Sole trader related questions

proofoffunds

Hello.
I am bit confused. I have 2 separate questions as clear as possible. Please be kind .

Question 01: 
From the rules regarding should I register a sole trader or not. I understand that if I earn more than 1000 GBP I should register as a sole trader. 
But this rule shouldn't be by itself doesn't count the intention. For example - I have at least 1000 GBP worth of electronics at home that I plan to sell. Most of them are bought 2nd hand long time ago, so some will actually receive some profit - like retro consoles for example. I really doubt my intention to clean some space at home doesn't count as sole trading. On another hand I am big tech addict, especially retro stuff, so I plan to make a youtube channel reviewing retro gadgets. To achieve this I need to buy, review and sell plenty of items. Again - the main target is not making money, but I have enough experience in ebay not to sell for less that I bought an item, and this activity will definitely will make more than 1000 income (not profit), as items will be in regular circulation between me and ebay. 

Question 02:
If my understanding is actually wrong, and I need to register as a sole trader, how profit is calculated in case of trading goods? More specifically - can I "invest" all money in new purchases till end of the financial year, so to be on 0 and don't pay any taxes?  This will leave me with plenty of gadgets that I will sell next year, and so on. 

P.S. I have a full-time job and I already pay plenty of taxes, and each potential "profit" from my side activities will be taxed with 40%, so obviously it's essential for me not to have official profit, but of course without breaking the law. 


Thank you for your time.

comeandgo

You may need an accountant if you think investing in new stock limits your tax liability.

General_Grant

proofoffunds said:

Hello.
I am bit confused. I have 2 separate questions as clear as possible. Please be kind .

Question 01: 
From the rules regarding should I register a sole trader or not. I understand that if I earn more than 1000 GBP I should register as a sole trader. 
But this rule shouldn't be by itself doesn't count the intention. For example - I have at least 1000 GBP worth of electronics at home that I plan to sell. Most of them are bought 2nd hand long time ago, so some will actually receive some profit - like retro consoles for example. I really doubt my intention to clean some space at home doesn't count as sole trading. On another hand I am big tech addict, especially retro stuff, so I plan to make a youtube channel reviewing retro gadgets. To achieve this I need to buy, review and sell plenty of items. Again - the main target is not making money, but I have enough experience in ebay not to sell for less that I bought an item, and this activity will definitely will make more than 1000 income (not profit), as items will be in regular circulation between me and ebay. 

Question 02:
If my understanding is actually wrong, and I need to register as a sole trader, how profit is calculated in case of trading goods? More specifically - can I "invest" all money in new purchases till end of the financial year, so to be on 0 and don't pay any taxes?  This will leave me with plenty of gadgets that I will sell next year, and so on. 

P.S. I have a full-time job and I already pay plenty of taxes, and each potential "profit" from my side activities will be taxed with 40%, so obviously it's essential for me not to have official profit, but of course without breaking the law. 


Thank you for your time.

Question 01:

"I really doubt my intention to clean some space at home doesn't count as sole trading."
Do you mean you doubt clearing space at home does count as trading?
I believe selling your own property which you have had for a long time will not be considered trading.

I'm sure others will be able to correct me if I am wrong but I would expect buying items specifically to review on a YouTube channel and then selling on count as trading.  And I see that you know the £1,000 concession is not profit but turnover.

Question 02:
If you tried to restrict your profit in the way you suggest this would eventually lead to your having rather a large amount of stock.  Do you have the storage space?  And it can't go on for infinity.

proofoffunds

General_Grant said:

proofoffunds said:

Hello.
I am bit confused. I have 2 separate questions as clear as possible. Please be kind .

Question 01: 
From the rules regarding should I register a sole trader or not. I understand that if I earn more than 1000 GBP I should register as a sole trader. 
But this rule shouldn't be by itself doesn't count the intention. For example - I have at least 1000 GBP worth of electronics at home that I plan to sell. Most of them are bought 2nd hand long time ago, so some will actually receive some profit - like retro consoles for example. I really doubt my intention to clean some space at home doesn't count as sole trading. On another hand I am big tech addict, especially retro stuff, so I plan to make a youtube channel reviewing retro gadgets. To achieve this I need to buy, review and sell plenty of items. Again - the main target is not making money, but I have enough experience in ebay not to sell for less that I bought an item, and this activity will definitely will make more than 1000 income (not profit), as items will be in regular circulation between me and ebay. 

Question 02:
If my understanding is actually wrong, and I need to register as a sole trader, how profit is calculated in case of trading goods? More specifically - can I "invest" all money in new purchases till end of the financial year, so to be on 0 and don't pay any taxes?  This will leave me with plenty of gadgets that I will sell next year, and so on. 

P.S. I have a full-time job and I already pay plenty of taxes, and each potential "profit" from my side activities will be taxed with 40%, so obviously it's essential for me not to have official profit, but of course without breaking the law. 


Thank you for your time.

Question 01:

"I really doubt my intention to clean some space at home doesn't count as sole trading."
Do you mean you doubt clearing space at home does count as trading?
I believe selling your own property which you have had for a long time will not be considered trading.

I'm sure others will be able to correct me if I am wrong but I would expect buying items specifically to review on a YouTube channel and then selling on count as trading.  And I see that you know the £1,000 concession is not profit but turnover.

Question 02:
If you tried to restrict your profit in the way you suggest this would eventually lead to your having rather a large amount of stock.  Do you have the storage space?  And it can't go on for infinity.

Thanks for your answers. 
I can make expense like - new camera gear, pay my internet, etc. In general - I don't plan to make so substantial profit to leave me with huge amount of items at the end of the year, the whole point is more to rotate items. 

The question is - is it legal, and how "profit" is counted at the end of the year in case I am buying new stock with all money that I have from selling?

As far I understand sole trader is filling self assesment form every year with every income and outcome. If I am correct both figures should be very close to each other. 

proofoffunds

Any other thoughts? 

Savvy_Sue

https://www.moneysavingexpert.com/family/selling-on-ebay/

Get to item 29 for tax treatment of EBay sales

Sandtree

Liquidating your own personal assets wont count as business activity.

Buying something with the intention of making money from a video on the item and then selling it will be sole trader revenue because of the intent is in connection with your trade. 

You can use your profits to buy more stock but you will be forever chasing your tail and at some point are going to make a declarable profit and so have a tax bill to pay... you obviously still get to keep ~60%. You need to ensure you are also only expensing business costs and not personal costs so you may be able to claim some of your internet bill but certainly not all of it etc.  You need to read up on how assets are treated if you are intending to buy expensive things like cameras. 

Pennywise

Another point is that you can only claim the costs of stock bought and not sold if you're a sole trader adopting the "cash basis" scheme of accounting.  That's probably OK for the smallest of businesses, but there are downsides to it, such as lack of flexibility when claiming tax relief on buying assets (equipment etc), no sideways loss relief against other income (such as employment), restriction of borrowings costs (such as if you get a loan or HP to buy assets).  Also, if you ever want to convert to a limited company, such limited company's are prohibited from using the cash basis.  As I say, cash basis and buying stock to eliminate tax is fine for the smallest of businesses, but as you grow it, it will catch up with you when you need to change away from the cash basis, as your stock then becomes taxable!

proofoffunds

Pennywise, Thank you for all these tips. If I start with cash basis, how difficult is to convert it to something else in the future? 
Sandtree, yes I understand what you mean, but if I really start to make some proper income I will change my strategy.