Tax Return for Self-employed


B

Bypass

I went self-employed 1 November 2005 and intend to take my first tax
period to 5 April 2006. I 'transfered' my car (value £6000 with 70%
business use) and computer hardware (£500) into the business. I also
bought new computer hardware (£500) and software (£3000) exclusively for
business use.

I provide professional services (structural engineering) and won't make
much in the first year up to April 2006.

Could someone please advise me what my writing down allowances would be
for the first year (5 months up to April 2006) and then the second (full
12 months) year?

Many thanks.
 
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P

Peter Saxton

I went self-employed 1 November 2005 and intend to take my first tax
period to 5 April 2006. I 'transfered' my car (value £6000 with 70%
business use) and computer hardware (£500) into the business. I also
bought new computer hardware (£500) and software (£3000) exclusively for
business use.

I provide professional services (structural engineering) and won't make
much in the first year up to April 2006.

Could someone please advise me what my writing down allowances would be
for the first year (5 months up to April 2006) and then the second (full
12 months) year?

Many thanks.
You haven't given enough information.

You need to give the full profit and loss account.
 
B

Bypass

Peter said:
You haven't given enough information.

You need to give the full profit and loss account.
Hmmm...that's interesting. I've just resolved the matter with the
assistance of a very helpful technician at HMRC and they were able to
work with the information I posted here.
 
D

-=David=-

: Peter Saxton wrote:
:
: >
: > You haven't given enough information.
: >
: > You need to give the full profit and loss account.
: >
:
: Hmmm...that's interesting. I've just resolved the matter with the
: assistance of a very helpful technician at HMRC and they were able to
: work with the information I posted here.

There can be a huge difference between what is permissable - what is
desirable - and what is the most tax efficient .... ;-)
 
P

Peter Saxton

Hmmm...that's interesting. I've just resolved the matter with the
assistance of a very helpful technician at HMRC and they were able to
work with the information I posted here.
They were helpful at getting you to pay more tax than necessary!

Go ahead and claim the maximum capital allowances even if it doesn't
save you tax and only wastes the chance of saving tax in the future.

But then you are trying to do your tax yourself without knowing enough
about tax. Save a little on accountancy and lose a lot in tax is a
false economy.
 
J

Jon Griffey

Hmmm...that's interesting. I've just resolved the matter with the
assistance of a very helpful technician at HMRC and they were able to
work with the information I posted here.
Don't always trust what the guy on the phone at HMRC says.

Did they say:

Car: 449
Pool: 1,400

Whether you want to claim the maximum allowances is another matter and
depends on your circumstances, e.g. your marginal tax and NIC rates in
the years concerned.

--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 
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M

Martin

Jon Griffey said:
Don't always trust what the guy on the phone at HMRC says.

Did they say:

Car: 449
Agreed - although taken over the ensuing 2 or 3 years, the OP would prob be
better off just to claim 40p - unless doing very low or very high mileage,
or has an expensive-to-run car.
Pool: 1,400
Disagree... I don't think you've included the pre-owned £500 kit introduced
into the business
Whether you want to claim the maximum allowances is another matter and
depends on your circumstances, e.g. your marginal tax and NIC rates in the
years concerned.
Strongly agree...
 
R

Ronald Raygun

Jon said:
Don't always trust what the guy on the phone at HMRC says.

Did they say:

Car: 449
Pool: 1,400
Why would they have said that? The raw figures the OP gave were that
he introduced a £6000 car into the business and that it received 70%
business use. Therefore the maximum WDA for year 1 would be 25% of
£6000, leaving a pool value of 75%, i.e. £1500 and £4500 respectively.
Of the £1500 WDA, 70% would be settable against profits.

In addition, he could claim (and set 100% of) 25% WDA on the £4000
computing stuff.

Thus max year 1 business WDA would be £2050.
Whether you want to claim the maximum allowances is another matter and
depends on your circumstances, e.g. your marginal tax and NIC rates in
the years concerned.
If there is no prospect of him becoming a HRTP anytime soon, it would
be worth claiming the WDAs only to the extent that his profits lie in
the basic rate band, i.e. are well above £7k (together with any other
income he may have - such as from employment between 6 April and 31 Oct,
given that he "went" self-employed on 1 Nov -- but he doesn't say
anything about whether there has been employment or whether it is/was
continuing).

It may have been (or indeed it may still be -- there is still time to
change his mind about this, even if it's less than a week) better not
to (have) introduce(d) the car into the business but to keep it private
and to charge 40p per business mile as expenses, or 25p after the first
10k miles. Unlike WDAs (which can only be set against future profit by
not claiming them until the future has happened), mileage money is a
proper expense, and even if it creates a loss this cyear, it can be
carried forward to set against future profits. And that's before even
getting into the question of which method is directly worth more, but
clearly if he can only claim £1050 WDA on the car (plus 70% of running
expenses), that doesn't represent very many 40p business miles.
 
