First year running small business

Sandwich

Please could someone answer some questions I have about submitting a tax return in my first year of running a small business. 

Basically it’s a very small business operated as a sole trader. The turnover is probably £4000 a year. Do I need to submit a tax return on that basis, and when do I need to submit it by? I started running this business in April last year. 

The other question I had is how do I work out profits when I have a personal loan that I used to start the business? Does the full amount of the loan count against the first year’s profits, or do you base it on the monthly repayments, so that your monthly profit is what you take in minus all expenses including the loan repayment?

DullGreyGuy

Yes, after £1,000 of turnover you have to do a tax return. Tax returns have to be done no later than 31 Jan after the end of the tax year so if you started trading in Apr 2023 that is the 23/24 tax year and the first tax return will be Jan 25. 

What was the loan used for? 
Are you using cash or accrual accounting?

Sandwich

DullGreyGuy said:

Yes, after £1,000 of turnover you have to do a tax return. Tax returns have to be done no later than 31 Jan after the end of the tax year so if you started trading in Apr 2023 that is the 23/24 tax year and the first tax return will be Jan 25. 

What was the loan used for? 
Are you using cash or accrual accounting?

I've just checked and we took our first payment in Feb '23 and provided our first service in late March '23. Does that mean the first return will need to be this Jan? We turned over roughly £4000 over the course of the year to date. We're using cash accounting. 

DullGreyGuy

So you should have registered by October and will need to complete one before Wednesday if you took more than £1,000 up to the end of March 2023

You don't mention what the loan is for, its likely you can only reclaim the interest aspect but it depends on what you did with it.

Sandwich

No, it was barely anything prior to March 2023. Maybe £100. The loan was startup costs/supplies/initial venue hire. 

SVaz

If using cash basis accounting then you can only claim up to £500 in interest costs as an expense  although I’m fairly sure you can’t claim anything back if it was a personal loan not a business loan. 

Presumably you registered as a business with hmrc when you started trading?

Calculating Profits is simply taking allowable expenses away from your turnover. 
Do you use book keeping software or have you kept a rolling tally of your expenses ? 

Do you have profts for feb and March, I would have thought start up costs mean you have a loss to carry forward or a potential tax refund. 

Capital you’ve introduced into the business doesn’t come into self assessment unless you are preparing a balance sheet.

SVaz

Let me give you info from starting my business to help you along. 
I registered as a sole trader in December 2022,  by April 5th, I had turnover of £9k but no profit due to start up costs - Van/tools/liability ins. etc.  I did my self assessment very early, end of May, and got a tax refund very soon afterwards.  I had to do the self employed and employed forms as I’d done some contracting work during 2022.

I use freeagent for book keeping as it was free with my mettle business account.  I’d happily pay for it as it makes everything so easy and automatically fills in Self assessment details as you go along, so you keep track of your tax liability. 

Everyone will need some kind of software once MTD for ITSA comes in anyway so might as well get familiar with it. 

pjs493

SVaz said:

Let me give you info from starting my business to help you along. 
I registered as a sole trader in December 2022,  by April 5th, I had turnover of £9k but no profit due to start up costs - Van/tools/liability ins. etc.  I did my self assessment very early, end of May, and got a tax refund very soon afterwards.  I had to do the self employed and employed forms as I’d done some contracting work during 2022.

I use freeagent for book keeping as it was free with my mettle business account.  I’d happily pay for it as it makes everything so easy and automatically fills in Self assessment details as you go along, so you keep track of your tax liability. 

Everyone will need some kind of software once MTD for ITSA comes in anyway so might as well get familiar with it. 

Sorry to jump on this thread. I also use Mettle and Free Agent. How did you categorise your initial capital investment in the apps? 

So far I've used the 'transfer from another account' option, but this doesn't seem to fit right. There only seems to the option for a start up grant from an approved scheme or a loan, not any option for when the business owners make an initial capital investment to get the company started. My husband and I started our business as a Limited Company.

SVaz

My Wife actually does all the books but from looking at last year’s freeagent  there is a ‘Capital introduced’ section on transaction reports,  she says it was originally under ‘money from user’  ,  which is what the freeagent knowledge base/ guide said to do. 

https://support.freeagent.com/hc/en-gb/articles/115001217430-How-to-explain-capital-introduced-into-a-business

Alisteer

As for that 1-3 years the most difficult to survive...