Starting a small business - personal loan and tax

LewBLew

Hello everyone, I'm new to the forum

I'm starting up a small business (sole trader) where the main asset of the business will be a vehicle which I am buying using a personal loan from my own bank. I get a good rate and it's quick and easy compared to seeking a business loan...

My business bank account is with another bank and my question is this - I think it would be fair to transfer some of my business revenue to my personal bank account every month to pay off the loan I've taken. Can I get tax relief on this small part of my business revenue since it is being used to pay off a 100% business asset, or is it tough luck because the money I've used is 'personal'?

E.g. the business makes £500 profit one month after all expenses, apart from the loan which I am paying myself @ £200/month. Do I get income taxed on all the £500 or £300?

Thanks
Lewis

nomunnofun

Neither of the answers is correct.

There is no problem in transferring an amount equivalent to the loan repayments to you personal account. Howver you can only claim the loan interest on the account to reduce your profit.

In your example, if £50 of the repayment is interest, your 'profit' would now be £450 and the balance owing on the loan would be reduced by £150.

LewBLew

I see, thank you. I guess I assumed the whole of the loan repayments could be classed as an expense (in an indirect way) and not just the interest.

CLAPTON

LewBLew wrote: »

I see, thank you. I guess I assumed the whole of the loan repayments could be classed as an expense (in an indirect way) and not just the interest.

you can set the cost of the vehicle against your profits so in effect you do indeed claim for all the expenditure

LewBLew

CLAPTON wrote: »

you can set the cost of the vehicle against your profits so in effect you do indeed claim for all the expenditure

Oh really is that so? If so the value of the vehicle is likely to wipe out any 'profit' for a good few months at least. Or would it just be the monthly loan amount counting here?

Another question - if I pay for something using my personal account for the business, e.g. monthly credit card payment for a website, how can I claim this as a business expense i.e. tax free?

Davide123

Just claim as normal, but do try to use the business account for all business expenses so that its easier

Nicola_Ed

Hi - will you be using the vehicle for private and business? You can only claim for the percentage of the costs that relate to business travel.

LewBLew

Hi. I'm buying it primarily for hiring out - although when it's not hired out (x amount of time) I would have use of it. Which I guess makes it complicated! But ideally it would be hired out 100% of the time and my only reason for buying the vehicle is for hiring.

I just think it's unfair that the entirety of the loan repayment cannot be classed as a business expense and therefore be deducted from my profits and therefore income tax.

The vehicle is costing more than the loan amount by the way. Part of the vehicle is being bought with savings.

CLAPTON

LewBLew wrote: »

Hi. I'm buying it primarily for hiring out - although when it's not hired out (x amount of time) I would have use of it. Which I guess makes it complicated! But ideally it would be hired out 100% of the time and my only reason for buying the vehicle is for hiring.

I just think it's unfair that the entirety of the loan repayment cannot be classed as a business expense and therefore be deducted from my profits and therefore income tax.

The vehicle is costing more than the loan amount by the way. Part of the vehicle is being bought with savings.

you are getting the entire loan and more but in two parts

if the vehicle is solely for the business you can claim the entire cost of the vehicle and you can claim the entire interest on the loan; that is equivalent to the entire loan

I would honestly suggest it might be cost effective to employ an account for the first year of business as they will probably save you more in tax than they charge

LewBLew

CLAPTON wrote: »

you are getting the entire loan and more but in two parts

if the vehicle is solely for the business you can claim the entire cost of the vehicle and you can claim the entire interest on the loan; that is equivalent to the entire loan

I would honestly suggest it might be cost effective to employ an account for the first year of business as they will probably save you more in tax than they charge

Thanks for your advice (and everyone else). As I'm new to this I agree, I think I will get an accountant! It really is mindboggling.