starting as a sole trader 26 September 2020 at 8:10AM in Cutting Tax 2 replies 81 views

coal1

hi im starting as a sole trader and the only question im struggling to find an answer to to is in relation to the cost of the van £4000 (solely business use) do i have to take that out of my personnel savings  before i start (my personel cost not business), or is it classed as a debt to myself to be paid from profits back to myself .or is it better to have a loan for it and then the business pay the loan ? thanks for any help

Jeremy535897

If you can afford to buy the van out of savings, that is a lot cheaper than taking out a loan to buy the van, but it is your choice. If the van is wholly used for business, and the business borrows to buy it, any interest on the borrowing reduces your profits for tax. The cost of the van itself can also reduce your taxable profits (capital allowances). I suggest you look at
https://www.litrg.org.uk/tax-guides/self-employment

The GOV.UK site should also be looked at. See https://www.gov.uk/working-for-yourself

In terms of accounting, the van will be an asset of the business. It is represented by your capital in the business, if you buy it out of your savings. It is represented by a loan, if the business borrows to buy it.

Pennywise

Money you put in isn't taxable when it is put in and isn't tax relievable when you take it out again - it's neutral for tax.  What that money is spent on will be tax relievable in wholly & exclusively for the business.