Newbie

[Baldhead]

Hi Everyone

I am new here so if this is the wrong place for my question can the moderator please move it to the right place.

Redundancy has forced my hand and I am now seriously thinking of starting my own woodwork business, I have quite a few hand tools, probably enough to get me by for now however my power tools are limited to a bandsaw and a sliding mitre saw.

I want to invest my redundancy money so any power tools I buy will be from profits made from my sales, my main question is if I reinvest my profits from sales will those profits be non taxable ie if I make £500 in the first month and buy a table saw will I not be liable for tax?

I should mention that I have made most of our furniture and in the past I have made items for friends and family, I am prepared to do anything wood related from making furniture to laying decking.

I know it won't be easy but anything is better than unemployment benefit or job seekers or what ever they call it now.

 

[9fingers]

AFAIK, you can't offset capital expenditure against income directly.

According to the nature of the capital items, a differing proportion can be set against income. There are often special arrangements for start ups and possible advantages to making your first trading year longer than 12 months
I would get advice from an accountant who specialises in self employed and sole traders. They will know the latest wrinkles.

Keep good records of all expenditure that you can reasonably charge to the business
mileage in your own vehicle at 45p per mile
some of your phone bill and ISP charges
Some of your Electricity bill.
Careful about council tax claims as I bet you have not got permission to run a business from your home !
Laundry to give you clean overalls to work in and meet your customers
A small weekly retainer to your mrs to answer the phone when you are working.
etc
These are all legitimate business expenses which CAN be set against income.

Write it all down - you can decide what to put though your annual accounts later

As well as income tax, there is employers and employees national insurance to pay too!!

Good luck

Bob

 

[Baldhead]

Thanks for your help Bob, not exactly what I wanted to hear but all help is gratefully recieved. I will probably make an appointment at our local HMRC office for an informal chat (that is if you can have an informal chat with the tax man) :lol:

Lots of things to think about.

Once again cheers.

 

[Jonzjob]

Can't help you with the tax problem Baldy, but welcome tou the forum and good luck with your venture :mrgreen: :mrgreen:

 

[9fingers]

A visit to the taxman will be a good idea but generally speaking they will inform you of the rules, whereas and account specialising in self employed and sole traders, will be able to tell you, legally, how you can avoid (NOT evade!) tax.

I would suggest you need both. The former will be free and the charge for the latter should be minimised if you indicate that you are likely to use his services in the future for your accounts. Note that all his fees will be legitimate business expenses and so can be set 100% against earnings in the current year so the tax man will pay 25% of the bill is one way of looking at it.

Bob

 

[Tom K]

Karl wiould probably be clued up on this question and will probably chip in at some stage. If you are going self employed you pay tax on what you take as wages and profit at the end of the year. If you invest what you make into tools equipment or stock there is no tax liability. The tax man may want to know what you are living on though.

 

[9fingers]

I'd suggest going as a sole trader to start with - easy to run alongside any other income sources and most if not all business reliefs still apply.
Move to self employed and or limited company with VAT as needed by turnover when the business is proven and you want to keep it going.

Bob

 

[Doug B]

I will probably make an appointment at our local HMRC office for an informal chat (that is if you can have an informal chat with the tax man) :lol:

I did exactly that 15 years ago when i set up, his main advice was that I could sort my tax myself & an account would be an expense I could do without.

Luckily I ignored his advise as I met a very nice accountant & I can definitely say, as he did, if your accountant can`t pay for himself in the savings he makes for you, he`s not worth his salt. Mine has saved me a fortune over the years.

 

[9fingers]

When I set up a sideline business in addition to paid employment my accountant was invaluable as she gave me a good guide as to what degree of business expenses was reasonable for my line of work (metal machining).
Her reputation with the local tax office also meant that my accounts went through without a query.
After a few years, she packed in doing sole trader's books and told me that if I followed her guidelines, I would be perfectly Ok doing my own books. This has worked perfectly and I've been doing my own for the last 15 or more years without any questions from HMRC.

Bob