quick question as a sole trader regarding accounts

Nndh1

Hi,
Im not sure if this is the place to ask this? I'm looking for some advice regarding my accounts which I'm trying to do myself using quickbooks....

I am a sole trader with a small business- mainly i sell vintage furniture and clothing.

My question is, I buy clothing through online auctions (for example) with a view to sell for profit. I don't take a set salary for myself, just withdraw money from the business when needed for personal expenditure. So when I buy clothing to sell on, quite often I might wear it myself for sometime then sell on, this can sometimes be once or twice, sometimes I may have the garment for several months or even over a year. Also sometimes things don't work out and I make a loss on the garment....then what?!

Originally I started out selling my own things and gradually it became a business so now I'm a bit hazy on what's what.

So should I be putting the garment through books as a personal purchase, then when I sell it it's a business sale? Or should it be all business? Or all personal? I'm a bit stuck.

I should add that the profit usually goes towards buying more garments or paying overheads etc.

Please keep answers simple for my pea brain:D

Also I apologise if this is not the place to ask this, perhaps I could be pointed in the right direction if not. Thank you!

spadoosh

It sounds like youre starting to get a bit more serious about it. From that, you need to separate business and personal spending completely. With regards to HMRC your use of the clothing would make it a personal expense, you can then sell it but how you go about it requires applying a recognised method for it. NOt just a case of, as in you need to take out the fact that youve benefited from using it.

Basically, accounting wise, its a whole load easier if you buy clothes that you will use yourself with your own money from your own account. And then sell privately too. Doing it your way youll need to learn about depreciation and benefits in kind. The other way is just separating it properly.

p.s. im not sure if theres any exemptions with regards to vintage clothing. The fact you put it back through the business leaves what youre doing open to interpretation. Im assuming you make no deductions based on your use of the clothes? If thats the case it could cause issues with HMRC in that youre gaining but not decalring. Dont panic too much, youre not in the realms of Jimmy car tax evasion with it but its not supposed to be done.

Might be worth looking to see if your council or local college offer any courses or seminars on basic business finance and reporting. HMRC are generally pretty good in steering you in the right direction and the website is pretty comprehensive too.

Nndh1

hi thank you so much for your help.

Me wearing the clothing doesn't devalue it in any way (unless i damaged it of course), it's so different to me buying a new garment and wearing it. Generally I know what to look for when purchasing an item in order to make profit which is how I've turned it into a business.

To be truthful no one would know whether the garment was hung on a clothes rail in my storage unit (some items take a while to sell anyway) or hung on me but I totally see what your saying though and think i need to look into doing it separately. I can see how it would make life much easier!

Thanks again!

Nndh1

Sorry one more question if you don't mind.....just if this scenario happened...... So say I take £1000 from the business as personal, then buy some clothing, make say £700 profit.....

A few weeks down the line I'm then a bit short on business money to pay the monthly overheads or something, or to buy business stock then I'm putting the money back into the business....sometimes it's just unavoidable if you see what i mean, I don't have enough cash flow at all times to keep it completely separate,. would it be an owner deposit? or is that different? I'm using quickbooks so think looking at their options that would be the correct choice?

Told you I'm a pea brain

edgex

You need to keep the personal & the business separate.
If the business buys something, it owns it, & it sells it. If you then use it, that's a 'benefit in kind' & it gets complex, so don't do it.


"So should I be putting the garment through books as a personal purchase, then when I sell it it's a business sale? Or should it be all business? Or all personal? I'm a bit stuck."
The ONLY things that should be on the business books are the business transactions.
If you personally buy something that you then want the business to sell, the business needs to buy it from you, at market value, & account for that purchase.


"To be truthful no one would know whether the garment was hung on a clothes rail in my storage unit (some items take a while to sell anyway) or hung on me"
If the storage unit is used for the business, then you can have it as a business expense. If you personally use items that are in the unit, then it's no longer a business expense.

Nndh1

"As a sole trader, you're not legally required to have a business bank account. You can use your personal bank account for all business transactions. This is because as a sole trader, your personal and business income is treated as one and the same by HMRC for tax purposes." This is what I read on google....

How do I keep it separate with only one bank account without actually withdrawing cash as my takings? I mark anything such as a supermarket shop for example as personal but how do i keep the clothing issue separate with one account?

Or do i just need to open a separate account now? With a view to doing what spadoosh suggested, keeping clothing separate as personal or strictly in the business. Or do I keep one account but just keep all as personal? Obviously i can edit quickbooks easily to reflect this.

Mistral001

There is no such thing as "withdrawing money from the business" when you are a sole trader. Any money you make is your money and any money you spend in connection with the business is your money. You are the business.

Most banks will insist on you opening a business account if you are operating business as a sole trader, but some do not insist on it if your business transactions are few. I have been operating as a sole trader for 22 years with just a personal bank account.

It is of course important that you account for all your income no matter what way you receive it. For example many people will get income into a Paypal account as well as cash and by transfer into their business/personal account. All these have to be accounted for in your accounts. Same goes for expenditure.

Nndh1

Hi Mistral1001, thank you. I understand, I am just probably using the wrong terminology, however i still have to class personal spends as personal and business as business which is what the post is about i guess. I 100% account for all my income and expenditure, its just a grey area on what category the clothes fell into which i was trying to establish.

Nndh1

Thank you every one for your advise.

Going back to the point made about keeping my clothing that I sometimes wear as personal....I'm still not clear on this. My business started by me selling my clothes that i had worn and realised i could make profit from.This grew into a business.

I'm now being advised that clothes if I want to buy for myself and wear must all remain as personal. I will always sell them on as it is what I do, I recycle because it's pointless them sat in my wardrobe when I know I can make profit. However, to do this is exactly what i have just done and turned into a business because i made profit.

So I don't understand, how can I buy clothes for myself, wear them (as you do), sell them and keep this as personal without it not being business? Surely this then becomes profitable again and puts me be back in the same position I am now because it is to profitable? Am i missing something here?

Savvy_Sue

I don't know if this helps, but HMRC has no interest in those who sell things they already own, which they bought for personal use. I could make thousands selling all my books, and I wouldn't have to declare this as taxable income.

However, if I start buying books with the intention of selling them on at a profit, my profits ARE of interest to HMRC. There's nothing to stop me reading these books before I sell them, but I've bought them with the intention of selling them on.

I think your clothes are like my books. If you intend to sell them on, I think you should treat them as stock from the start. And definitely get a separate account, and if you use credit cards then keep one for business use.

And I'd also look at finding an accountant to help you get your head round how this works for you and your business.

Pennywise

Nndh1 wrote: »

Sorry one more question if you don't mind.....just if this scenario happened...... So say I take £1000 from the business as personal, then buy some clothing, make say £700 profit.....

A few weeks down the line I'm then a bit short on business money to pay the monthly overheads or something, or to buy business stock then I'm putting the money back into the business....sometimes it's just unavoidable if you see what i mean, I don't have enough cash flow at all times to keep it completely separate,. would it be an owner deposit? or is that different? I'm using quickbooks so think looking at their options that would be the correct choice?

Told you I'm a pea brain

What code in quickbooks are you using when you draw out money for personal use?