working as a sole trader

floatindolphin

floatindolphin

floatindolphin

Soldato
Joined
20 Jun 2005
Posts
2,767
Location
Derby
Hi,

I'm about to go freelance and was wondering if someone would know the answers to a few questions regarding claimable expenses...

I'm paye at the moment, can I claim some things against my tax that I buy in the next few weeks?

i.e. setting up ready for freelance in mid May

Say I spent 300£ on Monitors, would 300£ come off my tax bill next year, or is it a %?

Is there a maximum amount of expenses that can be put in?

i.e. say I had to pay 4000 tax but had expenses of 3800, would I only pay 200 to HMRC?

I'll be speaking to an accountant at some point but just wanted to get some answers 1st :)


Thanks
 
Some accountants on here but not the best plaice mate. Make an appointment and see one yourself.

Having said that, we're looking at this right now as the wife is going self employed, it's a bloody headache :p.
 
Why not just inform HMRC you're going self employed now before you place the orders? You can still be paid via PAYE and can still have a normal job at the same time, it just means you have to pay Class 2 NICs and submit a tax return.

(I'm PAYE but also registered as self-employed for the odd few jobs I do on the side)
 
floatindolphin said:
Hi,

I'm about to go freelance and was wondering if someone would know the answers to a few questions regarding claimable expenses...

I'm paye at the moment, can I claim some things against my tax that I buy in the next few weeks?

i.e. setting up ready for freelance in mid May

Say I spent 300£ on Monitors, would 300£ come off my tax bill next year, or is it a %?

Is there a maximum amount of expenses that can be put in?

i.e. say I had to pay 4000 tax but had expenses of 3800, would I only pay 200 to HMRC?

I'll be speaking to an accountant at some point but just wanted to get some answers 1st :)


Thanks
Click to expand...

Not quite. You pay taxes on the profit, your allowance doesn't directly detract from the tax like you described, but an increase in allowances means lower profits, thus less taxes.

We have a tax free allowance of about 10k, everything after that is taxed.

If you buy £1k worth of goods for your business, you essentially push the tax free allowance up to £11k and so forth.
 
You have two years to claim anything back you buy, just keep the receipts and if possible have them made out to the firms name.
 
Your income (which you pay tax on) is made up of your business profits and any other employment income, rental, interest, etc. You do have a tax free allowance where you won't get taxed on the first lump sum of income as Longbow mentioned.

Your business profits will be calculated as turnover less allowable costs. Costs include revenue costs (i.e. rent, mobile phone bills, fuel, etc) and you also get allowances for things like deprecation (capital allowances).

The amount of deduction you get in the year you purchase any goods depends on if the item is revenue or capital in nature. This is determined by a range of factors but is generally, if its useful life is less than one year, then it is revenue in nature and fully deductible. If it is longer than this the cost is spread via its useful life via capital allowances. There is certain percentage deductions you get that the government believes reflects the items useful life. At the minute, the Government want to promote spend on capital items and so they give you a set amount per year that you can spend on capital items and get a full deduction in that year (Annual Investment Allowance). Either way, the cost must be for the sole purpose of the trade. You can't buy a yacht for personal use and say that it is deductible for your business for example.

There are a range of things you need to consider that an accountant is specialised with but it is good to know the basics such as this. You might also want to look at what the accruals concept is (i.e. cash verses revenue). If you perform a big job, invoice the client and at the end of your financial year they haven't paid you, you still have to pay tax on it because it is revenue owed. Luckily you don't pay tax for a while after the tax year and they spread it over the year but you will want to budget for tax throughout the year. EDIT: You can use the cash basis when submitting tax returns as a small sole trader.
 
Last edited:
platypus said:
Some accountants on here but not the best plaice mate. Make an appointment and see one yourself.

Having said that, we're looking at this right now as the wife is going self employed, it's a bloody headache :p.
Click to expand...

*Slow claps* Very sneakily done sir!
 
Glaucus said:
Is there any good websites explaining this, leaflets or short books. that go over the basics.
Click to expand...

HMRC website is surprisingly useful .I'm not being sarcastic, people get scared but they're pretty good.

Try here: https://www.gov.uk/simpler-income-tax-cash-basis/income-and-expenses-under-cash-basis

Or here too: https://www.gov.uk/simpler-income-tax-simplified-expenses

The self assessment tax return is very well structured if you wanted to complete it yourself and they provide a lot of guidance. You are likely to miss out on a lot of allowances that you're simply not aware of though.

If you really want to learn then Tollys Tax Tutor is the best out there. Get the business taxes module and you'll be set. They explain it really well.
 
Last edited:
Glaucus said:
Just everything to starting a business, I current have no knowledge of the tax system at all, always been payee.
Click to expand...

This site explains income tax and how it is calculated.

Decide if you want to set up a limited company or act as sole trader. They both have their advantages and disadvantages. Do some research and speak to an accountant. You're likely start as a sole trader for a while if there isn't much investment required and you earn (after expenses) less than £40k per year. It starts to become cheaper in taxes if you go limited past around this point.

If you go self employed, you solely pay tax on all of your earnings. They're all throwing together in a big pot. If you go limited then the corporation is a separate "person". It pays corporation tax and you pay personal income tax via a self assessment. These are two separate forms.

Set up as a sole trader - https://www.gov.uk/set-up-sole-trader
Register for self assessment - https://www.gov.uk/register-for-self-assessment
What is self assessment? https://www.gov.uk/browse/tax/self-assessment

Limited would also mean you would need to think about being employed by the company and how you want to extract earnings in a tax efficient manner (i.e. via dividends and via a salary) as different methods are taxed in different ways. This is where an accountant comes in.
 
Last edited:
Op, I would advise get an accountant for the first year, then if you look over his figures end of year and understand it then give it a go yourself

I used to understand nothing 5 years back, but now do all my own books / VAT and have a PAYE employee :-)

AIA is very useful, your monitors if just for work would be under it and reduce your profit in the year of purchase and in turn your tax. If you ever go VAT registered things get even cheaper, and it gets very cheap to buy things for your business, which is good for your business and promotes spending in the economy.
 
Flukester said:
Op, I would advise get an accountant for the first year, then if you look over his figures end of year and understand it then give it a go yourself
Click to expand...

Do you get it reviewed by an accountant? How do you keep up to date with tax rule changes?
 
Kemik said:
Do you get it reviewed by an accountant? How do you keep up to date with tax rule changes?
Click to expand...

Don't get it reviewed as no need..

I read HMRC website for the key facts I need every year like Personal Allowance, LPL, NI%, 40% band start, ST for my wife etc etc...Then this is worked out real time on a excel spreadsheet combined with my two other PAYE jobs. (one job is 1000L with pension and one BR no pension so it gets a little fiddly for my pea like brain). The spread sheet I update daily as I sell goods and tells me in real time how much tax I owe, VAT I owe etc

I have a list of every figure that might change year on year and check every one....

On the return I submitted a few weeks back my figures calculated were just a few £ out on the self assessment (maybe due to roundings HMRC use)

PAYE Basic tools is a doddle for employee..

VAT is very simple even with EC sales lists etc.
 
Last edited:
register as a sole trader on HMRC website

then you claim the expenses back next tax year

So for my business I did my tax return on the 31/01/2014
this covered me for 2012 - 2013 tax year

You will not need an accountant a monkey could work this stuff out
 
You must log in or register to reply here.
Back
Top Bottom