PAYE/Self Employment ad claiming VAT back. advice please?

[PavlovtheCat]

DH is working part time as PAYE. He is looking at embarking as a sole trader in a side line business, to earn extra income with a view to expanding, hopefully one day fully self employed (but a long way off).

I understand that he can do this simply by informing inland revenue of his sole trader status and submitting self assessment tax forms each year? (correct me if this is not right).

Now the biggest issue we have is outlay to get the business up and running, which will involve purchasing materials, use of internet for business purposes and some fuel costs (but not loads). Can he claim back VAT on those things needed for business purposes if he is self employed AND PAYE? how does it all work? how does he claim the VAT back? what if some of it is used for personal use, for example the car will be both a business car and used for school run, the internet will be used for both work and home (but we will need a differen internet package to enable high end use for his business).

He want sto maximise return for VAT that he is entitled to, as this will all be put back into the business, don't want to lose out on claiming money back he is allowed to, but also don't want to claim for things not allowed to, or get the process wrong and be done for fraud or tax evasion ! It is all quite complicated!

He can't claim back VAT unless he's registered for VAT and charging it himself can he?

oh, and does he get tax releif if he does not pay tax this year even if he has expenditure to do with new business (only just started low paid part time job so may fall under taxable threshold for this year only) ? or is it only a deduction on his payable tax bill...

maybe it is not vat I am thinking of then...tax releif. that is a good point!

Have a look at the page I wrote for ebayers ....
a lot of it is generally relevant
cgi3.ebay.co.uk/ws/eBayISAPI.dll?ViewUserPage&userid=talkinpeace

1. See an accountant.

1. Failing this, the basics are as follows:

He needs to register as self employed and pay Class 2 NI. This is only £2.50 a week at the moment, although if his profit is going to be small he can apply for exemption. Start here.

If he is going to be working as a construction subcontractor (or employing construction subcontractors), he will need to register with the Construction Industry Scheme.

You can only claim back VAT if you are registered for VAT. If you are working for people that cannot claim VAT themselves, you are better off not registering until you have to (currently £73k).

Claim business mileage at 45p per mile up to 10,000 miles.

Equipment purchases up to a limit (currently £50k a year pro-rata, from April 2012 £25k a year) can be claimed as Annual Investment Allowance.

Any profit or loss in the business will be added to or taken off his earnings for the relevant year via the tax return. The first return will be due in January 2013, or if he doesn't start trading until after 6 April 2012, January 2014.

mranchovy oh so if he makes a loss this will be taken off his other earnings? he may well make a loss in the first year!

thanks for this advice, it helps get our heads around whether this is going to be a profitable venture, we can accept a small amount of loss to start, in terms of cost to set up, but helpful to know there are some areas it can be recouped a little. Mileage makes sense then as he can record in a diary or something whenever the car is used for business purposes and claim the exact miles covered.

we have a friend who works for an accountant, will talk to her too, did not think of that! (she is office manager not accountant herself but does the tax returns side of things so should know i guess?)

talkinpeace thanks for the link, I will take a look/show it to him

this all the stuff he needs to know, much appreciated!

talkinpeave just had a look at your link, very very helpful! thank you!

HTH

so if he makes a loss this will be taken off his other earnings?

I should have been a bit clearer - if he makes a loss he can either use it to offset against his earned income for the year, which will reduce his tax bill by 20% of the loss, or carry it forward to reduce the profit from self-employment next year, when it could reduce his tax and Class 4 NI bill by a total of 29% (or more if he hits higher rate tax). His choice, he can make the best of all worlds by amending his return for 2011/12 before January 2014 if it looks like carrying the loss forward would be better, although I wouldn't recommend going down this route without an accountant watching out for the pitfalls.

i get it, makes perfect sense! did not think he would get his entire loss refunded (although would be nice eh?) but a figure helps understand it better so thanks for info.