Tax on business startup

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Woodypk
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Tax on business startup

Post by Woodypk » Sun 14 Feb, 2021 6:13 pm

Hi guys/gals,

First of all, I'm not asking for financial advice that I'm going to act upon, I would just like some info from people who've been there before.

My question is about capital allowances for new businesses.

More specifically, what you can call a 'capital expense' and how you can use these capital allowances to your advantage as a startup to help the new business in anyway it can - by way of financial saving.

I'll keep everything example based, as this helps my uneducated mind (in this subject) understand in a more simple way.

So... if I buy a brand new Morso exactly 18 months before I start my limited business for the price of £2500, would I be right in assuming that this would be classed as an asset because its a higher priced item that is used for multiple years 'solely and exclusively' for the business. In this example, I'd owned the Morso for 18 months prior to incorporation and had used it for my hobby which 18 months later became a business.

What doesn't this £2500 figure mean to my new business? Can I offset this spend against my pre tax profits?

Say I'd spent a total of £5000 over the course of the 18 months in high value items and a total of £500 in 'consumables' such as lower value hand tools etc which were purchased with a view back then to turn this hobby into a business, and all of these items were used solely and exclusively within the business once started up, how can I use this £5500 total spend in a tax efficient way?

As said, I'm not looking forwards to replies as 'financial advice' but more as a way to understand that if I wish to make my hobby into a business, how I can be most financially efficient since I've already spent a lot of cash on 'startup costs' but not yet classed as a business. I ask since I've been told you can 'offset' some of these costs incurred up to 7 (might have been 5) years prior to starting up.

It goes without saying, before I were to go ahead with any of my own assumptions, or information offered here, I will be sure to seek professional financial advice.

Thanks guys, I appreciate you taking the time to read this post on a subject most would say is a bit boring.....

Woodypk
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Re: Tax on business startup

Post by Woodypk » Sun 14 Feb, 2021 6:17 pm

Also, its worth mentioning that I'm taking about starting a limited business not starting as a sole trader.

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YPF
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Re: Tax on business startup

Post by YPF » Sun 14 Feb, 2021 6:38 pm

I started as a sole trader after framing as a hobby and this was after extensive conversations with accountants and a half day of advice with HMRC. Many accountants will give prospective customers a 15 minute interview free of charge - you can glean a lot of information in that time, I did this with 3 accountants before deciding my preference.

My accountant took all my related spending for the past 3 years (if I remember) when preparing my first year’s return. Whatever path you choose my advice would be:

Keep all receipts for spending related to your hobby in preparation for turning it into a business, don’t forget to include all your travel.

Engage with an accountant
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Gesso&Bole
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Re: Tax on business startup

Post by Gesso&Bole » Sun 14 Feb, 2021 6:41 pm

Get yourself an accountant. Even the decision as to whether to be Ltd or sole trader has tax implications so get advice. The chances are an accountant is not going to be charging you anything significant before you actually become a ‘proper’ business.

I could only tell you what my accountant has advised me, which may be completely different for your circumstances.
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Woodypk
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Re: Tax on business startup

Post by Woodypk » Sun 14 Feb, 2021 7:00 pm

Thanks for the replies so far guys.

I have been keeping as many receipts as possible, both paper and email invoices and I'm going to put these all on a spreadsheet so when I do see an accountant, I can give this to them.

I just wanted to learn a little bit before I got to that stage so I can do some math in my head before I jump in.

I'm the kind of person that likes to be as clued up as possible with these sorts of things. Even if it is just a basic understanding of the rules.

I also mention starting as a limited company because I don't plan on being 'sole' in my business venture.

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Re: Tax on business startup

Post by GeoSpectrum » Sun 14 Feb, 2021 8:23 pm

There are other options to being ‘sole’ and not a ltd company. Speak to a qualified advisor.
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Re: Tax on business startup

Post by Rainbow » Sun 14 Feb, 2021 8:47 pm

You may find guidance and some of the information you're seeking on the government web site:

https://www.gov.uk/growing-your-business

Through the links on that page, you might also be able to find a mentor, some of whom offer free advice.

Good luck if you decide to go for it :)

Woodypk
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Re: Tax on business startup

Post by Woodypk » Sun 14 Feb, 2021 9:24 pm

Thanks for the link Rainbow. I've read through those pages.

The question I'm asking is somewhat slightly more specific.

GeoSpectrum, I am aware of the different legal structures and how one may be more beneficial than the other, but at the moment, that's not what I'm trying to find out.

My question was regarding allowable expenses, particularly capital expenditure within a limited company and how this works with regards paying tax - or not paying tax as it may be. Ideally, it would be great to hear from someone who has formed a limited company and give me a 'only as an example, real numbers not used' example of how this works.

