Tax year confusion. New sole trader, but using equipment originally bought for a hobby,

ChasingtheWelshdream

Hi, I hope someone could help me in plain English please? I'm slowly working my way through various documents sent to me by a business advisor and links to HMRC but I'm struggling with the concept and whether I have done something wrong.

I am PAYE in my day job and have been self employed in years past so am familiar with the self-assessment process. However I had very little expenses and no equipment so my assessments were very simple. I am now running a rapidly expanding side-hustle where I have had to buy lots of equipment and materials to start up and will be shortly moving into commercial premises. I need to make sure my books are correct and am feeling rather overwhelmed. I want to make sure I don't pay unnecessary tax because I don't understand terminology and process.

My business advisor says I shouldn't need an accountant and my turnover is currently only around £9k (I am very part-time while it builds up). 

Before I started trading, I bought a fair amount of equipment for hobby purposes around November 2022 and started making items for family and friends. This developed into my business and I started trading 6th April 2023. However, I have just discovered I dated my first invoice 1st April 2023 although this was only for £50.

I didn't meet the £1000 to inform HMRC for 2022/2023, but I'm not sure if I should be doing something to account for the equipment I bought in that tax year, and the £50 I accidentally invoiced. 

The equipment was always intended to be used to train myself before starting a business at some point, but I was not expecting it to develop so quickly. My business advisor says I can claim for some of it, but I just can't quite grasp how, unless I complete a tax return for 2022/2023 for which I am too late to register for. And with only invoicing out £50, I am very much in the minus if I simply count all the equipment I bought. 

So my question is two-fold.

(1). How (or indeed can I) I account for any equipment I bought for a hobby prior to the decision to start trading, but is now used exclusively for the business. What terminology should I be looking for when I am reading links etc?

(2). Should I have registered with HMRC for 2022/2023 even though I am nowhere near the £1000 threshold?


I am generally OK at this kind of stuff but the equipment, assets and mentions of depreciation etc is frying my brain. 

I am talking probably £1000 equipment bought in 2022/2023. So not huge, but a lot for me to 'lose' if I don't account for it properly.

uknick

The answer to your questions will depend on many things which an accountant is best placed to advise you.  For example, the type of accounting you are doing, cash or accruals, will determine how to claim for capital items.

However, in the mean time try this link

Can I claim for pre-trade expenses? | Low Incomes Tax Reform Group (litrg.org.uk)

to see if it helps. 

With regard to registration, I registered as soon as I knew I would be trading.  Again, an accountant would have been best placed to advice you on this.  But, don't get too hung up on missing some deadlines.  Generally HMRC are sympathetic to new business start ups and won't penalise you unless they think you're trying to pull the wool over their eyes.  As long as they get any tax that is due, when it is due they will give you some leeway. 
    

ChasingtheWelshdream

Thank you, that is a nice helpful site that explains things better than the documents I have although my brain is still a little fried. I have registered with HMRC for 2023/4 as I genuinely didn’t think I issued any invoices before 6th April 2023 until I found the erroneous first invoice.

I can see that I should be able to claim for
my equipment which is good, but I’m still confused on the details. 

I think I am using the cash accounting method but reading that I am not so sure I’ve been doing it correctly.

I think you are right and I need to find out how an account can help me. Especially as I have applied for a grant for some IT equipment , for which I have no idea how to even go about recording if I am successful. That and the new premises and the various set up costs incurred are getting beyond my scope of understanding.

But I shall keep reading in the meantime, so thank you!

uknick

In your position I would have an initial hour head to head with an accountant for which we, and I'm sure others, would charge about £100.

Go armed with your questions, for instance what the types of accounting are and should you set up a Ltd, and see where you get to.  From what you've said, like it or not, at some time you will have to employ an accountant when you grow.  It might be better to get one at the start.   

ChasingtheWelshdream

I think you are right. I was used to doing my own books before, and my husband does his own but with little actual costs. This is another level and I'm happy to pay someone who knows what to do.

A consultation is a good shout. My 'books' at the moment are simply a very sorry box file of invoices, payments and receipts so if I'm going to sort them out, I need to find out how from the outset.