New Sole Trader - Repaying Startup Costs to personal account

Gardeneress

My husband has just started a garden maintenance business as a sole trader. I am going to do all his book-keeping and accounts and have found lots of useful info on the web.

However, there is one issue where I cannot find any information.

He has spent money on start up costs (mainly a van and tools) before any money has come in.

Most of this was paid for out of our personal cheque account, and then when the busness account was opened I put in £300 from our personal account so we could start using the account to pay for things.

Can I just gradually transfer money out of the business account into our personal account to repay these 'loans'?

antrobus

Gardeneress wrote: »

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Can I just gradually transfer money out of the business account into our personal account to repay these 'loans'?

Yes you can, although there's no particular necessity to do so.

Most businesses need some kind of up front investment to get them started. In your case it was the cost of a "van and tools" plus the £300. That's what accountants call 'capital introduced'; aka a fancy name they need for the number required to make things balance.

jexygirl

It sounds as though you would benefit from a free half hour session with a proper accountant, which most offer, as accounting is not quite as simple as a what we spent /what we took excel sheet, and they can save you a huge amount - more than what they cost you! You can ask questions you are unsure about and get it set up to maximise profits and benefits to you that you had no idea about.

Mistral001

If the OP's husband started trading after buying the van etc, then he can bring in the value of those items into the business. If he started trading before buying them, then they are already in the business. Remember the books need to start from the day of starting to trade and not from when the business account was started.

An accountant will help you with this as others have suggested.

thriftwizard

The tax office do free workshops where they explain all this to you. I did three of them last year & whilst they weren't exactly exciting, they were very informative & useful & we were given lots of useful handouts to refer to. As I understand it, you can indeed take money to pay yourselves back & account for it as "drawings".

dave2

Since he's a sole trader there's no legal or tax distinction between the cash in the business bank account and in the personal bank accounts. So he can transfer as he sees fit.

However this mentality of "business vs personal cash" is generally a good one. Cash in the business bank account to finance the business, cash in your personal bank account to finance the personal budget.

Also separating things makes life a lot easier when it comes to doing taxes, or preparing accounts.

By the way, many traders tend to think of their regular monthly/weekly transfer as a "wage" but remember his entire tax bill will come later! Without knowing how much he's making this is a very vague guess, but consider putting say 10% of the "wage" into a savings account to cover the tax.

The "wage" is actually a "drawing". It's not an expense in the accounts but a distribution/return to him of the money he has put in + the profit he has made. It is not an expense for tax. You can however claim for those expenses bought for the trade, if you bought them before commencement then they are treated as having been bought on the first day of trading.

I trust he's notified HMRC that he has commenced self-employment?

I'd always suggest a new business visit an accountant. This and major changes is when they're most valuable. Often they don't charge much for the initial advice, especially when they're hoping to get an annual accounts prep + tax return job out of it. You could do that yourself, though if you want them to file the return, since you're going to prepare the figures then provided you're reconciling that business bank account it really shouldn't cost much.