Purchasing shares as an expense

[Cloud]

I am a sole trader and will be profiting around £45,000 at the end of this financial year. (around £10,000 in the higher tax bracket - 40%)

It is likely that I will only be profiting around £20,000 next year.

Is it possible that I may purchase shares worth around £10,000 this month and use this as an expense to my business, bringing my profit into the lower tax bracket?

Then, selling them off in May and including this amount in my next years earnings?

Basically, overall reducing my tax liability for this year. Is this allowed? If so, what is the best way of doing this? Or do I need to form a Limited Company?

Thanks for your help.

 

[David Griffiths]

No it isn't possible. The purchase of shares is an investment, and not a deductible expense for tax purposes.

 

[robindunne]

I am a sole trader and will be profiting around £45,000 at the end of this financial year. (around £10,000 in the higher tax bracket - 40%)

Assuming this is your only income, you will be barely in the higher rate tax bracket. You will only suffer 40% tax on earnings over £43,875.

It is likely that I will only be profiting around £20,000 next year.

Is it possible that I may purchase shares worth around £10,000 this month and use this as an expense to my business, bringing my profit into the lower tax bracket?

Then, selling them off in May and including this amount in my next years earnings?

Nope. It's not an expense.

Basically, overall reducing my tax liability for this year. Is this allowed? If so, what is the best way of doing this? Or do I need to form a Limited Company?

Thanks for your help.

There are a number of reasons why you should/shouldn't incorporate. Judging by your earnings it would seem like a sensible idea to save the Class 4 NI.

 

[Cloud]

Thanks for your answers - I had thought the 40% bracket was for profit falling between £35,001-£150,000? (edit: I understand - this includes personal allowance of £7,475, which enables you to earn up to £43,875 without falling into the 40% tax bracket.)

Just out of curiosity - is it possible for a Limited Company to purchase stock/shares as an investment for the company? Thus reducing 'profit' and tax liability?

 

[Anna Chandley]

Just out of curiosity - is it possible for a Limited Company to purchase stock/shares as an investment for the company? Thus reducing 'profit' and tax liability?

A company can buy stocks and shares but these would be a capital cost not an expense so profits would not be reduced.

The capital gains tax on shares sold in a company would be taxed at the corporation tax rate and there is no annual capital gains allowance for companies.

Anna

 

[Truemanbrown]

Have you thought of paying a contribution to a pension scheme to save higher rate tax.

 

[CDB]

Basically, overall reducing my tax liability for this year. Is this allowed? If so, what is the best way of doing this? Or do I need to form a Limited Company?

Thanks for your help.

From what you have said, the best way to reduce your tax would be to incorporate asap. You could then "sell" your business to your new company, which could generate some very decent tax savings in the years to come (dependent on when you started trading).

Please message me if you want to discuss further.

Carl
AWS Accountants Ltd