Sole trader - capital allowances - another tax thread!


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 and business debit/credit card for business purchases. I basically put all business earnings thorugh my business account, then any business related capital or operational costs get put through my business account. So far I havent really had any 'big' business purchases.

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 figures of how my finances are doing so far.

-2011-2012: 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 a new MacBook Pro for business use and would like to buy it out of my business 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 or remove it alltogether. How would I 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 year of trading so after I invest in the new MacBook Pro I only pay tax on what would be a much smaller amount of profit or as I anticipate I probably wont have any profit, therefore tax to pay.

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 free to let me know (and crush my dreams) :thumb:

Sorry I can't help with your question but I was hoping you may help with a couple of mine.

I am also in full time employment and also setting up as a sole trader in my spare time. Is the tax from your employer still calculated by the company and paid for as usual, you would only be responsible for your sole trader activities?

Is it just a case of filling out the CWF1 form to register as a sole trader? I already have the business bank account set up.
I believe that any purchases need to be made before the end of the 11-12 tax year to be included in that years expanses. Anything purchased after the start of the 12-13 tax year would need to be included in the new year's figures. Depending on your full time income, their may or may not be any tax to pay on 11-12's freelance income.


Did you know if you work from your spare room/dining room table (or any other room in the house for that matter) you'll be able to claim up to a 1/3 of your years utility bills as an expense?
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The Macbook would go on your balance sheet as an asset but you can't really write off the expense in one tax year. Because it is an asset it will depreciate in value so you'd have to write it off over (as a rough estimate) three years maybe?
Cheers for the replies

I have come to a bit more of an understanding about what I need to do although I still arnt sure if I have got this all right. This is after doing some research.

I think I should just buy the Mac as normal through my business account and obviously keep the receipt.

I will need to do my 2011-12 tax return and put anything on there that is to do with that year of trading. Because this would be my first year of trading there might be an opportunity to claim for various items of equipment that I bought leading up to going in business that at the time were for personal use but have now 'become business assets'. Items such as my computer equipment, printer and monitor are all items that I now just use for business use and have all the original recipes for (bought between 2-5 years ago). The value of these items at the time would be around £2500, so wether or not I could work out todays value of the equipment - lets say it is £1000. Could I reduce my 2011-12 profits by that amount to reduce my tax bill? I probably need to speak to an accountant for sure, but if anyone has any rough idea of if this type of practice is possible that would be good.

For my 2012-13 tax return I can then claim for annual investment allowance (AIA) for my Macbook purchase as it falls under the 'plant and machinery' bracket. If for some reason (which might be likely due to my business activity being quite modest while I work full time) I dont earn more than the value of the Mac in 2012-13 then in 2013-14 I should be able to claim for writing down allowance (WDA) for the remainder of the capital to offset that against profits in that tax year to reduce my tax bill. Then that is the question of if I claim for the left over percentage of that current value of the asset.

@ bigdave - yep I heard about that. That sort of thing will come under operational expenditure.

@ Corrosive - are you saying you cant write it off in one go, you write it off over the life of how long you would typically use the asset?

@ Davor. I applied online from what I remember to become a sole trader. Being a sole trader has nothing to do with being your 'sole/only income' which is what I thought at first. I pay my NI contributions and income tax for my full time job. I have a separate business account and annoyingly have to pay another 2 sets of NI contributions as well as 20% tax on all my business profits. I have a book about small business tax - cant find it on amazon as I don't know the exact name of it, but if your interested, PM me later and I will give you the name of it.

@ Corrosive - are you saying you cant write it off in one go, you write it off over the life of how long you would typically use the asset?

Bear in mind I am not an accountant... That's why we employ one but that is my understanding. It sits as an asset on your Balance Sheet and will depreciate over time. I know you'll get years and years of good use out of a Mac (had one in the office for repair yesterday, 12 years old!) but I'd say three years would be about right. Assuming that's approx £1200 then £400 a year.