Spouse paying business expenses

[Rishyan]

My wife is self employed running a very very small scale cake business from home.

As she has no savings or no other income I frequently pay for the business expenses (ingredients mainly). I don't get reimbursed for such payments.

When filing my wife's self assessment is there anyway to claim expenses I am paying for the business? I use cash basis.

Any help appreciated.

[wamstax]

The trouble with Cash Basis is that until your wife pays you for the purchases you make she (as the trader) has not laid out the monies wholly and exclusively for the purposes of her trade.

I assume that you are keeping sufficient records to prove beyond doubt that you are in fact paying for the purchases out of your own money as there could be a suspicion that the purchases were being met out of undeclared takings of her business. I do not want to be a party pooper but these fantasies can easily drift into an Inspectors head when they are after their pound of flesh (and the extra tax).

[robbob]

The trouble with Cash Basis is that until your wife pays you for the purchases you make she (as the trader) has not laid out the monies wholly and exclusively for the purposes of her trade.

I think the no can do attitude here seems a little simplistic and harsh too be honest IMHO unless i have missed a technicality somewhere along the line (entirely possible), although wamstax has a good point that you need to be careful with technicalities. There is likely to be more of an issue if expenses are not in the business name.

All you have to do is lend you wife the cash to introduce into the business to pay for the wholly and exclusively business item, effectively this presumably what you are doing everytime cash is handed across on her behalf at a retailer.

You should however ensure the formalities are done correctly, ideally transfer funds into her business account and use those business funds to pay for goods, of have a specific business petty cash that is used to buy these goods even if it is you handing over the cash on her behalf.

Note all the BIM manual states that i can see is that the expenses need to have been paid and i don't think there can be any dispute that the expenses have been paid - so if nothing else what it says in black and white supports some justification for the claim being made whoever hands over the cash.

https://www.gov.uk/hmrc-internal-manual ... l/bim70030

Cash basis: expenses: overview
The total amount of expenses of the trade to be brought into account in calculating profits under the cash basis are those paid during the basis period for the tax year,

[bd6759]

As long as you have evidence of the purchases, it matters not a jot who paid for them.

The taxes acts impose a tax on the profits if a trade. To calculate the profits of the trade, you can deduct any expenses incurred wholly and exclusively for the purposes of the trade. The taxes acts to not stipulate who must pay the expense. Once the profits of the trade is established, the act stipulates that it is the person entitled to the profits that pays the tax.

robobs suggestion is exactly how the payments would be treated in the balance sheet if you chose to prepare one,

[LozaACCS]

Whilst I absolutely agree with BD6759 on the general principle, the cash basis presents an interesting issue, that being whether a payment made by someone other than the trader is deductible as an expense or alternatively is an accrual (until paid by the trader) in which case it is not deductible.
S25A ITTOIA 2005 is not clear on the point other than to exclude S27 (GAAP), my understanding is that there are no clear rules on what constitutes payment or receipt and the requirement is only that the treatment be consistent year on year.

[bd6759]

A new trader borrows 10,000. The £10,000 is used buy trading stock, which is subsequently sold for £15,000.

Is the profit this business £15,000 or £5,000 (the loan has not been repaid)?

[LozaACCS]

There are two separate transactions
1 A loan of 10,000
Dr Cash
Cr Creditor
2 A purchase of stock for the same amount,(financed from the loan)
Dr Purchases
Cr Bank
Under cash accounting the profit must be 5,000 to the extent that the 10,000 has been spent on stock in the period, if none of the loan was spent the profit would be 15,000.
If not one penny of the loan had been re paid to the principal then it would make no difference, the funds derived from the loan have been spent.
From a practical perspective the ability of a small business (a condition for cash accounting) to generate sales receipts without spending to make those receipts will be limited.