Initial stock pre start up as a sole trader

[CB Reps]

Hi,

This is my first post here so please break me in gently!

I'm going self employed on a sole trader basis very shortly and I have some personal property (a number of individual items) that I'm intending to transfer to the business under a loan account. I'm expecting to be able to sell some of those items to help me fund myself in year one and I understand that as initial stock, I can account for them at their current market value meaning that if I then sell them at their market value, there will be no tax liability for transfering them to the business.

I have a few (hopefully simple) questions however:

1) Who decides what their current market value actually is or is my own valuation accepted by HMRC?

2) Given that the items are already owned by me, I assume there will be no capital expenditure cost to the business pre start up but I'm not clear on how I account for the loan account, selling the items and then drawing the sale value for myself from the business?

3) Do I put down the personal drawings as repayments against the loan account? If not, how does it work?

4) Are there any limits on how much asset value can be transferred to the business pre start up? I my case, I'm fortunate enough for it to be tens of thousands in value so my business can start trading with zero borrowings as I can fund the business off the sales of this initial stock.

4) Finally, I'm intending to use VT Cash Book for my accounts, it seems to do everything I need once things are up and running but I can't see how I account for my initial stock in it, hence my questions.

Thanks in advance for your help!

Chris

 

[MyAccountantOnline]

Hi Chris

Yes you can certainly introduce into your business assets/stock you have purchased previously/owned privately. Probably the easiest way to do so is to prepare a list of the items with their values, attaching to it copies of the original invoices if you have them. Its unlikely that the values will be checked as such unless your tax return is selected for a Enquiry (in depth check) but it can happen so for this reason if no other you must make sure the values are as accurate as possible.

VT cashbook is really only for recording payments and receipts rather than stock and debtors/creditors. Its probably easiest to keep a record of the stock and ensure it's passed to your accountant to include in the final year end accounts. VT Transaction+ (the paid version of VT cashbook) would enable you to record the stock by a journal.

 

[Truemanbrown]

Hi,

This is my first post here so please break me in gently!

I'm going self employed on a sole trader basis very shortly and I have some personal property (a number of individual items) that I'm intending to transfer to the business under a loan account. I'm expecting to be able to sell some of those items to help me fund myself in year one and I understand that as initial stock, I can account for them at their current market value meaning that if I then sell them at their market value, there will be no tax liability for transfering them to the business.

I have a few (hopefully simple) questions however:

1) Who decides what their current market value actually is or is my own valuation accepted by HMRC?

As Nicola has already said, make a list of the items that you are going to bring into the business and attach a copy of the invoice (if you have it) to that schedule.

2) Given that the items are already owned by me, I assume there will be no capital expenditure cost to the business pre start up but I'm not clear on how I account for the loan account, selling the items and then drawing the sale value for myself from the business?

You should bring the assets into the business accounts. Normally, you would make the following journal:-

Dr Purchases xxx
Cr Capital Introduced xxx

Being value of items brought into the business

See 3) for what happens to drawings.

3) Do I put down the personal drawings as repayments against the loan account? If not, how does it work?

Normally, your drawings go to the drawings account. Essentially, this a repayment of the amount you put into the business but we are keeping a more detailed analysis of your capital account by showing what monies you paid into the business as 'capital introduced' and what you draw from the business as 'drawings'.

So the bottom of the balance sheet will look like this:-

Capital Account
Opening Balance xxx
Add: Capital Introduced xxx
Less: Drawings xxx
Closing Balance xxx

4) Are there any limits on how much asset value can be transferred to the business pre start up? I my case, I'm fortunate enough for it to be tens of thousands in value so my business can start trading with zero borrowings as I can fund the business off the sales of this initial stock.

There are no limits!

4) Finally, I'm intending to use VT Cash Book for my accounts, it seems to do everything I need once things are up and running but I can't see how I account for my initial stock in it, hence my questions.

Thanks in advance for your help!

VT Cash Book is just a cash book function. It will not allow you to account for stock etc.

Chris[/quote]

 

[CB Reps]

Hi Chris

Yes you can certainly introduce into your business assets/stock you have purchased previously/owned privately. Probably the easiest way to do so is to prepare a list of the items with their values, attaching to it copies of the original invoices if you have them. Its unlikely that the values will be checked as such unless your tax return is selected for a Enquiry (in depth check) but it can happen so for this reason if no other you must make sure the values are as accurate as possible.

VT cashbook is really only for recording payments and receipts rather than stock and debtors/creditors. Its probably easiest to keep a record of the stock and ensure it's passed to your accountant to include in the final year end accounts. VT Transaction+ (the paid version of VT cashbook) would enable you to record the stock by a journal.

Thanks. My intention is to use an accountant to prepare my year end tax return as I have some other tax affairs that need his in depth knowledge so I'm not overly worried about the limitations of VT Cash Book, it just seems a nice easy way of keeping track of my expenditure and income in the meantime. Shame it can't handle my Capital Introduced too but I already have that bit nailed down in Excel.

As Nicola has already said, make a list of the items that you are going to bring into the business and attach a copy of the invoice (if you have it) to that schedule.

You should bring the assets into the business accounts. Normally, you would make the following journal:-

Dr Purchases xxx
Cr Capital Introduced xxx

Being value of items brought into the business

See 3) for what happens to drawings.

