Does it matter which tax year?

SuperAllyB

Hi

Not sure if anyone can advise but we can't afford an accountant so i can but ask.

My wife started up a self-employed venture to sell bespoke items through ebay. Unfortunately, due to various issues including the fact that neither ebay nor paypal make exceptions for made to measure items in their interpretation of distance selling regulations, we have decided that it isn't going to work and are winding up the business.

Materials were bought throughout the 2012-13 tax year but any machinery was bought in March so negligible depreciation. As much as possible will be sold asap to minimise losses. Only 2 orders were paid for in the 2012-13 tax year.

For tax return purposes, can we put only materials relevant to those 2 orders on the tax return, saving the rest of the materials, sales, machinery etc for the 2013-14 tax year? Or do we have to put all purchases in the correct year and complete a balance sheet etc?

phill99

Really you can't afford NOT to have an accountant.

Pennywise

You're really missing some fundamental aspects as regards accounting.

Mainly, for 12/13 you have to draw up accounts according to Accounting Standards, one of which is the "accruals" or "matching" concept which means you have to "match" your costs against sales and the accounting period. You have to account for closing stock at the year end, and also accruals and prepayments.

In your case, your expenses will be everything you spent in that year, but you'll adjust for the value of stock left at the year end, adjust for any expenses in the year not invoiced/paid until after the year end, and adjust for expenses (or part of expenses) paid in advance (prepayments).

The balance sheet is the way of pulling all these adjustments together to give a snapshot of the finances as at the year end and to "prove" you've done all the adjustments right.

The only exception to preparing proper accounts in this way would be if the effects were immaterial/trivial, i.e. that the results were fundamentally the same whether you did it properly or not. From what you say, I can't imagine how the results for 12/13 would be the same between doing it properly or not doing it properly, so you have to do it properly.

There are a couple of factsheets on HMRC website about how to prepare accounts for tax purposes etc.

If you've made a whopping loss in 12/13, then that is what your tax return should show. Don't forget that you may be able to claim tax relief on the loss if you've paid tax elsewhere, i.e. on a job or pension, so often well worth claiming.

Why not talk to a couple of accountants to gauge pricing and what they can do for you. There are lots of accountants who'll charge relatively modest amounts for this kind of bread & butter work.