Self Employed Allowances and PAYE Income

[alient]

I'm in the process of setting up a small consultancy business. I have setup costs this financial year (office/pc etc) but will not have any business income until next year.

If I notify HMRC of being SE this financial year can I still benefit from tax allowances this year in respect of the setup costs even though there has been no related business income (ie the business makes a year one loss). I'm wondering if these allowances can be used to reduce my PAYE tax burden in the same period?

Hope this makes sense and thanks for your time.

[elainec100@cheapaccounting]

You can 'make a loss' on the SE business and the loss can be offset against other income - you will need sole trader accounts and a self assessment.

Have a read of this to get started:

http://www.franklyaccounts.co.uk/gettingsole1.php

[MyAccountantOnline]

I'm in the process of setting up a small consultancy business. I have setup costs this financial year (office/pc etc) but will not have any business income until next year.

If I notify HMRC of being SE this financial year can I still benefit from tax allowances this year in respect of the setup costs even though there has been no related business income (ie the business makes a year one loss). I'm wondering if these allowances can be used to reduce my PAYE tax burden in the same period?

Hope this makes sense and thanks for your time.

Just to add to Elaines post do also bear in mind that until you actually commence trading the expenses are what are called pre-trading expenses and are treated for tax purposes as being incurred on your first day of trading.

[alient]

Just to add to Elaines post do also bear in mind that until you actually commence trading the expenses are what are called pre-trading expenses and are treated for tax purposes as being incurred on your first day of trading.


Thanks both

If I'm reading Nicola's post correctly this means that my "pre-trading" expenses won't be "recognized" until the year in which I first trade. If that's right I might as well leave registering as SE until the start of the new tax year I think.

Thanks again.

[Ray Coman]

Thanks both

If I'm reading Nicola's post correctly this means that my "pre-trading" expenses won't be "recognized" until the year in which I first trade. If that's right I might as well leave registering as SE until the start of the new tax year I think.

Thanks again.

If you are expecting to make a loss in your first year of trading, then this loss can be set against income for previous years, or the current year, or carried forward. There are less than two months left in the current tax year, so it may be better to register as self employed sooner. Also, you should be aware that it is a matter of fact rather than a matter of choice as to when you become self employed.

[alient]

If you are expecting to make a loss in your first year of trading, then this loss can be set against income for previous years, or the current year, or carried forward. There are less than two months left in the current tax year, so it may be better to register as self employed sooner. Also, you should be aware that it is a matter of fact rather than a matter of choice as to when you become self employed.

Thanks for this helpful clarification regarding the options over tax year. The pointer about fact/choice is also helpful (HMRC told me something similar in a SE tax course before Xmas) - difficult for a newby to understand but I take the hint!

Thanks again

[gouldie0]

Hi AlienT,

You may want to use this as an opportunity to use an accountant, both Nicola and Elaine are well thought of on the forum (as well as a few other might i add).

Kind Regards

Neil

[alient]

Good advice I'm sure but I'm afraid that this SE idea has got to start to make some money before I can start spending it. Of course once (if?) it starts to produce an income this will be one of my first actions.

[MyAccountantOnline]

Hi AlienT,

You may want to use this as an opportunity to use an accountant, both Nicola and Elaine are well thought of on the forum (as well as a few other might i add).

Kind Regards

Neil

Thank you very much Neil - much appreciated:)

[gouldie0]

No problem Nicola, i find it slightly confusing when people are starting in business and have the attitude that they need to earn before they can spend.

Surely it's better to start as you mean to go on and pay for the advice that will stand you in good stead for your future experiences.

Kind Regards

Neil

[MyAccountantOnline]

No problem Nicola, i find it slightly confusing when people are starting in business and have the attitude that they need to earn before they can spend.

Surely it's better to start as you mean to go on and pay for the advice that will stand you in good stead for your future experiences.

Kind Regards

Neil

I think so - personally I think its one of the times when accountants can be most useful. :)

Their is so much to consider and potential for tax saving etc that so many new businesses just arent aware of when they start up.

[elainec100@cheapaccounting]

Hi AlienT,

You may want to use this as an opportunity to use an accountant, both Nicola and Elaine are well thought of on the forum (as well as a few other might i add).

Kind Regards

Neil

Thanks Neil.

[elainec100@cheapaccounting]

No problem Nicola, i find it slightly confusing when people are starting in business and have the attitude that they need to earn before they can spend.

Surely it's better to start as you mean to go on and pay for the advice that will stand you in good stead for your future experiences.

Kind Regards

Neil

When you can pay a monthly package which includes all the help you need - I have to agree with you :p

The fees are the same price that you might spend a month on your Sky TV package :D

[Richard231]

nothing like a bit of self-promotion !! :D

[KateCB]

As accountants I understand your logic, and its sound, however, if you are setting up a business and have spent all your income/disposable on it, and have not yet started to earn money from it, where do you find a SKY subscription cost per month - or do you say to the kids - sorry, no more Cbeebies, I need to pay for an accountant, who because I am not actually making any money at the moment, or making any sales will actually do nothing as there will be literally nothing TO do?

Thats not a criticism of accountant, as mine certainly earns his money and more, but if there is nothing to do, what exactly is the monthly fee for and again where do you get it from?

I don't have SKy, its too expensive! :)

[elainec100@cheapaccounting]

The monthly fee system spreads the costs of the fees over the year so no big bills at end of year. It works for some but like everythign in life it is not 'one size fits all'.

Sky is just an example!

[KateCB]

I know, the fee system doesn't suit me, I pay the bill at the end of the year - and this year my accountant shredd the first cheque by accident and lost the second one....think he's getting old!

Still, I remember my first year, everything penny I had went into setting up, stock, premises, marketing, equipment - I had no money left for anything else at all - my mum put fuel in my car so I could go and see people as I honestly had nothing......so I totally undestand this poor guy's dilemma about not spending until he has something to spend!