I have just done a mobile caterers books for 2010-11, he has no sales receipts and he originally told me that is income after expenses was £300. I have calculated is annual gross income as - Expenses plus net income (as quoted), is this correct? My client doesn't seem to grasp that although he has spent £30,000 on expenses and only has a net income of £300, he won't be getting a tax rebate as his gross income would have to be enough to cover his expenses. Can someone confirm to me whether I am correct or not as I am quiet new to this all and have little practical experience.
Have you identified drawings, aside from expenses? These are, of course, not deductable and there is little point him trading all year if he has taken nothing out of the business.
I'm not sure if we mentioned 'Cash Introduced'. In other words, had he used any monies from another source (eg. - savings, family, job etc.) to pay for any of the expenses. Other than that, I think you're spot-on, but don't hesitate to ask if you're not sure.
On the plus side, he shouldn't have much of a tax bill.
Have you identified drawings, aside from expenses? These are, of course, not deductable and there is little point him trading all year if he has taken nothing out of the business.
That can be a problem as someone moving from being an employee to setting up as a sole trader might include "wages" as an expense. It can be hard for them to grasp that a sole trader doesn't get wages.
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Never buy black socks from a normal shop. They shaft you every time.
Yep, I have long-standing client's who still write 'wages' in their bookkeeping when they mean drawings.
On the subject of tax rebate, tell him that he can only get one insofar as he has paid any tax. Tax deducted from interest received counts and did he make payments on account in January and July?
Hi guys! Thanks for helping me out. Im going to give you some figures...
£19,563 allowable expenses, £11,200 on car and trailer and he has said that his income is £300 per week after expenses. Caculating on £300 x 52 weeks = £15600. So has he has no sales receipts at all! I have done £19,563 + £15600 = £35,163 turnover, so that he has then earnt the above amount after allowable expenses, correct? As for the £11,200, I am taking by word that the money was used from elsewhere to fund these purchases, however they are still classed as a Capital Expenditure, therefore his 'real' Net Income would be £4,400 (£15,600 - £11,200)???
As he is under the allowace threshold, there is no tax bill to pay, correct?
My client doesnt seem to understand that although he has spent £30,000+ on expenses and only earnt £15,6000 he will not be getting a tax rebate? Argh.
Please tell me if I am mmiscalculating somewhere...
Your client had £300 per week to spend from the business, which subject to his finding the £11,200 from other none taxable sources is a lot of money to have and not pay tax on!
You should ask for proof of where the £11,200 came from now, because from the types of enquiry cases that recently started, I can see the HMRC asking the client this question within the next 2 years. I would use the "excuse" if he has difficulities now producing the evidence, it will be even harder next year!
The car was not bought from new so how do I then work out the tax allowance on it? I don't really understand WDA? As he will have made a loss this year, does he get a rebate, although he has not paid any tax? Or can thus loss be claimed back against next years profits? I'm really unsure as to what to do now?
The rules changed and I have to read up on them myself Stacey. It was bought in the period so I assume that's after 6th april 2009 ? It shouldnt matter that it was not new.
Find out what the car make, model and year is and if you can, find out the Co2 emmissions (see above). Let us know if it is a van.
In a previous post you said he'd made £15,600 before the vehicle costing £11,200. I can see no loss, and a remote possibility that his profit is below the personal allowances.
Did you find out yet if he'd received any bank interest with tax deducted? He might have done if the £11,200 was from savings.
The car was not bought from new so how do I then work out the tax allowance on it? I don't really understand WDA? As he will have made a loss this year, does he get a rebate, although he has not paid any tax? Or can thus loss be claimed back against next years profits? I'm really unsure as to what to do now?
Maybe my suggestions have become convoluted and please accept my apolgoies if comments have not helped resolve any conflict with your client. Be assured that your calculations are fine, but there are two issues remaining which have to be resolved before arriving at a tax liability or rebate:
1) It is vital that evidence of £11,200 'used from elsewhere' is provided by the client before you can be sure of his turnover and profit. You need to know any interest earned and any tax deducted.
2) To re-cap on the capital allowances, you need to find out all of the following information :- Make and model, co2's, date of vehicle purchase and a good estimate of private use %. We can then have a bash at calculating the WDA for you.
We/I wish to help but my hands are tied without the above.
I have to agree with the others. Where is the loss you keep mentioning?
You say you don't understand WDA, but say you think you can work out your clients profit/loss.
You have 2 things going on:-
1. Your clients business accounts, where you claim depreciation for assets (against the capital expenditure) which from your figures seem to be in profit
and then
2. You have the tax computations, where you have to add back the non taxable expenses to the net profit, which will include the depreciation on the assets, and instead if permitted deduct by claiming Capital allowances which may include AIA (annual investment allowance) to reach your client tabable profit or loss. (But again even with 100% AIA there is still a profit) But others have mentioned AIA may not be applicable to your client but perhap 10% or 20% only of the original cost.
The WDA is the amount you claim against the profit against the allowable capital expenditure
-- Edited by YLB-HO on Sunday 25th of September 2011 10:58:45 PM
I'm sorry for this, you'll notice from my posts I try to be supportive and encouraging. However, in this instance, I would suggest you don't do work that you are not confident of carrying out. It will come back to bite you. I don't believe that you can complete a self assessment accurately without knowing about things like WDA.
Can I ask if you are a member of a professional body?
I really don't want to be ripping anyone apart, but there is no shame in telling a client that they have reached the point of needing an accountant, or another bookkeeper for certain jobs. The biggest problems in this industry, in my experience, come from people undertaking work they are not confident with and getting themselves into a hole.
I hope you take this in the manner in which it was intended.
