First Year Accounting, Sole Trader

[Rizgar]

Good Evening, hope some one can assist me with my inquiry , I am doing my first year Tax return and have few questions;
I bought a business July last year for 18 K of which 10 K goodwill and 8 K equipment. I invested another 12 K in new equipment and F&F, total 30 K and all 30 K financed by 30 K personal loan.
in fact the business goodwill did not worth 10 K , but the equipment did worth more than 8 K especially after servicing and maintenance of the equipment after I did takeover. So the seller wanted 10 K goodwill in order to pay less tax,apparently on my expense, but its OK as the business being doing Ok!
now the questions are;
1- what/how much of the 30 K that I have invested I can claim as first year allowance or AIA ?
2- which option is better for me for this year WDA or (first year allowance or AIA)?
3- how HMRC value my business, I have purchase agreement contract and also prove and invoice of new equipment bought , F & F purchased and fitted and the Loan? do I have to provide this documents or I can just include the 30 K investment and deduct the bank charges and depreciation (AIA or WDA) in my tax return and only provide these docs whenever tax man requested it?
by the way I have improved business image/intangible assets of the business such as better CS, Website, marketing and contracts so the business now worth more than 30 K, lets say now worth 40K , how this can be reflected in the tax return and balance sheet?
sorry for the long writing ....

 

[STDFR33]

1 - The goodwill is not an allowable expense.

2 - It depends on a number of factors, such as the taxable profits and other income in the year.

3 – You do not have to provide documentation that backs up figures in your tax return unless you are asked to do so.


The increased value in your business is not reflected on your tax return.


Given the amount of investment, had you taken advice prior to purchasing the business, you’d have probably saved quite a sum in tax. Are you sure that you can limp along without taking professional advice?

 

[Rizgar]

Thanks, I do really appreciate for your advise. I did take some advise but it was free and Not sufficient, couldn't afford a business adviser or a lawyer at that time so I did it all my self !
from what you have said above, the 10 K goodwill cant be in P & L account statement as well? so my liabilities will be 30 K and fixed assets of 20 K? Now, I need to get some professional advise before losing even more ! once more thanks for your assistance.

 

[Mr D]

Your advice and being unable to afford help will likely have cost you.
Goodwill is nice but is an intangible you didn't question?

Have had multiple businesses in past couple of decades, at no time did HMRC ever value my businesses.

 

[Rizgar]

Thanks Mr D, I probably need to read some accounting books to fully understand your answer Thanks for your advice !

 

[Blue Sky Accounts]

Hi Rizgar.

Are you filing your own accounts or are you getting help from a bookkeeper/accountant?

 

[Rizgar]

I am doing myself without any help from bookkeeper/accountant (in my area a it cost £800 to 15000 to have an accountant) . I have basic knowledge on accountancy got it from Uni as I did a module for 1 year on accountancy, few years ago, so I kind of understand balance sheets, P & L , income statements and cash flow statement but this real life scenario and I am dealing with HMRC, so I need advice from an experienced accountant. I have separate personal bank account for the business so all bills and costs paid out of this account and income/turnover paid in to that account, I have all the till records and card payment records as a prove of income/turnover. I have all the invoices for everything I have spent/running costs i.e. Rent, Utilities, business rates, stock costs , repairs, bank interest charges and ect. My problem is I bought my business last year and cost me 30 K and all 30 K financed by 30 K personal loan. 10 k of the 30 K is paid for Goodwill which is not recognised by Taxman as an asset or expenses. My question is how I can best get my 30 K investment back by reducing my taxes? shall I use WDA or (first year allowance or AIA if I am eligible)? lets say my profit before tax is 15-20 K for July 2016-April 2017 (without the fix asset depreciation). How this best reduced using WDA, AIA of some thing else?
Thanks

 

[Mr D]

Accountants should cost the work you give them. Turn up with a dozen boxes of mixed receipts and sales figures on envelopes they will charge a lot, prepare a load of stuff for them to just check and easily find filed paperwork then expect to be charged a lot less.
A few hundred pounds up to a grand for limited company accounts is what I have seen people pay, self employed accounts usually cheaper.

And usually should save you money or save you time. In your case it may well be worth having an initial chat with one.

 

[STDFR33]

£800-1500 seems very expensive for sole trader accounts and a tax return ... it should be around half of that. If you use online software (and free software is available), there is no barrier to the location of your accountant, and there are a couple of respected members on the forum that offer an online service such as @UK Contractor Accountant and @MyAccountantOnline

 

[Rizgar]

Thanks for your assistance.I fact I have prepared everything myself, all the costs calculated for each cost factor and then calculated all the costs to one total figure. Additionally, all income/turnover for the period is calculated and have a final figure for turnover as well. I even put all the figures in a draft income statement and balance sheet, so an accountant only required to review and finalise what I have prepared and advice on how I can save some taxes. That is the reason I did not agree to pay the above amount.

 

[STDFR33]

You can pick whatever services you require. If you are quoted for services you don't need, just tell them to remove it from the quotation.

 

[Argentum Tax]

My question is how I can best get my 30 K investment back by reducing my taxes?

Your thinking seems rather muddled.
Unfortunately you won't get your investment back by reducing your taxes. Your aim must be to get your investment to work for you and produce income, and then take advice from an accountant as to how you pay only the correct amount of tax on your income after taking into account any allowances that may be available.