R

Ronald Raygun

Martin said:
No way. I think Jon may have read the OP as 70% private use
where in fact he said 70% business use. And if he had said
30% business use, why 449 and not 450, by the way?
although taken over the ensuing 2 or 3 years, the OP would prob
be better off just to claim 40p - unless doing very low or very high
mileage, or has an expensive-to-run car.
Agree about "if very low mileage", but why also "if very high"?
Surely even 25p per mile is bound to exceed running costs and
depreciation, bearing in mind the first 10k miles will already
have bagged £4000, which on a (typical?) running cost of (say)
12p a mile would have contributed £2800 against depreciation.
So the 2nd 10k miles would contribute another £1300. That's
almost enough to write off the entire 70% of £6000 in the one
year.
Disagree... I don't think you've included the pre-owned £500 kit
introduced into the business
I think it goes without saying that Jon is concentrating on the car.
Cars have their own pools, don't they, and other stuff goes in a
different general pool.

In any event, though, is it not usual practice to work out WDA and WDV
on full value at introduction, and only to scale down WDA by the
business use ratio, leaving the pool value unscaled? After all, what
if the business use ratio changes in subsequent years? So car pool
would stand at £4500.
 
M

Martin

Ronald Raygun said:
Why would they have said that? The raw figures the OP gave were that
he introduced a £6000 car into the business and that it received 70%
business use. Therefore the maximum WDA for year 1 would be 25% of
£6000, leaving a pool value of 75%, i.e. £1500 and £4500 respectively.
Of the £1500 WDA, 70% would be settable against profits.
WDA Car = 6000 x 25% x 70% x 156 / 365 (days) = £449 (rounded)

In addition, he could claim (and set 100% of) 25% WDA on the £4000
computing stuff.
No - if he disclaims FYA, then 4,000 @ 25% x 156 / 365 (days)

But if he claims FYA, then apportionment for short period doesn't apply,
hence..

£4,000 x 40% = £1,600

(this assumes FYA not claimed on the £500 2nd-hand kit in a former life)

Incidentally, assets with private use (car in thsi case) is not pooled.
 
M

Martin

Ronald Raygun said:
No way. I think Jon may have read the OP as 70% private use
where in fact he said 70% business use. And if he had said
30% business use, why 449 and not 450, by the way?
See other post
Agree about "if very low mileage", but why also "if very high"?
Surely even 25p per mile is bound to exceed running costs and
depreciation, bearing in mind the first 10k miles will already
have bagged £4000, which on a (typical?) running cost of (say)
12p a mile
12p a mile - what planet etc...?

The point is that it's not wise just to make assumptions. Certainly not
when the client is paying to get it right.

Thus, although not "average", the figures could well be...

Total 36,000 mpa
Fuel 20p / mile = £7,200 pa
Maint (3 x 12k services) £1,500 pa
Tyres (say 1.5 sets at £180 per tyre) £1,080 pa
Ins & VED £700 pa
WDA £1,500 pa (initially)
Total cost = £ 11,980 pa
x 70% = £8,386

cf... 10k @ 40p + 15,200 @ 25p = £7,800

You may claim these figures aren't common, but I have enough clients running
fuel guzzling, heavy, fast cars to know it really does happen in practice.

Although WDA will reduce each year, at that mileage, car will prob lose all
its value in 3 or so years. So at disposal, BA ( x 70% ) can be claimed.
Cars have their own pools, don't they, and other stuff goes in a
different general pool.
Only if "expensive" or have private use.
 
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J

Jon Griffey

Ronald Raygun said:
Why would they have said that? The raw figures the OP gave were that
he introduced a £6000 car into the business and that it received 70%
business use. Therefore the maximum WDA for year 1 would be 25% of
£6000, leaving a pool value of 75%, i.e. £1500 and £4500 respectively.
Of the £1500 WDA, 70% would be settable against profits.

In addition, he could claim (and set 100% of) 25% WDA on the £4000
computing stuff.

Thus max year 1 business WDA would be £2050.
No!

Just to clarify my calcs: -

Car is: -

6,000 x 25% x 156/365 x 70% = 449, wdv c/f 5,359

Don't forget that we have a short period of account, hence 156 days.

The car is not pooled as there is private use.


Pool is: -

4,000, FYA 40% = 1,600, wdv c/f 2,400

Sorry - didn't see that there were 2 x "computer hardware 500" - read
the post too quickly. (oops!)

--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 
R

Ronald Raygun

Jon said:
Just to clarify my calcs: -

Car is: -

6,000 x 25% x 156/365 x 70% = 449, wdv c/f 5,359

Don't forget that we have a short period of account, hence 156 days.
OK

Pool is: -

4,000, FYA 40% = 1,600, wdv c/f 2,400
This bit should be subject to short period reduction too, though,
shouldn't it? And hasn't the 40% FYA for IT scheme expired?
 
