quick question as a sole trader regarding accounts

martindow

I can't really see there is an issue wearing garments a few times if it doesn't affect their resale values.

If the OP buys an item for £20 with a view to selling for £50, providing it is still sellable for £50 after being worn a few times that has made no difference.

It is no different to me buying china ornaments which I store on my windowsills prior to selling them. I might get pleasure looking at them but it has no implications for my accounts when they are subsequently sold.

edgex

Nndh1 wrote: »

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?

You & the business are two completely separate entities.
(assuming you wan't to operate a business, & you'll want to do so if the income (sales) from the clothes selling is more than £1000 per year)

The clothes are being bought with the intent to sell them on, that's a business.
Whatever the business sells, it has to own. In order to own them, it has to have bought them.
Therefore, both transactions (the purchasing & the selling) have to be recorded on the business books/accounts.
The business can use whatever it owns for business purposes. You can't use them for personal purposes.


HMRC very definitely have a view on what is 'normal'.
The occasional selling of clothing that was bought only for personal use, eg to a friend/relative/second hand shop, is normal.
Buying lots of clothing & then selling on most of it is not normal.

hareng

Nndh1 wrote: »

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?

You dont its business or personal. Because your operating from personal current account it could be deemed not legit.
Easier way open like the rest of the law abiding do a Business account, pay your fees and live with it. You buy with the business from its own funds, should you choose to wear or demo thats promotional, advertising whatever want to call it.
You then pay yourself in to personal account what you can when you can. If by some chance you need to pay in to business put it through as a loan.


Problem is banks these days although your doing them a favour by using them (theyre not losing out) want a business plan and demand you have insurance, tell them where to go theres others.

Mistral001

hareng wrote: »

You dont its business or personal. Because your operating from personal current account it could be deemed not legit.
Easier way open like the rest of the law abiding do a Business account, pay your fees and live with it. You buy with the business from its own funds, should you choose to wear or demo thats promotional, advertising whatever want to call it.
You then pay yourself in to personal account what you can when you can. If by some chance you need to pay in to business put it through as a loan.


Problem is banks these days although your doing them a favour by using them (theyre not losing out) want a business plan and demand you have insurance, tell them where to go theres others.

You are discussing a Ltd company where you must have a business account by law. The OP is a sole trader. A sole trader can use their personal account for business purposes if the bank agrees to that.

HHarry

I'd be buying them all through the Business and then selling them through the Business.

Wearing them personally once or twice could be construed as a benefit in kind, but it is negligible. In the same way that no Tradesman would write down the cost of his tools because he's used them in his own house.

Pennywise

HHarry wrote: »

I'd be buying them all through the Business and then selling them through the Business.

Wearing them personally once or twice could be construed as a benefit in kind, but it is negligible. In the same way that no Tradesman would write down the cost of his tools because he's used them in his own house.

Whilst I agree, you also have to look at motivation on purchase and the respective business/private usage.

In your tradesman scenario, that's right if all the tools were bought for his trade and used mostly in his trade. But, not, if he bought something specifically for private use which he uses occasionally in the business. I.e. an electrician using his works screwdriver to change a plug at home is clearly irrelevant for tax, but a gardener who buys a cement mixer to build an extension at his home, but also may use it once a year when doing a bit of hard landscaping for a client is a different scenario completely. Using something for business occasionally doesn't make it a fully allowable business expense if your motivation to buy it was private in the first place and you've used it mostly for private use.

Pennywise

martindow wrote: »

I can't really see there is an issue wearing garments a few times if it doesn't affect their resale values.

If the OP buys an item for £20 with a view to selling for £50, providing it is still sellable for £50 after being worn a few times that has made no difference.

It is no different to me buying china ornaments which I store on my windowsills prior to selling them. I might get pleasure looking at them but it has no implications for my accounts when they are subsequently sold.

Slippery slope there.

It's not diminution in value which determines the "benefit in kind" or private use add-backs. It's the use itself.

The tax laws are quite clear on how "private use/benefit" is taxed and there is no mention about being taxed on how much something loses value over the time it's used personally.

You can't just apply your own logic/reasoning when it comes to tax law.

nmn

Mistral001 wrote: »

You are discussing a Ltd company where you must have a business account by law. The OP is a sole trader. A sole trader can use their personal account for business purposes if the bank agrees to that.

This is off topic but it is still worth pointing out that there is no legal requirement to have a business (or indeed any) bank account for limited companies.


OP (and others) are reminded they should be careful what is posted on forums, and be sure to verify everything thoroughly themselves or with an expert.

Pennywise

Mistral001 wrote: »

A sole trader can use their personal account for business purposes if the bank agrees to that.

I have never yet seen a bank's personal account terms & conditions that allow business use of a private bank account.

Yes, lots of people do it and aren't caught, but the bank would be within their rights to close the account.

I do know a few cases whether the bank have contacted the individual to "discuss" the business use of the private bank account and telling them to stop doing or risk the account being closed.

In fact, it happened to me. My family ran a small newsagents. We were being crippled by bank charges for paying in cash, so I started paying in some of the cash to my own personal account and paying supplier bills out of it. After a few months, I got the phone call from the bank telling me to stop or they'd close the account.

Pennywise

nmn wrote: »

This is off topic but it is still worth pointing out that there is no legal requirement to have a business (or indeed any) bank account for limited companies.

No, but you have to be VERY careful with your tax position. You end up running the company through a directors loan account and if there's money left in a personal bank account which "belongs" to the company, it's an overdrawn directors loan account which can trigger personal BIK tax and the S455 income tax charge. So people doing it need to ensure they fully understand how to run it properly to avoid the tax traps.

You also face problems if a customer pays you by cheque or a supplier or HMRC refunds you by cheque. As you won't be able to pay a cheque made out to "Fred Limited" into a personal account in the name of Fred Smith.