Starting up a new business:a little confused as to when I can start charging expenses

andy__f_2

Hi,

I've been looking at setting up my own business (as a sole trader) as a photographer for a while, and now the new tax year is here seems like a good time to actually officially launch it and turn it into a business. I'm hoping someone might be able to help with some advice with a query that's left me scratching my head somewhat.

As a bit of background info, skip this paragraph if you want:

Currently I'm in full time employment and plan to stay that way for a while but in my spare time over 4 years I've been doing portrait and wedding work for family and friends for free, mainly to build up a portfolio and also for the much needed experience. I have no plans to quit my job yet: the idea is to launch as a business and casually take on a few paying clients part time and build up more experience and knowledge, and hence build the business up slowly.

Now onto the question:

After doing a fair amount of research on various websites, including the HMRC, I'm a little confused by the process. According to the HMRC website, I can only register as a business from the point I start advertising, or from the point I have a paying customer, whichever is the earlier.

As to why I'm confused, well: it's the timing of everything, Following the HMRC guidelines then I need to invest money before the business can be launched (yes I know this is an obvious statement, but bear with me ).

A lot of money can be spent on a lot of things, flyers, websites, equipment etc, all the things that are needed before you advertise and more importantly take on clients.

Once I start advertising and taking on a client then I can register the business. However, as the business has officially started AFTER I've paid for everything to get it up and running, I can't see how I can charge these expenses against the business?

Or can I? Will they let me?

I've searched forums and web pages but can't find a clear answer.

If not, what is the answer here? Do some cheap advertising, register the business based on that, and then pay for the more expensive parts of the business, such as website and flyers etc?

Or am I making a mountain out of a molehill?

Musings:

The process seems a little strange to me. As my business is starting from a hobby, I'm lucky in that I have virtually everything I need.

But for larger business starting out on it's own where a lot of capital needs to be invested, such as plant and equipment, a long time before you can advertise, never mind take on a client, well it seems a little odd that you register after a lot of the money has gone out, and potentially it can't be claimed back.

It would make more sense to register the business and then start being able to charge expenses against it.

Thanks for your time

sequence

You register when you make your first sale, but you can claim business related expenses for some time before you started (think it's a year).

McKneff

I presume you realise it is the tax on the expenses that is allowed. Not the expenses themselves.

andy__f_2

McKneff wrote: »

I presume you realise it is the tax on the expenses that is allowed. Not the expenses themselves.

Sorry, what I typed could be a little misleading.

When I say claim expenses back, what I mean is claim business costs against the business' turnover- I'll reword my post.if it will let me

Just to add, I'll be a sole trader and not VAT registered

charlie-chan

Hi Andy,

You can actually look on the HMRC website here in order to see what expenses you are allowed as self employed/sole trader.

For the 2011-2012 year, as a sole trader teaching adults, I was able to claim travel expenses and other expenses such as textbooks/printer ink that I had bought before I registered with HRMC. It was part of that tax year.

persa

The short answer is you'll get relief for pre-trade expenses incurred in the 7 years leading up to commencement, with those expenses treated for tax purposes as if they had been incurred on day one.

Do remember though that not all expenses are tax deductible.

You start trading usually when you acquire a source of income (signing a customer would count, even if they don't pay up for ages).

See, that wasn't too bad! Leave those molehills alone!

andy__f_2

Thank you to everyone for your responses, they've been most helpful! Things are much clearer now than they were.

Many thanks

Andy

PlutoinCapricorn

Just to confirm what other posters have said, the rationale behind the rules is that HMRC do not want people to register as sole traders in advance in the hope that things will work out. Naive people might register as web designers and never get any work for example.

On the other hand, HMRC also know that some sole traders need equipment and stock etc. before they can start looking for customers, so you are allowed to claim for legitimate business expenditure incurred before your official start date. Just be sure to keep the receipts or evidence.