R

Ronald Raygun

Martin said:
12p a mile - what planet etc...?

The point is that it's not wise just to make assumptions. Certainly not
when the client is paying to get it right.

Thus, although not "average", the figures could well be...

Total 36,000 mpa
Fuel 20p / mile = £7,200 pa
20p a mile? What planet etc...? :)

This must be Troy's friend the doctor with his fleet of Rolls Royces and
XJ12s. I get 8p a mile from my by no means frugal 2l Diesel.
Maint (3 x 12k services) £1,500 pa
Jolly expensive services. I raise an eyebrow when mine's over £200.
But for an XJ12, fair enough.
Tyres (say 1.5 sets at £180 per tyre) £1,080 pa
£38 per tyre. :) One set per 24k miles? Must be some boy racer,
our doctor. Rushing his patients to casualty dept, no doubt. No
wonder his insurance is expensive.
Ins & VED £700 pa
WDA £1,500 pa (initially)
Reality check. A £6000 XJ12?
Total cost = £ 11,980 pa
x 70% = £8,386

cf... 10k @ 40p + 15,200 @ 25p = £7,800

You may claim these figures aren't common, but I have enough clients
running fuel guzzling, heavy, fast cars to know it really does happen in
practice.
Fair enough, but even your inflated running costs have managed to beat the
mileage payments by only the narrowest of margins.
 
B

Bypass

Jon Griffey wrote:

Just to clarify my calcs: -

Car is: -

6,000 x 25% x 156/365 x 70% = 449, wdv c/f 5,359

Don't forget that we have a short period of account, hence 156 days.

The car is not pooled as there is private use.


Pool is: -

4,000, FYA 40% = 1,600, wdv c/f 2,400

Sorry - didn't see that there were 2 x "computer hardware 500" - read
the post too quickly. (oops!)
This is what HMRC told me, except that the Pool was also subject to the
156/365 approportionment (as RR post below)
 
M

Martin

Ronald Raygun said:
This bit should be subject to short period reduction too, though,
shouldn't it? And hasn't the 40% FYA for IT scheme expired?
FYA now 40% for (almost) all stuff for SMEs. Not just ICT.

And no apportionment for FYAs (see my earlier post)
 
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J

Jon Griffey

The 100% FYA for ICT expenditure has indeed expired. You instead (in
most cases) just get the 40% as you would for plant generally.


FYA's are not usually apportioned for short periods of account.


This bit should be subject to short period reduction too, though,
shouldn't it? And hasn't the 40% FYA for IT scheme expired?
--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 
M

Martin

Ronald Raygun said:
Martin wrote:
20p a mile? What planet etc...? :)

This must be Troy's friend the doctor with his fleet of Rolls Royces and
XJ12s. I get 8p a mile from my by no means frugal 2l Diesel.
Wow - what about on the flat, and have you tried going up hills...?

I get 16p to 17p - but obv that's petrol.

Jolly expensive services.
Mine is coming up and will be the wrong side of £500 with no extras. That's
for a large-ish "quality / exec" (not my description...) car - franchised
dealer charges £80 + vat per hour. Interestingly, the rate drops for
"older" cars - apparently to attract the non-"company car" business.
£38 per tyre. :)
What - for a heavy-ish (presumably) diesel? Where do you get them, and do
they last 24k? I couldn't shoe a mini for that.
One set per 24k miles? Must be some boy racer,
our doctor. Rushing his patients to casualty dept, no doubt. No
wonder his insurance is expensive.


Reality check. A £6000 XJ12?
Are you questioning Ins ? Are you assuming max NCD, owner-only dirver, SD+P
use only?

Fair enough, but even your inflated running costs have managed to beat the
mileage payments by only the narrowest of margins.
I accept that. Which is why I said originally "... although taken over the
ensuing 2 or 3 years, the OP would prob be better off just to claim 40p -
unless doing very low or very high mileage, or has an expensive-to-run car".
 
M

Martin

Bypass said:
Jon Griffey wrote:



This is what HMRC told me, except that the Pool was also subject to the
156/365 approportionment (as RR post below)
Full marks for getting HMRC's help so quickly with your original question.
But sounds like they were either ill-informed or were trying to rip you
off... :-(
 
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J

Jon Griffey

Bypass said:
Jon Griffey wrote:



This is what HMRC told me, except that the Pool was also subject to the
156/365 approportionment (as RR post below)
From the horses mouth.....

http://www.hmrc.gov.uk/manuals/camanual/ca11110.htm

As I said, don't always rely on their advice over the phone as you will
generally not be speaking to someone with the appropriate technical
knowledge. That's not a criticism of the individual officer - they have
a thankless job to do at HMRC.

--
Jon Griffey FCCA CTA
Hackett Griffey
Chartered Certified Accountants & Registered Auditors
2 Mill Road, Haverhill, Suffolk, CB9 8BD

Tel (01440) 762024

www.hackettgriffey.com

See website for disclaimers
 

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