Sole trader - few questions

raymonddaf

Im looking at setting up as a sole trader and have a few questions.

Currently im PAYE but plan on setiing up as a sole trader also.
It will be a coach business that will run mainly at the weekends.

1. I have incurred so far a few thousand pounds of expenses (medical tests, fees to buy website, training fees to learn to drive a bus, test fees, application fees to get the required licence to carry passengers) can i use all of these to offset against my profits and pay lower tax?

2. I will be purchasing a coach about £40k before i start trading which is 100% used only for business use. Can I claim back the tax on this? And do I need to wait to the end of the tax year to claim this? - I read I can claim it back against my previous 3 tax years meaning i would get a tax rebate to the value of £8k - Is this correct?

Also if the above is the case then would I also be allowed to use this to offset against my profits as well as claiming back the initial £8k in tax

Example 1 (make a profit in year 1):
I make £50k profit in first year, the bus cost me £40k so i pay tax on the £10k = £2k tax
This is then deducted from my £8k tax im due back for the initial purchase of the bus.
Meaning im due a £6k tax rebate?

Example 2 (make a loss in year 1)
I make £20k profit in first year, the bus cost me £40k so im down £20k
So would i be due a tax rebate on the £20k loss = £4k tax rebate plus the tax rebate of £8k on the initial cost of the bus. Meaning im due a tax rebate of £12k.

Am I right in the 2 statements above if not can someone correct me?

3. Can i claim back these set up costs if ive paid them before registering as a sole trader or do I need to do that first?

Thanks for the help.
Ray

Pennywise

Training etc won't be allowable as they're NEW skills/qualifications so are capital on which no tax relief is available. Ongoing training once you're trading WILL be allowable, i.e. any refresher courses.

No, you don't get the tax relief on the coach twice. Capital allowance claim on it will be deducted from your first year profits which may produce a trading loss and then you have option, i.e. carry back up to 3 years or carry forward against future profits (or not claim it fully in the first year). Tax relief will depend on the tax rate you paid in each year. Going back 3 years may not be optimum, if, say your total earnings were only £20k, you'd have only paid tax on £10k, so by carrying back £20k of loss, you only get tax relief of £10k and the other £10k is wasted.

Other options such as a different tax year end may also pay dividends, i.e. your first accounting period could be just a month so you get the full tax relief against only a month of income.

You need advice from an accountant as to the optimal way to claim relief for it - far too complicated to rely on a friend from the pub or a few minutes of random googling.

raymonddaf

Thanks for the reply.

I may not have worded it correctly.
The 2 examples I gave were in my first year as a sole trader, just examples.
As advised im currently PAYE in my main job and over the past 3 years my gross would have been approx £32k 2016, £33k 2017, £34k 2018.
So based on these figures I take it would be best to carry back over the previous 3 years?

Also just out of interest say I purchased a £20k coach and then paid a further £20k for it to be converted will this still work the same way - claim tax on the £40k?

I will be getting an accountant but want to get a basic understanding of it myself.

So do i need to set up as a sole trader before buying the bus or can I buy the bus then register as a sole trader and still claim the tax in the way advised above?

raymonddaf

Hi,

Did you manage to review my last message?

Ray

00ec25

raymonddaf wrote: »

So based on these figures I take it would be best to carry back over the previous 3 years?

dealing with losses is a complex area best left to your accountant for the reasons mentioned by pennywise. There are many options, optimisation needs a lot more background info than you can establish in your made up examples on here

raymonddaf wrote: »

So do i need to set up as a sole trader before buying the bus or can I buy the bus then register as a sole trader and still claim the tax in the way advised above?

the "sole trader" is not a separate entity, so you don't buy "as" a sole trader.
You buy an asset as raymonddaf, the use of the asset is then split between business and personal use.
Similarly any repair costs would be so split.

In the context of the timescales you use in your example, it matters not when you bought it, it does matter how you use it and what records you have to support that usage. In your case presumably 100% business use so the AIA and separate repair costs can be claimed in full, without having to deduct a non business proportion.