf

In terms of getting loss relief, her best bet if she has paid tax in the past 3 tax years - is to do a loss carry back, helpsheet attached. Note she should have technically registered self-employed within 3 months of first trading, but for the small amount involved I'd be arguing that this summer was her first date of genuine trading, hence she should have registered self-employed than and started paying Class 2 NI from then.

00ec25

Dusty6969 wrote: »

From 2009 to spring this year, she did a part time course which consumed all her time.

pay for expensive research books, course fees,travel to course classes etc.

Taking course fee only into account, the first course was in 2009 and cost about £900.
The second was 2010 to 2011 and cost about £2,500.

Then, after qualifying she set up the business this last summer.

Sorry but the costs of the "course(s)" she has attended are not allowed as costs against her trading income - the HMRC rule is that training or courses undertaken to acquire a new skill or qualification are not allowed as a cost of the business.

http://www.hmrc.gov.uk/manuals/eimanual/EIM31650.htm

If the training is merely an update for a qualification she already holds then that might be different, but she needs to clarify exactly what the course was for and what she got out of it.