Question for anyone clued up on self employment and taxes

[Vonhelmet]

I was under the impression things like loan interest could be offset against tax. How does the situation change if the business was to become a limited company and the vehicle was to be a company car with the owner to pay company car tax?

Yes, you can deduct finance costs if you go for HP or whatever, though these would have course be subject to the same apportionment for the split between personal and business use.

If you're using a company setup then things open up considerably, but it gets significantly more complex. The last place I worked had a spreadsheet with about 40 columns of input data to figure out for a given car for a given employee whether it was best to go for salary sacrifice with the company leasing the car, or the company buying the car, or the employee buying it or the employee leasing it with extra salary or whatever. I'm afraid I can't really give a simple answer to this, in the sense of saying that one method is better than another, as it depends on so many factors. Obviously there's general things like a low emissions car having a lower BIK cost and getting better capital allowances treatment if the company holds it, or no leasing restrictions if they lease it, but beyond that there's just too many factors.

I could maybe give better guidance if I knew which car the guy had in mind?

 

[[TW]Fox]

520d F10.

Out of interest, how did you get into being a CTA? What qualifications did you have before you started the professional qualifications you presumably have now, and whats the training route?

 

[Stinky]

Can I just check:

1) Laptop 1 was purchased June 2010 for £290?
2) Laptop 1 was then used entirely for business purposes until the present?
3) You intend to bring laptop 1 out of the business for personal use and purchase laptop 2 for £1,000 in, say, March 2011?

Is that all correct?

If you can estimate the market value of laptop 1 at the time you bring it out of the business (March 2011? £200 maybe?) then I can show you how this works. I just need to check a couple of things in the legislation, and my set is at work rather than at home, as there's a couple of things I'm uncertain of. I'll get back to you tomorrow.

thats the one.

thanks a lot mate

 

[Vonhelmet]

thats the one.

thanks a lot mate

There's another post further along where I added a bit more, but I'll check things tomorrow to be sure I'm right. I reckon you can get a deduction for the cost of both laptops, less the market value of the old one when you transfer it out of the business.

 

[Stinky]

I'm sorry, but you're still wrong. He is self employed, and for income tax purposes all expenditure must be pro-rated if there is an element of private use. Now, the revenue will exercise some discretion here, so you're right - the odd email here and there won't matter too much - but once you're talking about even 10% of use being non-business then it should be apportioned.

If he were operating as a limited company, then things would be different, as there is no such concept of private use apportionment. However, even then, if a company were to deduct the cost of a laptop for, say, one of it's directors, then this would almost certainly be treated as a dividend in specie, added back in the tax computation and taxed, and then taxed as dividend income on the director.

The government's push for tech-savviness is also largely irrelevant at this time, as they've long since axed things like the home computing initiative and the first year allowances for computer equipment.



No, you can't do what you're saying. You can depreciate it as much as you like, yes, though for tax purposes that depreciation is added back and you claim capital allowances instead. At present, it works out the same, thanks to the 100% annual investment allowance, but that's just a happy coincidence. As for selling it to yourself for £1... wrong. This next bit is true even for a company, so pay attention. If you dispose of a fixed asset by way of anything other than a bargain at arm's length (that is - a sale at open market value) then the proceeds introduced in the capital allowances computation are the open market value. You are expected to make a reasonable estimate of this (self assessment y0), and if the revenue do not believe your estimate to be reasonable then they will challenge it.

If you want to know where I got that idea, then it's s61 CAA 2001.

If this weren't the case, then any self employed Joe could buy a laptop "for business", immediately depreciate it by 100%, and then sell it to himself for £1 and claim the deduction via his self employed business.



OK, so you got one thing right.



Correct. I've thus far resisted the tempation to willy wave by scanning in my membership certificate.

Back on topic, for the OP... I've thought about this a touch more and I reckon you could claim the cost of both laptops less the market value of the first laptop at the point at which you bring it out of the business. So, for laptop 1 costing £290, with market value £200 when transferred out, and laptop 2 costing £1,000, you'll claim £1,000 + £290 - £200 = £1,090. This is through a combination of the annual investment allowance and the small pools allowance. I'll check it tomorrow and draw up a quick spreadsheet to show the workings.

/definitely no advice and no engagement here, oh no!

you are a true gent!

thanks for you none advice gives me a lot more of an idea of what i can claim and how.

i assume doing all this my account will sort it all out when i give him all my receipts for the year when april comes around?

 

[Vonhelmet]

520d F10.

I'll look up some numbers and try to get back to you with some estimates.

Out of interest, how did you get into being a CTA? What qualifications did you have before you started the professional qualifications you presumably have now, and whats the training route?

I got into it because I was looking for a job in finance or accounting, and the firm I applied to had vacancies in tax. I was in on a graduate scheme, so I had just a degree and A-levels under my belt. I studied for ATT (Association of Tax Technicians) and then went into CTA. You don't have to do ATT first, though it's a bit fiddly without it as you have to have some kind of accounting/book-keeping qualification and it helps insofar as it gives you an exemption from the CTA ethics paper.

Most firms will fund you through training with one of the professional training houses - BPP or Kaplan are the big ones, there's also Tolley's. The training is pretty sparse with them. You get just under a week per exam of contact study time, then it's all personal study until the revision courses which are a couple of days each. I was lucky in that the firm I was with was doing in house training, which meant about a week a month of contact study time for 3 years, which was a big ask in terms of time but was extremely comprehensive. I doubt I'd have passed without being on that sort of regime. That being said, I think they're dropping that now due to costs and so on. The whole thing took me about 3 years, though some firms will push you through the qualification side of things in 2 years. You do need 3 years professional experience to become a member of the CIOT though.

