New Business Tax Questions

jamie0691

Hi all, we are looking at starting a business on the side, have a few quick questions.

We are going to register the business as a sole trader with my Wife being the sole trader. We are doing this for two reasons, firstly she will be doing the majority of the work. I will be helping with the website side of things and possibly with the financials. The plan is to keep all the income / expenditure in a business account, then at the end of the tax year pay the tax and withdraw the profit to our (joint) current account. In terms of taxes, I take it this is fully complainant in terms of withdrawing any profit to our current account after the income has been taxed as my wife's income? This will be in addition to her current job, her salary is £16k per year and mine is £32k per year. Expected income of this new venture would be maximum, £12K in the first year.

I have read and you should register the company 4 weeks prior to trading, we are not looking to start until about 3 months time so that is fine. We have had to spend money for the course (came from my account) and accommodation for the course (came from my wife's credit card) would these be valid to put down as business expenses? This is why we were looking to keep all transactions under a business account, but until that is setup this is not possible.

The next step is to look at what can be claimed as taxable income as a sole trader, hopefully once this is all done it will get easier!

Thanks in advance.

martindow

As a sole trader you don't register - just tell HMRC know that she is starting a business and start paying NI self employed contributions.

You do not need to wait until the end of the tax year before taking money out - you can make drawings when you like, although it makes sense to keep an eye on things so that you keep enough back for the tax bill.

As she is already using her personal tax allowance in her PAYE job all of the business's profit will be taxed.

PlutoinCapricorn

You register with HMRC as a sole trader once you have actually started trading/got some clients etc. i.e. proved that your idea will work.

You will be registering within the 2014/2015 tax year, which gives you ample time to learn the rules and requirements. The deadline for the tax return for 2012/2013 was around two weeks ago; 2013/14 will be Jan 31st 2015 so your wife will need to file between April 6th 2015 and Jan 31st 2016.

jamie0691

Thanks for the replies so far, so she would be able to put down the expenses currently seen before she started trading? Glad the tax side of things work with regards to the sole trader and me just helping out a little.

Not sure if anyone can advise but this is how I worked out the expenses (possible) for the year. This is based on a 3 bed house which the spare bedroom is used 80% for business.


Cost - Per Year - Per Room - Business Use
Mortgage Yearly Interest - 2921.12 - 730.25 - 584.20
Council Tax Yearly Amount - 984 - 246 - 196.80
Gas / Elec Yearly Amount - 1344 - 336 - 268.80
BB Yearly Amount - 180 - 45 - 36
Home Insurance - 216 - 54

That look right?

PlutoinCapricorn

HMRC are the horse's mouth:

http://www.hmrc.gov.uk/factsheets/expenses-allowances.pdf

HMRC know that some people can't start trading until they have bought certain equipment or have other startup expenses, so bills dated earlier than the official start date will be accepted.

Suarez

jamie0691 wrote: »

Cost - Per Year - Per Room - Business Use
Mortgage Yearly Interest - 2921.12 - 730.25 - 584.20
Council Tax Yearly Amount - 984 - 246 - 196.80
Gas / Elec Yearly Amount - 1344 - 336 - 268.80
BB Yearly Amount - 180 - 45 - 36
Home Insurance - 216 - 54

That look right?

You say that the business will be run alongside your 2 jobs. How many hours will you be working per week on the business?

Claiming over £1000 is a huge amount for a part time business.

purdyoaten

jamie0691 wrote: »

Thanks for the replies so far, so she would be able to put down the expenses currently seen before she started trading? Glad the tax side of things work with regards to the sole trader and me just helping out a little.

Not sure if anyone can advise but this is how I worked out the expenses (possible) for the year. This is based on a 3 bed house which the spare bedroom is used 80% for business.


Cost - Per Year - Per Room - Business Use
Mortgage Yearly Interest - 2921.12 - 730.25 - 584.20
Council Tax Yearly Amount - 984 - 246 - 196.80
Gas / Elec Yearly Amount - 1344 - 336 - 268.80
BB Yearly Amount - 180 - 45 - 36
Home Insurance - 216 - 54

That look right?

I think that you need to revise your business use fraction for the room in question. 80% business use suggests that it is used solely for business 19.2 hours per day, seven days per week.

martindow

purdyoaten wrote: »

I think that you need to revise your business use fraction for the room in question. 80% business use suggests that it is used solely for business 19.2 hours per day, seven days per week.

Could it be that stock, business computer, etc. take up nearly all of the room with very little space left for any other use? I do agree that the OP should not try to make the percentage too high. If it is a modest figure HMRC are likely to accept it without question - if it is too high it may be hard to justify.

With your three bedroom house you seem to be calculating this bedroom as a quarter of the house which seems excessive.

zygurat789

martindow wrote: »

Could it be that stock, business computer, etc. take up nearly all of the room with very little space left for any other use? I do agree that the OP should not try to make the percentage too high. If it is a modest figure HMRC are likely to accept it without question - if it is too high it may be hard to justify.

With your three bedroom house you seem to be calculating this bedroom as a quarter of the house which seems excessive.

Isn't HMRC guideline £4 pw?

Suarez

martindow wrote: »

Could it be that stock, business computer, etc. take up nearly all of the room with very little space left for any other use? I do agree that the OP should not try to make the percentage too high. If it is a modest figure HMRC are likely to accept it without question - if it is too high it may be hard to justify.

With your three bedroom house you seem to be calculating this bedroom as a quarter of the house which seems excessive.

If you use the room exclusively for business then you're opening up a whole new chapter - capital gains tax.

And you don't want to be doing that

jamie0691

Suarez wrote: »

You say that the business will be run alongside your 2 jobs. How many hours will you be working per week on the business?

Claiming over £1000 is a huge amount for a part time business.

Yeah I thought the figures were high, the room would be used for maximum 8 hours a week. I did see the £4 p/w, but was working out which way would be better.

Thanks for all the replies!