Tax Question please help ????

shaun adams · Jan 22, 2009

I am starting a new business on eBay, will be loaning £15000 money off my parents at no interest which is better than any bank loan.

If I buy the £15000 start-up equipment machine that will be used in the business for at least the 3 years of warranty does this work out at, 50% first year and 25% for the consecutive remaining 2 years.

So to summarise if I make

First year at £18200 I will be able to claim, 50% of the £15000 - £7500 business costs which puts us at £10700 and as a partnership with a combined tax allowance of (2009) £12950 (£6475ea), would put us under the tax threshold for the first year.

Second and third year

£18200 - 25% of £15000 start-up cost -£3750 to a total of £14450 as a partnership that would put us at £7225 just above the tax allowance of (£6475ea) assuming it didnt change which it will.

Also to take into consideration is the fact that my girlfriend has a disability which she will get Working Tax Credits as well as Disability living allowance, at around £160.

Is Working Tax Credits classed as income to take us over the threshold?

Thank you for your time if there is anything I have missed I would be very happy for you to correct me.

Thanks Shaun

KM-Tiger · Jan 22, 2009

Shaun,

Welcome to the forum, but please do not post your question in more than one place. I've asked the moderators to remove the other two.

It confuses things and annoys people, who might take time to answer your question to then discover the same answer given somewhere else.

Be patient and probably you will get an answer here.

CassioAcc · Jan 22, 2009

The capital allowance rules have changed and now the annual investment allowance (AIA) allows the first 50K of asset spend to qualify for 100% allowance in the first year.

elaine@cheapaccounting · Jan 22, 2009

The income received from the business may effect your working tax credit - you must notice HMRC of any changes in circumstances.

Can I suggest you researching your local start up enterprise organisation in your area who may be able to help with all your queries etc.

Wild Goose · Jan 22, 2009

To add to what the others have said, you're on the right lines with a partnership - it will give you the best of both worlds as you will meet the WTC criteria and because there are two of you get a double rersonal tax allowance (tax free income) to boot. A limited company would have all sorts of complications with WTC - min wages to name but just one - and a sole trader would give you but one person's tax free earnings. Congrats on figuring that one out correctly.

I'm not sure which threshold you are worrying about exceeding with WTC - is it the disability allowance? Generally the one would compensate for the other - I think you'd be quids in regardless.

Zeno · Jan 22, 2009

Can you give us any details about your intended business?

The reason I ask is that £15k is a lot to spent outright on a machine. Could you source it 2nd hand? or maybe look into leasing?

shaun adams · Jan 22, 2009

I would much rather the £15000 come of 50% of the first years earnings and 25% of the 2nd and 3rd years.

Is this possible I would rather have that than 100% of the first years, as Iwould like to pay my mother back over a 3 year period 1st 50% + 2nd 25% + 3rd 25%

I know WTC is affected by earnings but what about tax is my profit calculated with WTC or is WTC not incorporated into the earnings of that year for tax purposes.

First year at £18200 I will be able to claim, 50% of the £15000 - £7500 business costs which puts us at £10700 and as a partnership with a combined tax allowance of (2009) £12950 (£6475ea), would put us under the tax threshold for the first year

But with £160 WTC that would put us £6070 over the tax threshold.

Thanks Shaun

Wild Goose · Jan 22, 2009

Hands up I don't understand fully the ins and outs of the threshold you are striving to get beneath, Shaun.

But I'll give you a tip if you can stand one: choose an April 30th year end rather than the standard 31 st March / 5th April that Fat Gordin wants everyone to have, and you'd be taxed pretty much twice over on your first year or so's taxabvle profits. That has a value if your first year's profits are low, not only for WTC purposes but for tax purposes too.

There is a down-side when you finish up the business - but that's remote and avoidable and anyway if your business boms you're probably stuffed anyhow and pretty much ambivalent about an exit strategy.

