sole trader, how far back in time for startup costs to be deductible?

[Wowee]

Can you help me with this please?

A guy has had a business idea for some time.

In 2006 and 2007 he goes on a couple of training courses directly relevant to his business idea, paid for from his own pocket, keeps the invoices.

In 2007 he buys a few bits of equipment for the business. He applies for planning permission to make suitable adjustments to his home, so has to pay the architect for plans etc.

He finally informs HMRC that he is entering self employment in August 2008. Between then and April 2009 he makes a few sales, but doesn't cover all these start up costs.

How far back in time will HMRC accept these costs, to be deducted from his self employed earnings when he completes his Self-Assessment?

 

[Wowee]

Hmm, 30 people have read my query and no-one knows. It's not just me then...

 

[AMSEO]

I'm pretty sure you have a three month period prior to registering yourself as a soletrader to claim for any expenses. It would be worth phoning them up to confirm it...

Regards,
Alex

 

[Wowee]

Thanks Alex

 

[David Griffiths]

You can claim expenses relating to the trade incurred in the seven years before you comment. HMRC Manual here.

Two points.

Firstly the expenditure must have been made in contemplation of the trade that you have just started, not just for interest or on the off chance that you might go into business at some time. That, for me, would fail the "wholly and exclusively" test.

Secondly, a tax deduction for training is stricly only allowable in the maintaining of knowledge and the maintaining of existing skills. Training courses to acquire new skills are not deductible. For example a doctor couldn't claim the cost of the degree course required to become a doctor, but can claim for "continuing professional development" once he or she has qualified.

The costs of planning permission and costs of alterations to the house are never deductible from profits for income tax. That would apply if the costs related to a building such as an office or workshop used solely for business.

The "bits of equipment" will probably qualify for capital allowances, but NOT for the Annual Investment Allowance as the expenditure was before the relevant date for AIA to be claimed. You don't have to claim that allowance and the expenditure can be carried forward to future years where a writing down allowance can be claimed.

 

[RAL]

A guy has had a business idea for some time.

In 2006 and 2007 he goes on a couple of training courses directly relevant to his business idea, paid for from his own pocket, keeps the invoices.

Require further information on this as if the course was to acquire new skill then it is not allowable at all!

In 2007 he buys a few bits of equipment for the business. He applies for planning permission to make suitable adjustments to his home, so has to pay the architect for plans etc.

If the equipment is for wholly and exclusive for the business purpose then allowable, you may have to claim capital allowances.

As for the planning permission and architect fees for planning etc for your home, is capital expenditure so is not allowable. However plant and machinery allowances may be appropriate for certain qualifying expenditure.

So best to speak to your accountant who would be able to advise you on correct treatment and whether those are allowable or not.

 

[Wowee]

So best to speak to your accountant who would be able to advise you on correct treatment and whether those are allowable or not.

This guy is working hand-to-mouth at the moment, was hoping to avoid accountant's fees for the current time.

We really are in a state, aren't we, when there isn't a definate answer to this type of question?

 

[RAL]

We really are in a state, aren't we, when there isn't a definate answer to this type of question?

All rules, regulations and statutes are not written in clear language. They are opne to interpretation.

Even, on some of the tax point, HMRC is not clear on interpretation. Anyway, IMO your questions are clearly answered by David and I.

I recommended to see an accountant to avoid any future penalty. I am sure that you aware of new penalty regime which came into effect from 01/04/09.

http://www.hmrc.gov.uk/about/new-penalties/NPA/HTML/NPA_menu.html

 

[Wowee]

RAL, yes thanks, David's post did give me the answers I needed.​

 

[mattp97]

RAL, yes thanks, David's post did give me the answers I needed.​

David's post is much clearer while RAL answered your questions too.

Matt P