Tax breaks for a new venture

[Some bloak]

I've been self employed for the past 10 years or so in a totally different (dwindling) field of work from woodwork. I'm not a total woodwork newbie but have never had my own dedicated workshop which I'm currently putting together along with a few items of equipment I've bought during the last year. More equipment will be bought as and when I have the money.

My main question is to do with what I can claim as tax deductible items- ie equipment purchase, tools, even maybe all the timber and materials I've needed to buy to convert an outbuilding into my workshop. The workshop is not up and running yet but I have invoiced a few jobs in the last year requiring joinery work.

The problem is, if there is a problem that is, I want to start claiming for the equipment I've bought so far or even what I've spent in building the workshop. I envisage it will take a couple of years before I get any amount of regular wood work, commissions etc before I can consider myself a 'proper' self employed woodworker, in which case can I start claiming in the meantime. The HMRC must have checks in place to prevent people claiming for running a hobby and not a business?.

This might be one for anyone who has been through this start up process or any accountant minded folks out there. The crux of the matter is having to shoulder the cost burden of setting up a new trade with very little work at the moment from the new trade while still having to earn from another trade that I'm aiming to leave behind.

Any advice or pointers will be gratefully received, many thanks to everyone.

 

[Bodgers]

It sounds to me like you need to talk to an accountant...

 

[Myfordman]

You need to differentiate between capital items and allowable expenses which are taxed differently.
Consumable items**, wood, screws, glue repairs to machinery and consumable tools like router cutters can be set against income from sales. If you are running a vehicle for the day job, you can charge a mileage rate if you use it for the new venture.

If you are starting up this new venture whilst continuing to work in the day job, then keep the accounts quite separate (and truthful!!).
Genuine taxable losses and capital allowances can be set against income from the day job. You should be able to set a "reasonable" amount of promotional work and samples.

**An accountant who specialises in sole traders will be able to advise of what level of consumables will be regarded as credible. They will also know how much the tax man himself gets paid to use their car for work. Make sure your mileage rate is no more than they get - for obvious reasons.

I have been running as a sole trader in a different field for best part of 30 years and only used an accountant for the first few whilst I learned what she did interms of formatting the info for my tax return. I have continued to produce it in the same format ever since and have had no problems with the taxman. In my experience they are not there to screw you and they are very fair and helpful. Mess them about and put in excessive claims and they will come digging until they find something.
Good Luck

 

[Some bloak]

It sounds to me like you need to talk to an accountant...

Yes indeed. I have an accountant, but I just want to be as clued up as much as possible before I have a 'sit down' with him. They tend not to charge anything 'on the clock' if I know a bit about it and keep it fairly brief.

 

[RobinBHM]

If you remain self employed in the same tax way, then I imagine any expenses you have incurred would be included in the tax year that you spent the money.

Timber, screws etc etc are expenses and offset aginst sales receipts. If you buy materials for workshop improvements, if they are only minor amounts, they are probably best just treated as materials for work.

Obviously home workshops and home offices can be used to offset against tax, but at a fair percentage

If you buy plant then that cant be written off in the same year only an amount of deprectiation.

Im not an accountant so only have a vague knowledge. You could join UKbusiness forum and ask on there, for some initial fact finding then go and see your accountant, its probably worth it to know you are going about it the most tax efficient way.

 

[Rorschach]

Materials and tools are written off as expenses when I do my return. Technically tools should be capital allowances since unlike consumables they have value on their own right and could be sold later on but I do not purchase large expensive bits of tooling, mostly smaller things that would have very little re-sale value and a lot of the tools I buy I then heavily modify to suit my needs, further reducing second hand value. Doing it my way would probably be frowned upon by HMRC but it keeps the books simple and doesn't reduce my overall tax burden in the long term anyway.

I claim flat rate mileage when I use my car, keeps it easy since I do very little business travel.

You can backdate costs incurred in setting up a business but you would need to speak to an accountant about this as it is beyond my very basic bookkeeping.

 

[sunnybob]

We had our own business ( a long time ago now) and my wife did all our accounts after the first year and the worst we ever got hit for was a vat shortage of £15.

The secret is to keep a receipt of absolutely everything you buy from now on. As you learn, so you can claim back from a previous year.
i know the one thing that surprised me was as we had a shop away from our home, we could even claim back toilet rolls and tea and coffee for rest breaks, but not food, as you had to have that wherever you were at the time..

 

[MusicMan]

The rules changed fairly recently, so that you can indeed claim losses (expenses) from self employment against other income tax. And for relatively small capital items (less than £100K I think!) you can claim capital equipment costs in the year they are incurred. Larger items come under depreciation, as has been said.

I'm not an accountant but have run self-employment in consultancy etc alongside employment for many years, and now alongside retirement. I don't use an accountant, but use the TaxCalc programme, which is very good on explaining what you can and cannot claim. HMRC website also contains useful explanatory documents. In general you can offset all the costs of building the workshop and acquiring tools, as well as consumables, and running the workshop (e.g. heating costs) for professional use against tax. But if you split the workshop between professional and hobby use, you must make an estimate of the split between the two and only claim the proportion that is for professional use.

I do musical instrument repair professionally, so i claim for the specialised tools and consumables used in that context. But woodwork is a hobby so that doesn't get claimed. As mentioned, keep careful records and you won't get not trouble.

Keith

 

[Roughcut]

I've been self employed for the past 10 years or so in a totally different (dwindling) field of work from woodwork. I'm not a total woodwork newbie but have never had my own dedicated workshop which I'm currently putting together along with a few items of equipment I've bought during the last year. More equipment will be bought as and when I have the money.

My main question is to do with what I can claim as tax deductible items- ie equipment purchase, tools, even maybe all the timber and materials I've needed to buy to convert an outbuilding into my workshop. The workshop is not up and running yet but I have invoiced a few jobs in the last year requiring joinery work.

The problem is, if there is a problem that is, I want to start claiming for the equipment I've bought so far or even what I've spent in building the workshop. I envisage it will take a couple of years before I get any amount of regular wood work, commissions etc before I can consider myself a 'proper' self employed woodworker, in which case can I start claiming in the meantime. The HMRC must have checks in place to prevent people claiming for running a hobby and not a business?.

This might be one for anyone who has been through this start up process or any accountant minded folks out there. The crux of the matter is having to shoulder the cost burden of setting up a new trade with very little work at the moment from the new trade while still having to earn from another trade that I'm aiming to leave behind.

Any advice or pointers will be gratefully received, many thanks to everyone.

I really do think you need the professional advice of an accountant and to get the best advice from the beginning.
It's likely that the new business venture will have to be viewed as a separate entity for tax purposes from your current trade.
And some of the financial outlay for your new business should be eligible to be claimed for under AIA or capital allowances.
In your first year of trading your business might even have to carry losses over to the following tax year if you have spent more out than you have had coming back in.
But again this is where a good accountant will be able to advise.