Start up costs tax deductable

[Gb123]

Hi,

I am looking at opening a barber shop and i have made an offer on a retail unit and have registered my ltd company. Alot of the fit out costs and start up will be funded by myself with a small loan aswell. Will the cost of the fit out be classed as an expense in my first years accounts, or will the costs be written off through depreciation over a set period?

Kind regards,
Graham

 

[Gb123]

Also i did consider in the past purchasing an existing barber shop. When purchasing a company if i agreed with the seller a small up front payment followed by monthly payments for the busines, would they ask for a personal guarentee, or would the ltd company be used as security? Would the banks ever give finance using the existing business as security ( assuming it is making healthy profits)?

Kind regards,
Graham

 

[Scalloway]

Fittings are fixed assets to be depreciated over their useful life. You can claim 100% of the cost up to £25,000 against profits on your first Corpoiration Tax return.

 

[mrsadcafe]

HI graham ,good luck with your barbers shop,Ive just started a barbers shop also.

I cant help you with your question as i have bought all my stuff bit by bit.

 

[SBlundell]

Also i did consider in the past purchasing an existing barber shop. When purchasing a company if i agreed with the seller a small up front payment followed by monthly payments for the busines, would they ask for a personal guarentee, or would the ltd company be used as security? Would the banks ever give finance using the existing business as security ( assuming it is making healthy profits)?

Kind regards,
Graham

Presumably in this circumstance there would be no bank loan for them to need security against? The existing owners would effectively be providing the finance?

Anyway, you can use 'a business' as security, depending what you manage to negotiate in a given situation. Generally the bank would ask for a 'floating legal charge' over the assets of the company - i.e in liquidation the bank creditor would be paid out before any others.

It's pretty much the same as a mortgage secured on a house - the bank loan would be secured on the business' assets.

 

[Gb123]

Fittings are fixed assets to be depreciated over their useful life. You can claim 100% of the cost up to £25,000 against profits on your first Corpoiration Tax return.

So if it costs me £8k to fit out, i can claim an expense ok £8k against any profits in year one plus, for example, 20% depriciation each year for 5 years?

Kind regards,
Graham

 

[Scalloway]

You can claim the whole £8k against tax in year 1 or 18% Writing Down Allowance each year until it is written off, but not both.

 

[Gb123]

If i put say £10k into the business account from my personal account to cover an £8k fit out and some working capital. can i do this as a directors loan to the business and then take the £10k back tax free as and when cash flow allows? In addition to this can i still claim annual depreciation on fixtures over their useful life? And is the value worked out by simply adding up all the costs of fixtures i.e chairs, mirrors etc?

Many thanks
Graham

 

[David Griffiths]

Whether you can claim the whole £8k will depend on what it is spent on. Equipment or fixtures such as plumbing and electrics won't be a problem, but building works could well be not allowable.

 

[Gb123]

Thanks. Yes the £8k will be for equipment. But as and when the money is available can i Pay myself back the 10k i put into the business from my personal bank account without paying tax/ taking it as a dividend? And on top of this can i write off the equipment costs over 5 years through depreciation? Are legal fees charged through agreeing a lease also an expense in year 1?

Thanks,
Graham

 

[SBlundell]

But as and when the money is available can i Pay myself back the 10k i put into the business from my personal bank account without paying tax/ taking it as a dividend?

Yes the £10k is a loan - there is no tax consequences of withdrawing it.

And on top of this can i write off the equipment costs over 5 years through depreciation?

Yes if you consider that it's reasonable useful life. Tax & accounting treatment on these sorts of assets are different - you can depreciate it over whatever period you think's reasonable for accounts purposes. Tax treatment is as described previously by Scalloway & DG, again note it's £8k in year 1 or 18% on the balance each year (maximum).

Are legal fees charged through agreeing a lease also an expense in year 1?

Generally agreeing a new lease is not a tax deductible expense. In 5 years time (say) when you renew the lease then the legal fees are allowable.

Hope that helps

 

[Gb123]

Ok thanks for your help. For this sort of business do you think it will be ol if i just kept records of sales and invoices on a spreadsheet monthly, and keep all invoices in order, then give it all to the accountant at my yet wnd, or should i get a book keeper? I guess a book keeper will charge a fair amount each month?

Graham