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Mr. Squirrel

Capital introduced - advice

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Hey guys, I've searched various other forums for advice with this and think I have the answers, just thought I'd run it past arbtalk...

 

I've been self employed for 7 years now, up until our current tax year purely subbing. So books were always dead simple, invoices minus business expenditure, booyah. 
In the 2017-2018 tax year though I bought a van. My mum died that year and I received £10,000 from her pension, I borrowed a few grand from a family member on top of a grand or so I had so I could get a bombproof vehicle for work. So ended up spending £14,000. As what I borrowed was a private loan with no interest etc. I just paid it back out of my drawings. Seems legit to me. 
As it's a transit it's undeniably a commercial vehicle. Do I put that in my balance sheets for 2017-2018, but not include it in business expenditure, and then just put it through in my annual investment allowance? 
It was a poor year for business, as I took the first 6 months off work caring for my mum. So putting the full £14,000 through in one year will see my profits well below the approx £11,000 figure at which you start paying tax.  Can I put a portion of it through for 17-18, and spread the rest over the next 4 years or so, aye?

 

Looking ahead I'd almost be tempted get it done with in a single tax year and take the hit on the tax front in subsequent years. It'd mean more realistic profit values and possibly really help with getting a mortgage in a few years time.

 

From April my books will be done through a chartered accountant linked into Sage so I won't be asking tree surgeons for help haha I'd ring him up to chew this one over but I feel wide calling up a couple weeks before tax return is due having a flapper. 

 

Cheers for any advice in advance, and please guys, be kind. We aren't all accounting wizards... 

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I suggest getting your numbers together (and I mean summarised in a meaningful way, not just fill a carrier bag full of invoices and receipts) and then going to see the chap that will be doing your books from April and ask for his advice in preparing your 2018 tax return. It should not cost you much and he will need the info for when he starts doing your accounts anyway.

It is dangerous giving advice on one aspect of a business without knowing the full picture. 

 

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1 hour ago, Mr. Squirrel said:

Hey guys, I've searched various other forums for advice with this and think I have the answers, just thought I'd run it past arbtalk...

 

I've been self employed for 7 years now, up until our current tax year purely subbing. So books were always dead simple, invoices minus business expenditure, booyah. 
In the 2017-2018 tax year though I bought a van. My mum died that year and I received £10,000 from her pension, I borrowed a few grand from a family member on top of a grand or so I had so I could get a bombproof vehicle for work. So ended up spending £14,000. As what I borrowed was a private loan with no interest etc. I just paid it back out of my drawings. Seems legit to me. 
As it's a transit it's undeniably a commercial vehicle. Do I put that in my balance sheets for 2017-2018, but not include it in business expenditure, and then just put it through in my annual investment allowance? 
It was a poor year for business, as I took the first 6 months off work caring for my mum. So putting the full £14,000 through in one year will see my profits well below the approx £11,000 figure at which you start paying tax.  Can I put a portion of it through for 17-18, and spread the rest over the next 4 years or so, aye?

 

Looking ahead I'd almost be tempted get it done with in a single tax year and take the hit on the tax front in subsequent years. It'd mean more realistic profit values and possibly really help with getting a mortgage in a few years time.

 

From April my books will be done through a chartered accountant linked into Sage so I won't be asking tree surgeons for help haha I'd ring him up to chew this one over but I feel wide calling up a couple weeks before tax return is due having a flapper. 

 

Cheers for any advice in advance, and please guys, be kind. We aren't all accounting wizards... 

I would advise you ask your future accountant.  Vehicles usually have to be written off over a number of years, though there have been a number of schemes in recent years to allow the full allowance in year one.  You could of course ask HMRC - I think you will be surprised how helpful they can be.

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Yeah I'm just doing my balance sheet for that year now (making sense of the bag of receipts). It's all really tidy except for this elephant in the room. 

AIA varies but was at about £200,000 if I remember correctly, and putting the vehicle through in a single year is perfectly legit from what I remember. It's just how to record it...

I'll maybe give the chap a ring and see if he's got time to take a look. Just thought it worth asking you lot first. 

Edited by Mr. Squirrel

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go ltd.

 

lend the company £14k to buy the van off you.

 

company buys van (V5 in ltd co name) pays you back the 14k you just lent.

