Basic self assessment questions

[TremoloGreen]

Not sure if I should put this here or in money, but here goes...

I've just started working for myself, I'm a sole trader, haven't set up a limited company yet as I'm not expecting to earn that much for the first year. I've got two questions about self-assessment really:

1. I've started actually working as of this month, so 2013/2014 tax year. However, I don't expect I'll get any money actually paid until mid April, so 2014/2015 tax year. Which year do I need to declare the earnings by self-assessment? When I worked for them or when I actually received the money?

1. I've spent money on start-up costs, e.g. new laptop, office furniture between January and March, so 2013/2014 tax year. Can I do a self assessment claiming tax relief for these costs, even though I haven't earned any money as self-employed yet this tax year (well, subject to Q1 above!)

I'd quite like to avoid doing self-assessment this year if I can, because it's been quite a complicated year tax-wise: been on maternity, company went insolvent, rest of maternity pay paid by HMRC, employer error meant some tax was underpaid so been on a silly tax code... aarrgh!! I have registered as self-employed from March, so I guess I won't get away with doing nothing, but I may have to hire an accountant this year. Just sad that I am seeing all my earnings disappear on costs already!

1. Your trade starts when you hold yourself out as trading. So when you advertise yourself as available that's when you've started a trade. In your case you did some work in March 2014 so you were definitely trading in 2013/14. It's irrelevant when you got paid.
2. Yes, pre-trading expenses are allowable, provided they are wholly and exclusively for the purposes of your trade. Therefore laptops etc are usually allowable.
3. You say you'd like to avoid self-assessment because of a complicated year. It may be worth doing a return for 13/14, especially if your pre-trading expenses are significant and generate a loss. This loss can be offset against your other income and may actually mean you will get a refund of tax for the year.

Note: from 2013/14 you can choose whether to follow cash basis or accruals basis of accounting. In simple terms, cash basis means all cash in less all cash out during the period. So as you won't be paid until after 5 Apr 2014 you will definitely have a loss in 2013/14. However, this loss IS NOT available to be offset against other income. All you can do with this loss is carry it forward against future profits from the same trade.

If you want to use losses against your other 2013/14 income you need to use accruals basis of accounting. This basically means income is taxable when earned and expenses are deductible when you're liable to pay for them. So your work in March would be your income for 2013/14 and your business expenses would be your expenses. The expenses would include the computer etc but also your business phone, internet etc for March that may not be paid until April. So if you get a loss as a result of this calculation you would be able to offset this loss against your other income for the year.

Riksti - thank you so much, that is VERY helpful!

I think I will go on the accruals basis. I was planning to use the flat rate method of calculating the costs of using part of my home as an office. Will I still be able to do this on the accruals basis?

You mean the simplified expenses method? Yes, you can use that with accruals method or cash basis method.

Yes - thank you! I knew it was a simple question for someone who knows what they are talking about! THanks.