Starting a sole trader business whilst still employed - Tax offsets

point5clue

Hi All,
I've been taking the advice on the pensions forum for many years now, and think I'll be able to retire later next year.  I am planning to start a local tech support business and have a few questions - I hope this is the correct forum - it seems to be from looking at other posts, but please flame away if I'm taking the p***

Small background - PAYE wages slave for 30 plus years.  Saved hard and now probably able to stop work, but I want a bit more of a safety margin and something to keep my brain going after stopping work in corporate IT.  Also I have never had a private laptop or mobile phone (always been able to use work devices at home)

So,  to start my business I need at a minimum a decent phone, mobile data contract, and a decent laptop.  I am hoping I can offset these against my day job income whilst I still have it as I don't expect to bring in enough to cover them before the end of the tax year from the business (nice problem to have if I'm wrong).

Is it possible to do this in the first year just by completing extra pages on my tax return?  (I already do one each year). 
I'm lucky enough to pay higher rate tax this year, and may not in future years so I would prefer to offset it all right away rather than splitting over several years.

Jeremy535897

If you make a loss in a trade run on a commercial basis with a view to profit, you can set it against other income by making the appropriate claim (sideways, early years of trade etc). No need to try to set the costs against something they are not related to (which does not work). See https://www.litrg.org.uk/tax-guides/self-employment/working-out-profits-losses-and-capital-allowances/what-if-i-make-loss

point5clue

Thanks Jeremy,
I had read various things that suggested that capital purchases such as phone handset and laptop are treated differently from 'trading expenses'.  I thought it might only be able to offset capital gains tax (which I have none) rather than income tax (which I have plenty!)

Looking at that link, and the page on capital allowances it seems that though they are capital allowances they can generate a trading loss and I can use 'sideways loss relief' against my employment income.

Like I said - hopefully I will make enough to offset them, and earn enough to need to pay tax and NI

Jeremy535897

Yes, capital assets which are plant and machinery for the business qualify for the annual investment allowance and increase the trading loss. 

Sandtree

Why do you need a dedicated business telephone and contract?

You'll already find a thread down below about someone who did this for a sole trader business, it didnt work out and now they are stuck in a 2 year contract for a defunct venture. 

Personally use the likes of VOIP which can work on an app on my personal mobile and I can set the hours as not to get out of hours calls... no minimum contract, no second phone to carry around etc.

point5clue

Sandtree said:

Why do you need a dedicated business telephone and contract?

You'll already find a thread down below about someone who did this for a sole trader business, it didnt work out and now they are stuck in a 2 year contract for a defunct venture. 

Personally use the likes of VOIP which can work on an app on my personal mobile and I can set the hours as not to get out of hours calls... no minimum contract, no second phone to carry around etc.

As per the OP I am such a dinosaur that I don't have a personal mobile phone.  I'm not comfortable using my employers phone/plan to run a side business.  Ditto for laptop.

As I don't have personal devices I would need them anyway when I retire, and at least to start with they will genuinely be only for business use so allowable.

I don't feel its too much of a risk and I'm not borrowing to fund them.

Sandtree

point5clue said:
As I don't have personal devices I would need them anyway when I retire, and at least to start with they will genuinely be only for business use so allowable.

Always take the tax advice of a professional over random strangers on the internet but you may be on ropy grounds saying you have future intention of personal use but you'll claim they are purely business at this stage to offset them against tax.

Jeremy535897

Sandtree said:

point5clue said:
As I don't have personal devices I would need them anyway when I retire, and at least to start with they will genuinely be only for business use so allowable.

Always take the tax advice of a professional over random strangers on the internet but you may be on ropy grounds saying you have future intention of personal use but you'll claim they are purely business at this stage to offset them against tax.

What matters is the actual use of the asset concerned. If you claim 100% capital allowances on a piece of plant in 2021/22 because you used it 100% for business in that year, the possibility that you might use it for private purposes at some time in the future is irrelevant.

Pennywise

Just be aware that you can't benefit from the use of the simplified cash basis if you want to use sideways loss relief, so you'll have to prepare business accounts on the accruals basis for your tax return.  That may or not be a burden depending on your business and transactions, etc., but something you need to research to get right.