FT Employment & Sole Trader Finances

Hi,

I've tried going through the search functions on here and I've done searching elsewhere, but I'd like to confirm amy current understanding.

I'm currently working as an engineer earning £55k through full time employment. I'm looking to use some personal savings to set up a business which requires reasonable up front costs and I'm expecting a long lead time of 6 months to a year before making any sales.

The initial upfront costs I'm assuming are:

£10k for a single piece of scanning equipment
£500 for website fees
£500 for an accountant

Am I correct in assuming that if I initially set myself up as a sole trader I can put £11k as a business cost and my total tax payable for the year is based on a total income of £44k?

If I spent the money now I'm assuming I'll still be taxed on my salary and the correction would come in the form of a tax return at some point in 2022?

Is necessary to have an accountant if set up as a sole trader, or is it possible to do the accounting yourself? I'm not expecting any complicated finances in the first year or two, after which I'm aiming to incorperate the company anyway.

Thanks in advance for the help, I have a rough understanding of LTD companies but registering and working as a sole trader is new to me.

Thanks

 

An engineer with just one piece of equipment? That is an engineer I have yet to meet!

 

To be able to reclaim the losses you need to be able to demonstrate to HMRC you are genuinely trading. You can't just buy an expensive bit of machinery and work when you feel like it. Also you would need to be working for a varity of clients.

If you buy the equiipment and start trading before 5 April this year you will need to register with HMRC as self emploeyed before 5 October and complete your self assesment tax return before 31 January 2022.

If you are spending that much money on a piece of equipment I would recommend getting an accountant as the savings will outweigh the cost.

You don't include insurance in your projected costs. Have you looked at that yet? It can be expensive if you don't have it.

 

If you set up as a sole trader now and incur a loss you can include that on a tax return to 5 April 2021 and if allowable offset it against your salary for the year to 5 April 2021. If a refund is due it will be refunded to you once you've submitted your tax return. You dont have to wait until 2022 you can do that as soon as you have all necessary information after 5 April.

You can probably muddle through and deal with your own tax affairs if you are a sole trader, and are happy to spend time doing so, but a good accountant will save you time, hassle and tax.

 

I have access to the majority of other tools I need, at the moment I'm just missing this one key piece!

How do you qualify or demonstrate 'actually trading' if you'r developing a product which takes time to design and validate? I'm assuming you can support your case with a tangible busines plan and current project status, especially if you're creating a product rather than simply providing a service?

Insurance is on the list to organise, just left out other costs to simplify the explaination but a good point, thanks.

This makes sense, thanks for replying.

 

If you are planning on using the piece of equipment to develop a product you would be best advised to speak to an accountant on how to set your business up to get the maximum tax relief. HMRC may regard buying an expensive piece of kit then producing no income as being a scam.