Sole trader - capital allowances HELP

richimgd

Hi everyone.

I am a graphic designer / web developer.

I am setup as a bit of a small time business, by means of being registered as a sole trader. I am full time employed so only really do quite a modest amount of freelance work on the side, but thought I'd set myself up and do things the 'proper way' with a business account and business debit/credit card for business purchases so if my business grows I will have everything set up accordingly. I basically put all business earnings thorugh my business account, then any business related capital or operational costs get put through my business account - the usual stuff. So far I havent really had any 'big' business purchases.

In a nutshell, I started trading in November 2011 so haven't done a tax return yet - my first tax return will be coming up soon though..!

Here are some quite rough and modest figures of how my finances are doing so far.

-2011-2012: Earned about £1,500
-2012-2013: So far earned about £1,000.

So, I have got about £2,200k in the business bank account currently (the above income minus some operational expenditure).


Now - here is the question. I want to invest in new computer equipment for business use and would like to buy it out of my business profits so I only need to pay tax on the remainder of what’s left of my profits. - probably nothing! This way I would save a massive chunk out of my tax bill or remove it alltogether. How would I do this? I am a bit of a newbie when it comes to tax returns etc. Do I need to do my tax return for 2011-2012 and prepare to fork out tax on the £1500 earned that year and then claim it back next year or is there a way to change the dates around / have an extended first accounting period of trading so after I invest in the new equipment I only pay tax on what would be a much smaller amount of profit or as I anticipate I probably wont have any profit since buying an Apple computer is likely to cost pretty much most of the money in my business account - so in theory I wont have much taxable profit left..?

I am sure I have probably offended anyone with account experience so would appreciate any help. If I am totally wrong and misunderstood how thing process works, please let me know and feel free to put it in idiots terms! I will probably also seek the advice on an accountant but first want to get an overview of my options.

Many thanks

richimgd

*EDIT*
Ok - I have come to a bit more of an understanding about what I need to do although I still arnt sure if I have got this all right. This is after doing some research which I probably should have done before my first post.

I think I should just buy the Mac as normal through my business account and obviously keep the receipt.

I will need to do my 2011-12 tax return and put anything on there that is to do with that year of trading. Because this would be my first year of trading there might be an opportunity to claim for various items of equipment that I bought leading up to going in business that at the time were for personal use but have now 'become business assets'. Items such as my computer equipment, printer and monitor are all items that I now just use for business use and have all the original recipes for (bought between 2-5 years ago). The value of these items at the time would be around £2500, so wether or not I could work out todays value of the equipment - lets say it is £1000. Could I reduce my 2011-12 profits by that amount to reduce my tax bill? I probably need to speak to an accountant for sure, but if anyone has any rough idea of if this type of practice is possible that would be good.

For my 2012-13 tax return and for perhaps the next 2 years I can then claim for annual investment allowance (AIA) for my Macbook purchase as it falls under the 'plant and machinery' bracket. So if it item is £1500, I would then claim £500 per year for 2012-13, 13-14 & 14-15. I take it this type of asset purchase cannot be written off in a single year?

If anyone can help clarify if I am getting more of an understanding or any other advice that would be great.

PlutoinCapricorn

Have you read through the relevant parts of https://www.businesslink.gov.uk?

Did you know that HMRC do free courses where they explain about claiming expenses?

If you file online, you have until Jan 31st 2013 to submit your return. While leaving it to the last moment isn't advised, this does give you ample time to understand the rules.

richimgd

I didnt realise there were free courses. Thats great, I have booked myself on one. Thanks very much.

PlutoinCapricorn

Not all sole traders have a business account and business credit/cards, in particular those who do not have high earnings. Obviously you do need a business account if you are not trading under your own name and/or are paying in lots of cash.

In addition, some people do put small capital items in with the sundry expenses, all the more of the total income is under £60k, which means that totals only need be submitted. I put my new laptop in with the general expenses.

But if you hope to get really big, you will be prepared.

CinnamonGirl_2

I just happened upon this thread and read it with interest, as some of it is applicable to me.

OP/ anyone else: as a sole trader who opens a business account can expenses/ capital allowances etc be claimed only on purchases made from the business account, or can they also be claimed if purchased from the sole trader's personal bank account/ credit card?

Cheers!

Annisele

If you're a sole trader, then you are your business - there's no legal distinction between you and your business.

You might have decided to label one of your bank accounts "business" and the other one "personal", but they still both belong to the same legal entity. If a purchase was tax deductible if made from one account, it'll still be tax deductible if made from the other.

(Separately, you might find your bank gets antsy if you use your personal account for business purposes - the terms and conditions of your personal account probably prevents that. However, that's between you and your bank, not between you and HMRC).