Capital Introduced on sole trader accounts help

daveshow

Hi All,

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.



Many Thanks,
Dave

Grumpy_chap

daveshow said:

Hi All,

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.



Many Thanks,
Dave

There may be some confusing terminology used here.

By "offset losses against PAYE" - do you mean allowable expenses (not losses) and income tax (not PAYE)?
If you are operating as a sole-trader, you will not operate PAYE as such.

Usually, it is not possible to offset losses from one trading activity (sole-trader) against employed income.

It is probably best to follow the advice of the Accountant with regard to the spreadsheet.  It should be relatively simple but they know the arrangement of the spreadsheet they have shared whereas we would be guessing if we suggested which column to use for which entries, having not seen how the sheet is laid out and any calculations that sit within that spreadsheet.

Do you also have separate employment?

Are you in Scotland?

DullGreyGuy

daveshow said:

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.

To be able to do any cross considerations you will have to be using traditional/accrual accounting rather than cash accounting. Make sure you understand the difference between the two and what it will mean, it can cause cashflow challenges. 

What's going to happen to the vehicle between hires? There is going to need to be a consideration of any personal use you will get from the vehicle, you cannot "hire" it to yourself. 

Ultimately follow the advice of your accountant as you can sue them if their advice is incorrect but you can't sue strangers on an internet forum. 

It would have been helpful for you to confirm that this is a sideline sitting alongside a PAYE employment 

LITRG

Hi, here is link to LITRG's comprehensive guide to self-employment, covering issues such as accounting options, expenses, losses etc: https://www.litrg.org.uk/sites/default/files/AST5600.pdf. Good luck with your new venture. 

daveshow

Grumpy_chap said:

daveshow said:

Hi All,

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.



Many Thanks,
Dave

There may be some confusing terminology used here.

By "offset losses against PAYE" - do you mean allowable expenses (not losses) and income tax (not PAYE)?
If you are operating as a sole-trader, you will not operate PAYE as such.

Usually, it is not possible to offset losses from one trading activity (sole-trader) against employed income.

It is probably best to follow the advice of the Accountant with regard to the spreadsheet.  It should be relatively simple but they know the arrangement of the spreadsheet they have shared whereas we would be guessing if we suggested which column to use for which entries, having not seen how the sheet is laid out and any calculations that sit within that spreadsheet.

Do you also have separate employment?

Are you in Scotland?

I am employed full time on PAYE. This is a side hustle i hope to develop into something full time over the next couple of years.  They did say just make a note on the income its just im trying to get my head around everything. I am in Scotland yes. I maybe do mean allowable expenses rather than loses. 

daveshow

DullGreyGuy said:

daveshow said:

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.

To be able to do any cross considerations you will have to be using traditional/accrual accounting rather than cash accounting. Make sure you understand the difference between the two and what it will mean, it can cause cashflow challenges. 

What's going to happen to the vehicle between hires? There is going to need to be a consideration of any personal use you will get from the vehicle, you cannot "hire" it to yourself. 

Ultimately follow the advice of your accountant as you can sue them if their advice is incorrect but you can't sue strangers on an internet forum. 

It would have been helpful for you to confirm that this is a sideline sitting alongside a PAYE employment 

The vehicle isnt for personal use i have 2 others for personal use. This one is purely to hire out. 

It is a side line alongside PAYE that I hope to develop over a few years

Bookworm225

daveshow said:

DullGreyGuy said:

daveshow said:

I've started out a new venture hiring out a Land Rover Defender with tent box.

I've discovered since it is trading that I can offset losses against my PAYE. I have engaged an accountant who hadn't heard of this but confirmed it and they sent me a spreadsheet through to put my expenses down.

Now in the tax year 2024/25 I wont make any money and planned to offset my losses against my PAYE as I have spent around 30,000 purchasing the vehicle, insurance and equipment etc.

My accountant suggested setting up a separate bank account for business which I have done. They also said that the vehicle and money I spent can be counted as capital introduced and should be put on the income side of the accounting spreadsheet they sent me.

However this doesn't sit right with me as it is a cost not income. I've kept a list of all the costs but having the cost of the vehicle as an expense on one side and the 20k value on the income side doesn't seem right and I feel it will affect what I can claim back.

Also Where should I put the writing down expense for the vehicle?

Can anyone clarify to me what I should record it as?

Obviously my accountant is a professional but for my own piece of mind I'd like to know what to do so I dont mess up the spreadsheet myself and get back what I am entitled to.

My over all plan is once I start making profit to then top up my workplace pension with AVCs  with my PAYE as that comes off before tax to keep my income below the 43% mark.

To be able to do any cross considerations you will have to be using traditional/accrual accounting rather than cash accounting. Make sure you understand the difference between the two and what it will mean, it can cause cashflow challenges. 

What's going to happen to the vehicle between hires? There is going to need to be a consideration of any personal use you will get from the vehicle, you cannot "hire" it to yourself. 

Ultimately follow the advice of your accountant as you can sue them if their advice is incorrect but you can't sue strangers on an internet forum. 

It would have been helpful for you to confirm that this is a sideline sitting alongside a PAYE employment 

The vehicle isnt for personal use i have 2 others for personal use. This one is purely to hire out. 

It is a side line alongside PAYE that I hope to develop over a few years

so the business now "owns" the vehicle (bearing in mine of course that a sole trader is the business and the business is you personally) and therefore its value/cost is the capital you introduced. As such that amount of money is what the business owes to you and if you take that money out it is not personal "income" that would be subject to personal tax.
Therefore that figure is effectively a frozen lump sum and has no bearing whatsoever on the "expenses" of running the business and pays no part in calculating the business profits. It sits there on the spreadsheet until such time as you take it out as you would be just taking back your own money.

Presumably you wish to claim actual costs rather than the mileage allowance so all your costs, insurance, fuel repairs servicing etc need to go on the other side of the spreadsheet as those entries will impact the profit calculation.

I'm afraid you need to get your head around the concept asset (the vehicle) and expenses