Tax questions-advice needed please.

[BrightNewBeginnng]

Hi. Sorry it's long.

My brain is getting scrambled by HMRC website.

Please can someone help?

I have registered on SA1. I've got a tentative first order for cushions and blinds which could be worth a few hundred pounds in profit. This morning I've discovered that my cherished 30 year old Pfaff sewing machine was broken when I loaned it out last week.

I have a part time job that pays well.

If I buy a new machine, I can claim 18% of the total cost of it as a Capital Allowance in the first year, then 18% of its depreciated value year on year?

Have I got that right?

So if I buy a mega machine (say £1000 +) will I get 18% Capital Allowance reduction of the tax I pay on my current salary?

And would that also apply to business expenses like the petrol money to Ikea and the fabrics I bought there to make up samples for my client? (Ooo 'client' sounds so exciting!)

Does it count that I have nothing in writing to show I have a business other than a Mumsnet thread and a paid for domain name? No one's bought anything from me yet as I only took the plunge this week and decided to go for it.

Who's to say I haven't decided I want a lush sewing machine and set up a 'business' so I can get it taken off my tax on salary?

And would it be best to wait for the new tax year before buying one or get it now?

Thanks in advance.

Hi, your sewing machine would be classed as a capital asset and the cost would be covered by your Annual Investment Allowance so it is effectively expensed

The 18% writing down allowance for the general pool you have read about, is for spend on capital items that exceed the Annual Investment Allowance for the relevant period but spend of £1k or so on a sewing machine would be well within your AIA for the tax year.

So if you need it now, get it now. If you make a loss on your self employed earnings, then you are usually able to offset some of that loss against your income tax paid through your part time employment earnings

As for petrol money, as you have registered as self employed, you can either claim the running costs or the business mileage expenses for your business travel expenses - but you must choose in your first year and can not interchange through the different years - if you dont do a lot of mileage, it may be worth looking at the business mileage method (45p per business mile travelled for the first 10,000 from memory)

You also may want to consider an accountant down the line, not all of them cost the earth, but instead of you spending time getting confused about capital allowances etc, you pay an accountant to take the stress of tax and finances away from you (plus you can ask them all the questions in the world) while you concentrate on running your business...just a thought :-)

Good luck!

Thanks very much for that Numbers. I'll have a good read up on AIA. I'm starting the business on a shoestring so knowing how much I'll be able to offset will make a real difference to the level of machine I can buy.

Thanks again.

OP
Have a read through the page I wrote for ebayers ....
it is a summary of the esssential bits of the HMRC site and stuff
members.ebay.co.uk/ws/eBayISAPI.dll?ViewUserPage&userid=talkinpeace

Thanks TalkinPeace.
I've spent the best part of a day on the phone to HMRC and on their e-learning tutorials but it's great to have a summary sheet like that. It covers lots of into in a smaill space and is a great checklist - I can see myself coming back to it if I can get my business off the ground.

I had to laugh when I got through to a bod on their helpline though. I explained that I had tried to find the answer to my questions myself by looking on their website but found it difficult to understand. He said that it was written in plain English. I just had to point out to him - in a cheerful way - that I have a good degree in English so that wasn't the problem!

I wish they would almost have 2 websites - one for 'advanced' and one for 'beginners', with the 'beginners' section tested and improved on by trialling it on people like me - who know absolutely zilch because we've only ever had a payslip to ignore consider.

And I'm going to cheekly ask if I've got this right, having spoken to the bod from HMRC:

BNB buys a sewing machine for £2000 (for example but the one I lust after is nearer 5K )

In the first year of trading, BNB actually sells stuff and gets paid £1,500 by customers.

After taking the cost of the sewing machine and all her other business costs into consideration (cost of working at home/car costs/insurance/raw materials etc etc), BNB has made a loss of £3,500 by April 2015.

BNB is sad/realistic and keeps her chin up and soldiers on.

Also, for every £100 of loss made, BNB gets a tax rebate of £20 in every £100 because she is a basic rate tax payer in her part time job earning around £1500 per month take home pay.

So in April 2016, BNB will get a rebate of £700

BNB realises she's still confused, pushes tax to the back of her mind and just gets on with the sewing.

BNB has just sussed out "portfolio working"
BUT
you have to make a profit within a few years - as per the link in my me page

Right - so it's a 'thing'.

I'll need to turn a profit asap but I'm trying to be realistic about the first year.

Thanks