 

Company now has a 14k debt on the books. Repay this before taking any earnings above your tax code. £11k ish.

 

Repeat for all your tools, gear, computer etc anything business related.

 

Same for a portion of heat, power from h ouse for running a home office.

 

If you go vat registered and can find receipts you can claim back VAT on purchases upto 7 years ago.

Edited by donnk
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2 hours ago, donnk said:

go ltd.

 

lend the company £14k to buy the van off you.

 

company buys van (V5 in ltd co name) pays you back the 14k you just lent.

 

Company now has a 14k debt on the books. Repay this before taking any earnings above your tax code. £11k ish.

 

Repeat for all your tools, gear, computer etc anything business related.

 

Same for a portion of heat, power from h ouse for running a home office.

 

If you go vat registered and can find receipts you can claim back VAT on purchases upto 7 years ago.

Most of this is true (when you register for VAT it is only 18 months or so you can go back claiming past paid VAT on many items not 7 years and then I doubt you could do it before the company was incorporated).

 

However compared to being self employed it is all a lot more hassle and paperwork. 

 

Having been self employed and had a limited company I would say being self-employed is a lot easier overall.

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4 minutes ago, Squaredy said:

Most of this is true (when you register for VAT it is only 18 months or so you can go back claiming past paid VAT on many items not 7 years and then I doubt you could do it before the company was incorporated).

 

However compared to being self employed it is all a lot more hassle and paperwork. 

 

Having been self employed and had a limited company I would say being self-employed is a lot easier overall.

Sorry but its 4 years on assets ;) look on gove website says it clearly

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8 minutes ago, swinny said:

Sorry but its 4 years on assets ;) look on gove website says it clearly

Yes well spotted, but only six months for services.  And as it says only for the business now registered for VAT.  So in reality if the business has only just been incorporated I assume you would not be able to go back even one day.

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4 hours ago, donnk said:

go ltd.

 

lend the company £14k to buy the van off you.

 

company buys van (V5 in ltd co name) pays you back the 14k you just lent.

 

Company now has a 14k debt on the books. Repay this before taking any earnings above your tax code. £11k ish.

 

Repeat for all your tools, gear, computer etc anything business related.

 

Same for a portion of heat, power from h ouse for running a home office.

 

If you go vat registered and can find receipts you can claim back VAT on purchases upto 7 years ago.

A few comments:-

1. I don't wish to appear to be pedantic but repayment of a debt is a cash flow issue NOT a profit and loss account issue. This means that the repayment of  the directors loan (in your example) would be from profits which would have been subject to corporation tax or from a bank loan or overdraft. The impact of AIA on the tax is a separate issue but to suggest that the repayment of a company debt before taking earnings in excess of the personal allowance as part of a tax planning exercise is misleading . It is worth noting that the effects of introducing a loan into a limited company is the same as using personal funds to buy business assets as a sole trader/partnership. Those loans can be repaid whenever the respective business cash flow allows. Repayment of a loan is not income for the purposes of tax.

 

2. One needs to be careful about claiming a proportion of domestic costs as a business expense. At present any profit on the sale of your principle residence escapes capital gains tax. If you are in the habit of claiming a percentage of household costs based on a room being designated as an office and work out percentage of floor area etc and claiming a portion of council tax, mortgage interest etc, then you run the risk of having that part of your residence being classed as business premises when sold and that percentage of the gain could be deemed to be subject to capital gains tax. It is safer to make a round sum claim for "use of home as office" based on the HMRC flat rate for utilities (which depends on the number of hours at home :-

up to 50 hours per month claim £10 per month

51 to 100 hours per month claim £18 per month

100 hours plus per month claim £26 per month.

The above does not cover telephone and internet costs, the business element of which can be claimed.

You can claim more if you can justify it  but I do not recommend specifying part of your home as an office and claiming mortgage interest, council tax, property repairs, new carpets etc.

 

3. VAT

The ability to go back a few years to recover vat on assets relates to assets purchased that are still in use within the business. The issue to bear in mind however is how those purchases were treated when originally purchased. If the full cost, including associated vat was claimed under the AIA scheme then if the vat is subsequently reclaimed then I suspect that capital allowance claims may need to be revisited because the effective cost of the asset would have reduced (by the amount of VAT subsequently claimed). This could reduce the net benefit of the vat reclaim.

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