How Can I Reduce Tax For My New Home Based Business

[Avery Webdesign]

G'day,

I'm just about to register as self employed in addition to my current Employement. My situation is as follows:

* PAYE employee (Salary £10,000 per annum)
* Live in privatly rented accomodation (£375 pcm)
* Married (No children - or intent to have!)
* Wishing to do additional local webdesign work

I have had the brochures "Thinking of working for yourself?" (IR) and "Self-employed people with small incomes" (IR) and know that my webdesign work will earn far less that the £4,215 this year and so will be applying for the Certificate of Exemption from Class 2 NI.

I will be performing my webdesign work at home but not solely in one room (As I will use my laptop in the lounge as it has the only telephone connection but have a PC in the spare bedroom for more complex and demanding design work - lappy not too powerful!)

Basically I have designed one site already but have not yet taken payment for it. At the end of the tax year I expect to have earned a gross of no more than £1,500. Now the tax bit...

My estimated expenditure for materials might reach around £250 (CD-ROM's, Printed Material, Software for Resale, etc.)

By my calcualation, thisa leaves a taxable profit of:

£1,250 (Based on £1,500 Gross - £250 Expenses)
Tax @ 22%
= £275.00

Leaving me a Net Profit of £975.

What additional tax reduction am I able to make?

For example, I have had to purchase a new Desk for the PC and a panel heater for the Spare room as it had no heating. I work from home (Let's say I use the house for 10% business use) so apparently may be entitled to certain expenses regarding my rent, utilities, rates etc.

Any help greatly appreciated, thanks!

Ben

mailto:ben@averywebdesign.co.uk

[Lambs]

Sir, after you have considered all of the expenses for which you might potentially claim, I think your profits could be significantly reduced. Please bear in mind that the computer equipment that you use, the software on those computers, and any peripherals, will also be deductible, at least partially, usually by claiming 'Capital Allowances.' Add to that the costs of your ISP, your online costs, the cost of business calls on your home and mobile 'phones, the costs of travelling to meet clients, such as car mileage or train fare, subscription to relevant publications, magazines, textbooks, any advertising or stationery or other printing consumables....this is all standard fayre.

In your circumstances, I should recommend that you personally contact your local Inland Revenue office, and ask to meet someone who can advise you on setting up your business. Whilst they are (of course) primarily concerned with making sure that you pay the right amount of tax, there should be someone available who can talk you through the allowable expenses (as above) and broadly how to set up simple books to record income and expenditure.

While you are there, ask them about whether or not you might be eligible for Tax Credits, as the income which you have described above might put you in a position where there is some entitlement, and it would be a shame to miss out.

Good luck with your venture!

[Avery Webdesign]

Lambs

Thanks for your reply, it would appear that, with the aid of an accountant (or the local IR office) I will indeed be able to reduce my tax costs quite well.

I'm afraid I already owned the PC and software so that won't help me much now, however, I am in the market for a new ISP at home so will maybe go for a slightly better connection now - in my new business, it'll be well worth it!

Thanks for all your help so far, any other ideas welcome!

Ben

[Lambs]

Avery, just because you bought a capital asset before you started trading, doesn't mean that it cannot be claimed via Capital Allowances: don't be frightened by the thought of contacting your local tax office! You'll be amazed how helpful they're prepared to be, particularly for taxpayers who are clearly trying to "do the right thing."