30th April year end. It'll could well give you an extra 11 month's breathing space, low tax and WTC earnings et al. I'm impressed with your research so far - that one should keep you busy a while!

David Griffiths · Jan 22, 2009

Wild Goose said:
But I'll give you a tip if you can stand one: choose an April 30th year end rather than the standard 31 st March / 5th April that Fat Gordin wants everyone to have, and you'd be taxed pretty much twice over on your first year or so's taxabvle profits. That has a value if your first year's profits are low, not only for WTC purposes but for tax purposes too.

There is a down-side when you finish up the business - but that's remote and avoidable and anyway if your business boms you're probably stuffed anyhow and pretty much ambivalent about an exit strategy.

30th April year end. It'll could well give you an extra 11 month's breathing space, low tax and WTC earnings et al. I'm impressed with your research so far - that one should keep you busy a while!

But it can come back and bite you severely on the bum. I have to say that I advise people to stick with 31 March so this doesn't happen. People like to understand the link between profits and tax, and definitely do not llike nasty surprises when they finish. They also don't remember any warnings that you give them about the downside of any advice.

It's great to play the tax system, but it's more than complicated enough for most people.

Zeno · Jan 22, 2009

What Cassio said was that if you buy a machine for £15,000 then you will get to write that full cost off against your profit for that year.

This is regardless of the repayment terms you set to pay your parents back. The loan from your parents and the purchase of the machine are separate transactions.

elaine@cheapaccounting · Jan 22, 2009

I would suggest sitting down with an accountant very soon - the cash flow and Profit and loss will look very different.

I would strongly urge you to get a good business plan together before you invest £15k.

It doesn't have to be big or take long but will make sure that you know what targets you need to hit to make this huge investment worthwhile.

I am sure you owe it to your parents to do this basic preparation work.

Good luck

shaun adams · Jan 22, 2009

Would a business advisor from business link or an accountant be best to talk to or would you do both.

And if so in which order.

David Griffiths · Jan 22, 2009

You don't have to claim the full 100%. If you choose to, you can claim half the allowance. But you won't get 25% in each of the next two years. The rate is now 20%, but of the balance brought forward, not the original cost.

That means that year 1 is £7,500, year 2 is £1,500 (20% of the £7,500 residiual value) and year 3 is £1,200.

David Griffiths · Jan 22, 2009

SHAUNP505050 said:
Would a business advisor from business link or an accountant be best to talk to or would you do both.

And if so in which order.

As an accountant I'd obviously suggest an accountant, if only on the grounds that the accountant should know what he or she is talking about.

You may think that I'm suggesting that some business link advisors don't. You may well think that. I couldn't possibly comment.

Wild Goose · Jan 22, 2009

David Griffiths said:
But it can come back and bite you severely on the bum. I have to say that I advise people to stick with 31 March so this doesn't happen. People like to understand the link between profits and tax, and definitely do not llike nasty surprises when they finish. They also don't remember any warnings that you give them about the downside of any advice.

Hmm that last bit is so true - I have a client who's just incorporated totally off his own bat and without any winding-down plan who's chewing my *rse currently over a very long closing 20 month or so closing period. I asked him to think about the extra year's grace he had to pay his taxes, which was part of the reason he was able to expand so quickly. Sigh... you're too right, that's water under the bridge. He's just not in the habit of paying tax commensurate with his rising profits.

Late New Year's resolution: 31st March year end for all newcomers. Because life's complicated enough

David Griffiths · Jan 22, 2009

Wild Goose said:
Hmm that last bit is so true - I have a client who's just incorporated totally off his own bat and without any winding-down plan who's chewing my *rse currently over a very long closing 20 month or so closing period. I asked him to think about the extra year's grace he had to pay his taxes, which was part of the reason he was able to expand so quickly. Sigh... you're too right, that's water under the bridge. He's just not in the habit of paying tax commensurate with his rising profits.