Normally, your drawings go to the drawings account. Essentially, this a repayment of the amount you put into the business but we are keeping a more detailed analysis of your capital account by showing what monies you paid into the business as 'capital introduced' and what you draw from the business as 'drawings'.

So the bottom of the balance sheet will look like this:-

Capital Account
Opening Balance xxx
Add: Capital Introduced xxx
Less: Drawings xxx
Closing Balance xxx

There are no limits!

VT Cash Book is just a cash book function. It will not allow you to account for stock etc.

Chris

[/quote]

Thanks.

So just to check I understand this right, if I introduce £30k worth of assets to the business and I sell £20k of the initial assets in year 1:

Opening Balance £0.00
Capital Introduced £30,000.00
Drawings £20,000.00
Closing Balance £10,000.00

Then in year 2 I sell the rest:

Opening Balance £10,000.00
Capital Introduced £0.00
Drawings £10,000.00
Closing Balance £0.00

Obviously this example assumes I buy and sell nothing other than my capital introduced and that the capital has not changed in value during the 2 years. I just want to check I understand the basics before making it more complex!

Chris

 

[Truemanbrown]

So just to check I understand this right, if I introduce £30k worth of assets to the business and I sell £20k of the initial assets in year 1:

Opening Balance £0.00
Capital Introduced £30,000.00
Drawings £20,000.00
Closing Balance £10,000.00

Then in year 2 I sell the rest:

Opening Balance £10,000.00
Capital Introduced £0.00
Drawings £10,000.00
Closing Balance £0.00

Obviously this example assumes I buy and sell nothing other than my capital introduced and that the capital has not changed in value during the 2 years. I just want to check I understand the basics before making it more complex!

Chris

Please note that in my calculation of the closing capital account, I left out net profit. So the calculation of the closing capital account, after year 1, should be as follows:-

Opening Capital Account Nil
Add: Capital Introduced 30,000
Add: Net Profit Nil - we are assuming that you make no profit on sale of goods
Less: Drawings 20,000
Closing Capital Account 10,000

So your calculation was correct!

 

[MyAccountantOnline]

Thanks. My intention is to use an accountant to prepare my year end tax return as I have some other tax affairs that need his in depth knowledge so I'm not overly worried about the limitations of VT Cash Book, it just seems a nice easy way of keeping track of my expenditure and income in the meantime. Shame it can't handle my Capital Introduced too but I already have that bit nailed down in Excel.

I freely admit to being a VT fan - a large number of our clients use it, and it makes recording payments and receipts very quick and easy. Your accountant will easily be able to adjust for the stock as necessary.

 

[CB Reps]

Thanks all, it seems like it's sinking in now!

FYI, I'm booked on 2 HMRC courses later this month "Newly self employed" and "Capital expenditure and business expenses". Does anyone have any experience of these courses and if so, what did you think of them?

Chris

 

[Williams lester]

They give you an idea of what is required....but don't rely on any 'tax advice' they give out!

 

[CB Reps]

Don't worry, I have an accountant to sort out HMRC when the time comes!

As everything is all new to me I'm keen to learn what's what so I figured the HMRC courses wouldn't be bad thing given my starting point is near to zero knowledge of being self employed and I will have capital allowances and buiness expenses to claim so I need to know what's what!

I've also been looking for any local (Hampshire) workshops that would be useful for me, particularly around dealing with suppliers, managing finances, marketing and using the web but it seems my local Business Link only holds basic startup workshops and the ones near me (Portsmouth and Southampton) are full anyway.

Does anyone have any suggestions?

Chris

 

[Truemanbrown]

Don't worry, I have an accountant to sort out HMRC when the time comes!

As everything is all new to me I'm keen to learn what's what so I figured the HMRC courses wouldn't be bad thing given my starting point is near to zero knowledge of being self employed and I will have capital allowances and buiness expenses to claim so I need to know what's what!

I've also been looking for any local (Hampshire) workshops that would be useful for me, particularly around dealing with suppliers, managing finances, marketing and using the web but it seems my local Business Link only holds basic startup workshops and the ones near me (Portsmouth and Southampton) are full anyway.

Does anyone have any suggestions?

Chris

One of the local networking companies may run a startup club. Why don't you try them.

 

[MyAccountantOnline]

Don't worry, I have an accountant to sort out HMRC when the time comes!

As everything is all new to me I'm keen to learn what's what so I figured the HMRC courses wouldn't be bad thing given my starting point is near to zero knowledge of being self employed and I will have capital allowances and buiness expenses to claim so I need to know what's what!

I've also been looking for any local (Hampshire) workshops that would be useful for me, particularly around dealing with suppliers, managing finances, marketing and using the web but it seems my local Business Link only holds basic startup workshops and the ones near me (Portsmouth and Southampton) are full anyway.

Does anyone have any suggestions?

Chris

Hi Chris

Why not ask your accountant - very often accountants will know of local events etc.

 

[CB Reps]

One of the local networking companies may run a startup club. Why don't you try them.

Thanks, I'll look into it.

Hi Chris

Why not ask your accountant - very often accountants will know of local events etc.

I'll do that but I think he's getting tired of answering my questions for free.... :-/

All I really want to do is make sure I have everything he needs to make both our lives easy when it comes to return time!

Chris