As already said. Fear not guys, I'm not going to go make any decisions on any information you guys may provide, I'm just trying to learn a little from those who have been there, bought the t-shirt..... and paid tax on it.

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Re: Tax on business startup

Post by GeoSpectrum » Sun 14 Feb, 2021 9:44 pm

Alan Huntley
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Doing nothing is a much underrated activity

Woodypk
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Re: Tax on business startup

Post by Woodypk » Sun 14 Feb, 2021 9:48 pm

Thanks GeoSpectrum.

I knew about the 100% AIA. I didn't realise it continued after the first year at 18%

Thanks for the link.

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Gesso&Bole
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Re: Tax on business startup

Post by Gesso&Bole » Sun 14 Feb, 2021 10:14 pm

What we are trying to say, is that in order to find out exactly what you want to know, not hearsay, or unqualified advice, have a chat with an accountant not a framer!

My advice to you, after many years in business, is that a good accountant is very valuable. Pick up the phone and have a chat with a couple of local accountants, ask them your questions, and weigh up who you would like to work with.
Jeremy (Jim) Anderson
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prospero
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Re: Tax on business startup

Post by prospero » Mon 15 Feb, 2021 9:37 am

Capital Assets are such things as equipment that is not 'stock' for resale. The rules are slightly complicated.
but the premise is simple. You can write off a percentage of the value as depreciation. It's common practice
to keep a 'pool' of capital stuff and deduct and claim percentage of the total. There are exceptions. The rules
for vehicles used in the business has changed a bit. But there are get-outs such as if you buy a tool to replace a
worn out one the the new one is 100% claimable. (Don't quote me - that's Tax as I know it).

There is heaps of documents on the HMRC site that explain things. If you speak Accountant. :roll:
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Re: Tax on business startup

Post by ChrisG » Sat 20 Feb, 2021 7:58 am

Last year I purchased the Gunnar that I had been hiring and that was treated as a capital expense.

When looking for an accountant choose one that specialises in small businesses.

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Re: Tax on business startup

Post by Not your average framer » Sat 20 Feb, 2021 11:23 am

Maybe this is not quite the same thing, but when I was getting started, I bought most of my equipment and stock from a large and very well known framers in Totnes (probably about 20 miles from me). It never occurred to me to get receipts for anything, but when I went to see an accountant when I was ready to start trading, he included all of this as part of my initial start up cost and part of this value would be written of against depreciation each year.

In theory this would be deducted from money to be paid in taxes, but I'm not sure that much of this ever was as I had not been trading very long when I suffered a heart attack and was not all that well for several years and was only scrapping by. It was a very low point in my life and I was very surprised that we still managed to pay our bills at all during this time.

The depreciation will shown on my accounts, but I needed to earn enough to pay tax during this period to be able to deduct the depreciation and I don't think that I'this ever happened.
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Re: Tax on business startup

Post by Hali » Tue 26 Apr, 2022 4:47 pm

I am thinking of buying an existing business from someone. I will be the new leaseholder. It is a fast food retail outlet. The lease is for 10 years and the rent is £160 per week. I believe the rent has to be paid to the landlord for the term of the lease. The current leaseholder is trading as a sole trader.

- I would like to carry on running it as a sole trader as I believe this is easier .

- If the business is making a profit then there is no problem at all.
If everything went horribly wrong in the business what would be the best way to protect my existing assets (ie my house). For example, if the business stopped trading then I would still have to pay the landlord his rent and bills etc. for 10 years, the landlord will come after our house to get his money? Can he do that?

My wife and I jointly own a house and have a £31,000 mortgage. There would be no charge on the house to raise money for the business.
In order to protect the house, I was thinking of selling my half of the house to my wife. The house is worth about £175K, and we purchased it for 100k several years ago.

Is this the best way to protect the house from any potential bad debts in the future in the business, or are there any other methods?
Would my wife have to pay any taxes (ie CGT, stamp duty, etc)? There are a lot of hr services providers are there like this site, do you guys suggest them?

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Re: Tax on business startup

Post by Justintime » Wed 27 Apr, 2022 9:47 am

Set up an LLP, but I really think you're asking the wrong people. I usually ask an accountant these sort of things rather than picture framers...

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Re: Tax on business startup

Post by misterdiy » Thu 19 May, 2022 7:08 pm

When we started it was not a limited company but after a while we did become limited to protect ourselves from expensive items being damaged or stolen whilst in our charge. That may or may not have been the right idea, but it does bring with it another level of cost. Its more expensive in accountancy and you will have to be VAT registered.

As nearly every other person here has said, speak to an Accountant

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Re: Tax on business startup

Post by Compomouldings » Thu 19 May, 2022 7:21 pm

You don’t have to be vat registered (if you are under the threshold) to be a limited company

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