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Sole trader - capital allowances HELP

Discussion in 'General Business Forum:' started by richimgd, Jun 12, 2012.

  1. richimgd

    richimgd Member

    Hi everyone.

    I am setup as a bit of a small time business, by means of being registered as a sole trader. I am full time employed so only really do quite a modest amount of freelance work on the side, but thought I'd set myself up and do things the 'proper way' with a business account to handle all business income/expenditure so if my business grows I will have everything set up accordingly. I basically put all business earnings thorugh my business account, then any business related capital or operational costs get put through my business account - the usual stuff. So far I havent really had any 'big' business purchases, more day to day things like web hosting fees, stock photos, stationery etc.

    In a nutshell, I started trading in November 2011 so haven't done a tax return yet - my first tax return will be coming up soon though..!

    Here are some quite rough and modest figures of how my business finances are doing so far.

    -2011-2012 (first year): Earned about £1,500
    -2012-2013: So far earned about £1,000.

    So, I have got about £2,200k in the business bank account currently (the above income minus some operational expenditure).

    Now - here is the question. I want to invest in new computer equipment (Macbook Pro) for business use and would like to buy it out of my business account before I can declare it as profits so I only need to pay tax on the remainder of what’s left of my profits. - probably nothing! This way I would save a massive chunk out of my tax bill. Can anyone help explain how I would do this? I am a bit of a newbie when it comes to tax returns etc. Do I need to do my tax return for 2011-2012 and prepare to fork out tax on the £1500 earned that year and then claim it back next year or is there a way to change the dates around / have an extended first accounting period of trading so after I invest in the new equipment I only pay tax on what would be a much smaller amount of profit or as I anticipate I probably wont have any profit since buying an Apple computer is likely to cost pretty much most of the money in my business account - so in theory I wont have much taxable profit left..?

    I am sure I have probably offended anyone with account experience so would appreciate any help. If I am totally wrong and misunderstood how thing process works, please let me know and feel free to put it in idiots terms! I will probably also seek the advice on an accountant but first want to get an overview of my options.

    Many thanks
  2. Thewholehogg

    Thewholehogg Active Member

    Buy it with business account cash keep the receipt (all receipts) and pass to the accountant to get the tax back.
  3. Levi

    Levi Moderator Staff Member

    captial allowance is yearly so you'd only be able to use it against this years income (assuming you're doing april/april 12/13 tax year). You can spend how much you like though.

    Not 100% sure how it works with mixed income but with purely sole trader (how I understand it anyways) you currently (good old government seems to change this yearly at the moment) you just stick it in the accounts page and it literally gets taken away from your earnings.

    You currently have an allowance of £25k (mines price before vat added but it's a little different for those not vat registered) which can be fully claimed against earnings. You then go a percentage of value for anything over the £25k... can't see many of us doing that as sole traders lol

    For reference see HM Revenue & Customs: Capital Allowances and follow the links. A pc would fall under plant and machinary

    these are good to read too
    Annual investment allowance | Business Link - £25k bit
    Writing-down allowances | Business Link - after £25k bit

    You can also ring up hmrc helpline, they're usually pretty helpful, well they were when I needed to clarify whether to charge vat to a US client :)

    PS you don't have enough for the top of the range (non custom) new macbook pro with hi res display - I refuse to use a rubbish marketing term! :p
  4. richimgd

    richimgd Member

    Hi, thanks for your reply.

    Ah right ok makes sense.

    I take it I will need to do my tax return as normal for 2011-12 which would mean paying the equivalent profits that year (around £1500)? I have some tax money set aside for this, but because this would be my first tax return for being a sole trader, I have read that you can (where appropriate) claim for up to 7 years up to going in business for certain business related capital assets. I have all the receipts of various many pieces of hardware I use for my business today which I have bought over the last 1-4 years i.e before my first accounting period. I probably need to speak with an accountant, but for instance I have possibly £1000+ worth (in todays value) of equipment such as computer parts , printer etc which probably total around £3000 at the time of purchase - so perhaps if I could claim a portion of this then it would reduce my initial tax bill - not even taking into consideration that I would need to invest in additional computer equipment (the old equipment would still be getting used).
  5. richimgd

    richimgd Member

    Cheers, will check those links.

