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Where Taxpayers and Advisers Meet

Private collector looking to start business - please help!

bobd
Posts: 1
Joined: Thu Nov 26, 2015 6:01 pm

Private collector looking to start business - please help!

Postby bobd » Thu Nov 26, 2015 8:22 pm

Hi all,

I'm looking to start trading in the near future and have some tax concerns that I haven't been able to find answers to. If any of you can help, or point me in the right direction I would be much obliged =)

I've been collecting American comics for many years, on and off, and have accumulated a substantial collection. As any collector does, I buy and sell to improve my collection. As I understand it, this has no tax implications at this point as it is not done with the intention of making a profit(?)

However, given my experience in this maket I would now like to try my hand as a dealer. I intend to operate as a sole trader, will deal exclusively in second-hand goods, and will mostly be buying and selling online. I want to begin using part of my collection for my initial stock, and build up from there.

I have some specific questions below, but generally speaking... how do I keep what remains of my collection seperate from my business as far as the taxman is concerned?

Any advice on that point would be much appreciated. If anyone can answer any of the following specifics, even better =)

1. As far as designating part of my collection as being for business purposes, how do I do that? Am I right in thinking that I essentially 'sell' the goods to my business (ie. myself) at wholesale prices and then just count this as a business expense for tax purposes? Would I need a third-party valuation for this, or would HMRC take my own estimate in good faith? (It would be a few £k at wholesale prices - less than £5k.)

2. I will typically buy the comics in sets, or as whole collections. In many cases, I will want part of the lot for my private collection and part for stock. Presumably, if I buy a large collection for business purposes and want a handful of them for my private collection they would be classed as payment in kind at the resale value(?) But what about the other extreme, where I buy a lot for my private collection and take what I don't want for stock? It seems to me that the 'fair' thing to do in that case would be to treat it more like (1) above, but I have no idea what the law says. If I can treat the two cases differently, what about the intermediate cases?

I'm sure I'll remember more as soon as I've posted this, but that seems like more than enough for now =)

Thanks for looking!

RMC
Posts: 432
Joined: Wed Aug 06, 2008 3:35 pm

Re: Private collector looking to start business - please help!

Postby RMC » Sun Nov 29, 2015 8:58 pm

The following are considered badges of trade, among other things:-
1. The number of transactions: Systematic and repeated transactions will support 'trade'.
2. Existence of similar trading transactions or interests: Transactions that are similar to those of an existing trade may themselves be trading.

The fact that one trades items for personal, not profit reason, does not alone disqualify the activity from being regarded as a trade. Best if you mention your private collector activity on the White Space of self-employment pages of your tax return, to limit the period within which HMRC could raise assessments.

You should treat all your stock of comics as introduced to the business, see 2. above. You will be taxed only on what you sell. Comics you bought at up 6 years ago should be treated as transferred to the trade at cost, older items as transferred at market value. If you think this should be substantially higher than cost, you should obtain some supporting documentation.

section 44
Posts: 4468
Joined: Thu Oct 30, 2008 12:47 pm

Re: Private collector looking to start business - please help!

Postby section 44 » Mon Nov 30, 2015 2:38 pm

You should treat all your stock of comics as introduced to the business
If he were to retain a comic for private use, would there be a deemed market value disposal by his business? A sort of sharkey infested comic pool

Ian McTernan CTA
Posts: 1232
Joined: Wed Aug 06, 2008 3:02 pm
Location: Bedford
Contact:

Re: Private collector looking to start business - please help!

Postby Ian McTernan CTA » Thu Dec 03, 2015 11:09 am

This is always a tricky one, when a hobby becomes a business. First thing is to operate a separate bank account solely for the business.

'selling' some of your existing collection to the business might create it's own problems- bear in mind as a sole trader you are the business, so you can't really sell yourself anything.

The best you can do if you want to err on the side of caution is to introduce the business stock at cost (hope your records are good!).

If you are making a purchase of both business and personal stock as one transaction, then always do this through your personal account. The business then 'purchases' it's share of the collection from you on a fair and reasonable basis.

If you start to sell any of your 'personal' collection after you have started the trade then you might be deemed to have sold those as a part of your business and be taxed on any profits- you really can't pick and choose.

It might be worth setting up a limited company for the purpose, just to enable that degree of separation from yourself and to make things easier, although costs of this may become a factor.

Also bear in mind different countries have different VAT rules so if you are buying and selling internationally that can add to the complexity of running the business.
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com

Incredulum
Posts: 2732
Joined: Thu Dec 03, 2009 5:35 pm

Re: Private collector looking to start business - please help!

Postby Incredulum » Thu Dec 03, 2015 1:02 pm

Comics you bought at up 6 years ago should be treated as transferred to the trade at cost, older items as transferred at market value. If you think this should be substantially higher than cost, you should obtain some supporting documentation.
Where does this six year rule come from?

Supporting documentation would come from the fact that they were sold to third parties. That would give a market value, as a Comparable Uncontrolled Price it would be perfect. If it were not substantially higher than cost he would have been doing something wrong...

I too would be inclined to set up a limited company, it makes keeping the two things separate so much easier. But I'd also suggest that new items purchased for the "collection" ought to be purchased into the company. You know you will sell them in due course.

RMC
Posts: 432
Joined: Wed Aug 06, 2008 3:35 pm

Re: Private collector looking to start business - please help!

Postby RMC » Thu Dec 03, 2015 9:53 pm

Purchases within past 6 years = pre-trading expenses
Older purchases should be transferred @MV.

Incredulum
Posts: 2732
Joined: Thu Dec 03, 2009 5:35 pm

Re: Private collector looking to start business - please help!

Postby Incredulum » Fri Dec 04, 2015 5:13 pm

I think I must completely disagree with you. Do let me know what you think; I've been wrestling with a similar situation for a few months now, and have yet to find anybody with anything sensible to say much more than 'it's difficult.'

s57 ITTOIA refers to revenue expenditure incurred prior to the commencement of the trade. Acquiring a collection of items that subsequently become your stock does not constitute revenue expenditure. It is not expenditure in respect of which (2)(b) "a deduction would be allowed for them if they were incurred on the start date." You only obtain a tax deduction for stock when it is sold. s57 has nothing to do with this.

So, now, what if you incorporate a company and that commences its trade. You are outside the scope of s57 and into s61 CTA09. Which certainly doesn't recognise any expenditure incurred by a different person (which is what you would be with regard to the company). So the six year rule is completely out of scope. What you have is a transfer by an individual of items to his company - which I think is a connected party capital disposal, so MV applies. Thoughts, please on what MV to apply if:

Acquired a comic at a car boot sale for £10.
Which would net you £100 after expenses if you sold it at auction
Or would cost you £150 from a dealer at a comic fair
Or would cost you £200 including costs to buy, if you bought it at auction
Or would cost £500 if you bought it at a comic dealer in Mayfair.
And OP eventually sells it for £180.

All of these are good examples of Comparable Uncontrolled Prices, i.e. transactions between two willing parties. Which one to choose? The sensible one is the £180 one, as that's the one where you have clear evidence. IMO it's completely acceptable for the price at which it is transferred to the company to be regarded as 'soft' until the evidence of market value comes through with an actual sale. It also helps from a tax perspective as the only relevant item is the small chattel's limit.

But, is this being over-aggressive from the individual's perspective? Is the uplift from cost to the £180 'miscellaneous' income - for all that it's not trading income. And if so, original cost price is the best value to transfer items where it may be regarded that they were always acquired with a view to trading.


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