Late New Year's resolution: 31st March year end for all newcomers. Because life's complicated enough

It's like the client who bought a property. £20k a year rent. £20k a year repayment mortgage (Vendor loan, not bank).

When he signed up, I wrote to him - don't forget that you'll have to pay tax on the rent, because only the interest part of the mortgage is tax deductible.

Every year for 6 years - why do I have to pay tax when the mortgage repayments are the same as the rent?

:|

I was going to employ a full time tattooist to write my advice on the forehead of certain clients, but he'd be fully occupied in dealing with HMRC. Have you ever tried to get a PAYE scheme shut down?

Wild Goose · Jan 22, 2009

David Griffiths said:
It's like the client who bought a property. £20k a year rent. £20k a year repayment mortgage (Vendor loan, not bank).

When he signed up, I wrote to him - don't forget that you'll have to pay tax on the rent, because only the interest part of the mortgage is tax deductible.

Every year for 6 years - why do I have to pay tax when the mortgage repayments are the same as the rent? :|

I was going to employ a full time tattooist to write my advice on the forehead of certain clients, but he'd be fully occupied in dealing with HMRC. Have you ever tried to get a PAYE scheme shut down?

Trying to shut one down right now that's so sticky because the director's done a runner. Ok, ok they're right, I know where he's vamoosed to but it's a few thousand miles away and there's nothing to be done about it.

I once had a world champion tattoist from Cardiff on the books, though I always suspected that was a title conferred on any number of people in Lord knows how many genres. LIke world champion sausage-maker - plenty of those about! Maybe I should put you in touch David. I'm not sure he could manage any HMRC foreheads, but yours truly has a rather colourful tattoo on his *rse so I suppose that's good preparation.

elaine@cheapaccounting · Jan 23, 2009

SHAUNP505050 said:
Would a business advisor from business link or an accountant be best to talk to or would you do both.

And if so in which order.

I would suggest both - the business link advisor would be able to cover other aspects of a business operation as well.

The more help and support at this stage before you invest the better I would say.

Jenni384 · Jan 23, 2009

David Griffiths said:
It's like the client who bought a property. £20k a year rent. £20k a year repayment mortgage (Vendor loan, not bank).

When he signed up, I wrote to him - don't forget that you'll have to pay tax on the rent, because only the interest part of the mortgage is tax deductible.

Every year for 6 years - why do I have to pay tax when the mortgage repayments are the same as the rent? :|

I was going to employ a full time tattooist to write my advice on the forehead of certain clients, but he'd be fully occupied in dealing with HMRC. Have you ever tried to get a PAYE scheme shut down?

Thanks David, this really made me chuckle

Re the OP, go and see an accountant (or 2, or 3), first meeting should be free and any good accountant should advise better than business link. Good luck

Zeno · Jan 23, 2009

Has anyone ever been in a pub and heard anyone doling out acccountancy/tax advice?

I never have but seems that my clients do. Maybe I go the the wrong ones. Do barmen get some sort of special training that we don't know about?

elaine@cheapaccounting · Jan 23, 2009

I have been trying every pub to meet that guy that knows have not to pay any tax at all.

I fit the visits in around my AA meetings!

Jenni384 · Jan 23, 2009

What we need is for the 'man from the pub' to infiltrate the government and get them to change the tax laws to the ones he knows about.....

elaine@cheapaccounting · Jan 23, 2009

or become Chancellor

Jenni384 · Jan 23, 2009

elainec100 said:
or become Chancellor

might make budget day a little more interesting!!

Wild Goose · Jan 23, 2009

How about Charles Kennedy?

David Griffiths · Jan 23, 2009

elainec100 said:
I fit the visits in around my AA meetings!

Why is it called AA?

The first thing that you say is "My name is X and I'm an alcoholic" :|

elaine@cheapaccounting · Jan 23, 2009

David Griffiths said:
Why is it called AA?

The first thing that you say is "My name is X and I'm an alcoholic" :|

good point well made

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Tax Question please help ????

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