    I am actually planning on getting the retina MacBook Pro - might need to wait for my current job to be paid first though. :up:
  6. richimgd

    richimgd Member

    So, if I understand this correctly - it seems that its more of a case of buying the plant and machinery, aka macbook now, keeping the receipt of course, then claim it back as annual investment allowance (AIA) in my 2012-13 tax return.

    If for instance I dont take on too much more work this year (there is a chance that I am busy with my full time job), I could use writing down allowance for the following tax year for any unclaimed capital.

    Does that sound about right?
  7. Thewholehogg

    Thewholehogg Active Member

    yup. I'd still safe yourself some cash and get a higher spec older model MBP.
  8. Levi

    Levi Moderator Staff Member

    yeah sounds about right, it's how mine works anyway.... there might be a slight difference due to your mixed income but nothing too major I would have thought.

    Make sure the 'work' laptop is 100% work use (you know what I mean) or you can only claim a percentage back. Example is if it's shared with your other half 50% of the time then you can only claim 50% of the value back.
  9. richimgd

    richimgd Member

    I see your point but because macs hold their value pretty well the savings I would make arnt massive so for just a bit more I could invest in the latest generation hardware. It is going to be a long term big investment and this MBP update seems pretty big. I was thinking of the high spec retina MBP which includes a 512gb SSD with the standard 8gb ram. Would set me back £2300 though..! I've seen a similar spec previous generation MBP (although it has 16gb ram) for £2500 so they can get pretty expensive.

    I will have to check for sure then. Yep it will be my own laptop for business use and not shared with anyone else.

    This still leaves the annoying prospect of what to do with about £1500 profits from 2011-12 and if I can offset anything against it to reduce my tax bill. Had I known about it earlier I had the understanding that I could sell any equipment that I had bought previously for personal use but now use for business use, to the business. I.e under advice from an accountant I could in theory sell a PC originally bought for £2000 to the company for the current market value, i.e £500, the same for other equipment such as my printer which I now only use for business use.

  10. Levi

    Levi Moderator Staff Member

    you could claim back against 'personal' hardware that got converted to business use, can't remember that too well and not even sure it still exists.

    To be honest though, unless you've got £1500 of purchases it won't make a huge difference to your final end of year tax bill.
  11. richimgd

    richimgd Member

    I will look into that and speak to an accountant to see what I could reasonably claim for.

    I do have a PC with some quite recent upgrades so potentially that is worth about £500-700. Its hard to value really since it was originally bought for a lot more but obviously technology drops in value. There is the monitor to go with it which was originally £500, so perhaps that could be worth £250, then there is my printer which was worth about £280 at the time, so perhaps that could be worth £150.

    I'm not sure how I would go about this and it sounds like I need to know for sure by speaking to an accountant, but it seems that I have at least £1000 worth of equipment that I have bought building up to me operating as a business - so it seems that even the modest income of £1500 should be offset against the costs of those assets so it is not all seen as taxable profit. I'm sure I will only get once chance to claim for this capital as I am yet to do my first tax return.
  12. richimgd

    richimgd Member

    I probably will do now since the new retina MBP has the hard drive and ram soldered onto the main board as well as the screen soldered onto the casing, so basically if anything breaks you know you are guaranteed to have a very expensive repair bill which will probably write it off. It also makes upgrading components at a later date out of the question. This is seriously rubbish for such an expensive product!
  13. Levi

    Levi Moderator Staff Member

    It's apple.... what did you expect...

    after all they made a phone out of glass... which is great if you drop it and most people do drop a mobile phone at some point lol.

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