Business start-up - P&L questions

[virtualg]

Hi

I am currently full-time employed, earning £30,000 per annum. In September this year I also started my own business as an extra source of income ... I have already informed the Inland Revenue that I’m also self-employed, and obviously my employed earnings are PAYE. I’m planning to see an accountant in the next couple of weeks to get my accounts prepared properly (when I've found one!), but want to go to one atleast with an idea of my profit & loss etc and would be grateful of any advice you can give me.

1) My first contract for my self-employed business was won in October, for £5000 - paid up front, to provide marketing & graphic design support to a new startup advertising company for 6 months. This mostly involves me sitting at home evenings and weekends in front of a computer, but also needs 2 trips to the company each month (240 mile round trip). For the first two months I used the car i share my with partner, so my first question is can I claim my mileage (e.g. 40p per mile) – I didn’t keep any petrol receipts but logged how many miles, date of trip etc.

2) In December I bought a brand new car, on Finance (Price of car £8500 less £850 part exchange = £7650; paid for by three years finance of £188 per month with optional final payment of £3000 in three years time). This was taken out in my personal name, not in my business name, and I plan to use it 45% business and 55% personal. The loan repayments come out of my individual bank account. I think I can offset the car as a capital expenditure against tax, at 50% depreciation in the first year for the 45% that I’m using for business, etc...but am I correct in thinking this? And if so, what do I use as the value of the car - £8500, £7650 or the value of the car+the interest of the loan??

3) I also use my personal mobile phone for the business, which I pay out £35/mth on a contract, again from my personal account rather than the business account...can I offset this against tax too?

4) About a year ago, I bought a second hand powerful cad workstation with the necessary software, aswell as a printer and digital camera. I knew I was going to set up my business and wanted to start getting the necessary equipment early. Can I offset this against tax even though it was bought before I actually started the business, and does it matter that it was bought second hand? If I canÂ’t, could I buy the equipment off myself for a reasonable price?

5) Finally, in October I transferred £2500 from my business account into my personal account (to pay off some credit card debts), but obviously some of the ‘business expenditure’ such as mobile phone, car loan payments etc come out of my personal account. If I can deduct the aforementioned items off the money earned, my taxable profit may be very low when I’ve done my profit & loss (say £1000 instead of the £5200 income), but I may still have £2500 for example showing in my business bank account...is this okay? Also, am I correct in thinking I don't need to submit a self-assessment this year to the HMRC?

6) One last final thing....if my business actually made a loss this year, would I be able to reduce the tax I had to pay through my employed earnings or would it have no affect on that side o fthings (IÂ’m expecting the answer is a no!)

I apologise upfront if I'm being cheeky asking for so much advice. I've already learnt a lot from all the useful advice on these forums here so would like to also express my thanks that such a site exists...a few weeks ago this was really daunting, but thanks to this site I'm starting to feel like I'm learning to get my head above water!!

Thank you all in advance for any help you can give me on all this!

[ratnam]

Milegae 40p/mile is ok.
For car you cannot claim 50%. It is 25%. then 45% of that 25%. car loan interest be claimed. but only 45%.
mobile phone also, you have to disallow some for private use.
Put a reasonable value for the cad at Oct. and claim 50%.
since it is a small income, no harm in using personal a/c.
you do not need to submit a/c for 2006/07. but you should have informed them within 3 months of you becoming self employed. if it a low income (if you make loss, you may get tax refund since you pay tax via paye

[amadeus]

One point to make is that Ratnam indicates that 40p per mile is OK and capital allowances on the car. You cannot claim both. It is administratively easier to claim the 40p per mile but this is deemed to cover all the running costs of the car including depreciation.

[robbob]

As these are separate cars i would think it is ok to do as Ratnam suggested.

However amadeus is right that you cant claim both.If you do claim actual expenses + depreciation remember to claim all the insurance,tax and petrol too (with addback)

With regard to 25% Capital allowances remember to pro-rata this if you are doing accounts from Oct to 5/4/07 only (Ie 50% of 25%)

With regard to CAD equipment i would claim on the full cost paid as it was purchased for the business (no need to pro rata 50% FYA). If you introduce at lower market value from yourself then technically you cannot claim FYA

[virtualg]

Thank you all for your quick responses...all are much appreciated

Just a couple of follow up questions to your responses if you don't mind me asking...

I'm doing my accounts for the period 29/09/07 (when I started my business) to 05/04/08....so with regards to the depreciation of the car, do I need to do "total cost of car + interest of loan i.e. approx £10000" * 45% (business use) * 25% (depreciation allowance for year one) * 50% (beacuse I started my business halfway through the financial year)?

Do I need to do similar for the cad equipment (computer etc)?

[virtualg]

p.s, ...sorry if I'm being thick...but what does fya stand for?

[robbob]

Hi Again

FYA = first year allowances - available on equipment at 50% - these can be claimed in full even if accounting period is less than 12 months.

Self employed accounts MUST !! be done on an accruals basis. Ie work done in the period and expenses relating to the period only.

Ie you can only claim for interest for the period Oct-5/4 the same would apply for car tax , car insurance , business insurance etc.

When you get an accountant he will take all these adjustments and stuff into account , but it is no bad thing to have a reasonable idea yourself as to how things work.

You would claim 8500 * 50% * 25% (Balance 7438 to carry forward to next year) less 45% for private use. Claim 478

CAD Plant say cost £1500 claim 50% = 750 balance carried forward.

Interest 6 months interest on 7k car loan may be £300 or so of which you can claim 45%.

[virtualg]

Thanks again Robbob - you've been a massive help on all this, am nearly there I think with my (attempt!) at a P&L!! Can i push my luck and just ask for clarification on one last point?

With regards the laptop etc I bought a year or so ago (total cost approx £1500)...do I put this under 'Capital allowances' or under 'other expenses', and do I need to factor this by either a first year allowance (if so is it 25, 40 or 50%?) or pro-rata it by 50%

Thank you again

[robbob]

Any allowances claimed on assets should go on the capital allowances box on the tax return not other expenses.

If this laptop is a pre-startup expense bought specifically for the business claim 50% FYA no pro rata needed.

When i say capital allowances i am refering to what is claimed on the tax return not what you may expect to see on the P&L on a set of accounts - this would normally be a depreciation amount that would be added back on any tax computation.