You take 4 main exams, plus you have to do e-assessments for law and ethics if you don't have some kind of exemption. There's an awareness paper in which you cover 3 areas of tax you're not specialising in (I did advanced corporation tax, VAT, and inheritance tax, trusts and estates) then you have two specialist papers which are more advanced and involved (I did taxation of individuals and taxation of owner managed businesses) and then you have a case study paper which is pretty hellish and covers the area you're specialising most in, and is one of the areas you took a specialist paper in (I did taxation of owner managed businesses). The exams are open book, insofar as you can take your highlighted set of legislation in with you, but to be honest they're so time pressured that you don't really have time to go hunting through the 30,000 pages of guff - if you open them you have to know exactly where you're going to pick up specific details. Each paper is sat by a couple of thousand people each time round, and every paper for each exam is marked by the one person who set the questions, to minimise any bias and to reduce the need for moderation. The pass mark on each exam is 50% and I passed my exams with 62%, 53%, 52% and just 50% for the case study

It's said that CTA is one of the hardest professional qualifications around - some say it's second only to an actuary qualification that takes around 7 years. From personal experience I can attest that it's very hard, especially when you have a wife and two kids as I did!

 

[Stumble Bum]

How much harder is CTA than ATT von?

I should be starting ATT in a week or two via Kaplan and had a quick look at some of the past papers (it's February so no work to do ) and it all looks fairly straightforward but i've heard CTA is a lot more legislative based. i.e having to get out those horrible tolley tax guides. ewwww. So is CTA much harder do you reckon?

I plan to take all 4 ATT exams in one go in November, do you reckon that's easily achievable?

thanks.

 

[Vonhelmet]

How much harder is CTA than ATT von?

I should be starting ATT in a week or two via Kaplan and had a quick look at some of the past papers (it's February so no work to do ) and it all looks fairly straightforward but i've heard CTA is a lot more legislative based. i.e having to get out those horrible tolley tax guides. ewwww. So is CTA much harder do you reckon?

I plan to take all 4 ATT exams in one go in November, do you reckon that's easily achievable?

thanks.

ATT - 4 in one go is do-able. I did it in 1 and 3 and did fine. I did ethics and admin first, then did the other 3 at the next sitting. I know lots of firms put people through it all in one go, so it must be a pretty good bet.

CTA - ATT is more computational, like about preparing returns and the like based on given information. CTA is more about advice, so there's a lot of speculative stuff - what ifs and compare and contrast questions i.e. is it more tax efficient to own a car as a sole trader or via a limited company, to pick a pertinent example. It's more discursive, really, and less about giving the right answer per se and more about showing that you know how to think and analyse these things. ATT is definitely good preparation for CTA, in terms of the core tax knowledge, but CTA does entail something of a lateral shift because of the nature of the questions. By way of example, a guy I know who took CTA about 5 times before passing said he once sat a paper where the only question was something along the lines of "Discuss the tax issues faced by a farmer." and that was it. Nice.

 

[Participant]

Things I've learned from this thread: Not to take any tax advice from Britboy.

Haha, this. Classic illustration of why to be careful with advice on the internet.

 

[Pudney]

Whoa! And he doesn't know about straight line depreciation on assets? Holy cow batman ... thats amazing :/


http://www.ir35calc.co.uk/assets_depreciation_company_accounts.aspx

http://www.taxationweb.co.uk/forum/depreciation-rates-t15289.html

If it helps, as an accountant and a tax advisor you're actually wrong.

And yes, I do know both accounting treatment and tax treatment very well, I've had the pleasure of working in audit as well as tax.

But anyway, listen to von, he's right.

 

[Pudney]

and then you have a case study paper which is pretty hellish

If you do ACA/ACCA/ICAS first you get an exemption from this. Does add on another 3 years though!

 

[Judgeneo]

When (if) I'm a rich entrepreneur. I'm hiring an accountant.

This stuff is confusing.

 

[Vonhelmet]

you are a true gent!

thanks for you none advice gives me a lot more of an idea of what i can claim and how.

i assume doing all this my account will sort it all out when i give him all my receipts for the year when april comes around?

Right. I've checked this out now.

You can claim the costs of the laptops under the annual investment allowance, so that's a £1,290 deduction. However, when you transfer the first laptop to yourself, the market value will be knocked off either the balance on the general pool or the deduction given above. Your accountant will know how to handle this. Without knowing the balance on your general pool, I can't say for sure what will happen, but basically it'll fall into one of 3 scenarios:

1) Balance of 0 - reduce the £1,290 by the market value, thus reducing your immediate deduction.
2) Balance of above the market value - knock the market value off the balance on the general pool, effectively denying you £200 worth of allowances but likely spread over time.
3) Balance of below the market value but above 0 - Balance on pool reduced to zero, excess knocked off the £1,290, similarly to in option 1 above.

In practise, just tell your accountant what you've bought and he should sort all this out for you. I can't imagine he'll need prompting to do things as above, as it's all very standard stuff.

 

[Vonhelmet]

520d F10.

I'm looking into this, it's not forgotten. As I said, there's a lot of issues and most of them I can make reasonable assumptions for, but it would help if you could provide rough leasing costs. I can find out the list price and guestimate costs based on purchasing outright, but it would help if you could point me towards leasing costs for, say, a 3 year lease or whatever, as I'm not sure where I'd even start looking for that.