Sole Trader and business loan

[ElliottG]

Hi

My partner started up a hire business as a sole trader. She have taken a £45k loan out. She is paying it back monthly

The income she get from hiring, do you pay tax on the whole lot or just the income left after paying the loan back?

Thanks

Elliott

 

[Scalloway]

She will pay tax on her income less allowable expenses. Loan interest is an allowable expense. Repayments of loan principal are not. She will have to divide the repayments she makes between interest and principal.

 

[WaveJumper]

Might be a good idea to seek out a local accountant going forward, your partner needs to make sure she's claiming back or rather not paying as much tax as possible, especially if purchasing equipment for hire etc this needs writing off properly. So for what its worth my advice is get off on the right foot and get some proper financial advice and make it a great success.

 

[MBE2017]

As above, start right. The forum is full of threads where people have suffered big losses when if they had taken advice and guidance at the start, they would have saved fortunes. The cost of an accountant is tax deductible as well.

 

[JEREMY HAWKE]

I would say with a question like this that you need a lot of help right away before you end up in trouble
The loan is the tip of the iceberg you have a ot of other costs to the business that you have not mentioned or may not even be aware of !
Some of the advice here can be confusing as these experienced people assume you already know the basics!

My breakdown on the tax situation is
You only pay tax on profits
You don't pay tax on any expense to the business
You need to have an accountant to look at the structure of this loan to determine how tax should be claimed against it

 

[MyAccountantOnline]

Hi

My partner started up a hire business as a sole trader. She have taken a £45k loan out. She is paying it back monthly

The income she get from hiring, do you pay tax on the whole lot or just the income left after paying the loan back?

Thanks

Elliott

To calculate what tax she has to pay she will have to calculate the profit she makes.

Her profit is the income she gets from her hiring business less allowable expenses. If she's taken out a loan which is solely for the business the interest (not the total repayments) is one expense which is deducted from the income to arrive at the profit.

She may find it helpful to read this https://www.gov.uk/set-up-sole-trader