Well I've received my very first bag of receipts (from my first client) through the letter box! Of the pre-trading expense receipts, I notice that some of the items could be classed as expenses and others fixed assets. I'm wondering how to discern them. For instance a pedicure set for the business (beauty business) £17.19 - would you class this as an expense or list it as a fixed asset? I have also noted that some of the items that were purchased a year or more before trading could have been used by my client whilst doing her beautician course and so my understanding is that these items could not be classed as pre-trading expenses nor can she claim the cost of the beautician course itself as a pre-trading expense.
One more question, some of the fixed assets she purchased second hand for cash/cheque but does not have any receipts to back these up. Will the bank statement be enough proof?
treat all pre trading expenses incurred up to seven years before start of business and still held at start of business as though incurred on the first day of trading.
Although some things (such as a stapler) are hypathetically capital expenditure they are too immaterial to capitalise. Just expense the pedicure set.
The course was a course on something that she was learning in order to trade rather than improving the trade so the course would not be allowable.
Think of it this way, in learning your trade you could not put bookkeeping or accountancy courses off against the future trade but once you start trading all of your CPD is allowable expenditure.
Similarly doing the initial course for your client is not allowable but once trading future courses that are wholly, necessarily and exclsuively for the purpose of the business will be allowable expenditure.
On that last point my view is no. Which should be a good lesson for your client that they must get receipts for everything.
I know that I've said this before but its a good line to use with clients. "If you cannot prove a purchase then it never happened".
Whenever you hit this sort of question just assume that you are sitting with an HMRC inspector and imagine yourself trying to convince them of the legitimacy of a transaction... Often doing that answers the questions for you.
kindest regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Shaun is very much in the black and white category. If you dont have a receipt it doesnt exist.
Others are more pragmatic. I would say that if the transaction is on the bank statement then this is strong evidence that it was paid for. Even if paid in cash it can be substantiated other ways eg if it a fixed asset then all you need to say is "there it is in the corner". As long as the price paid seems reasonable for the asset then I would say it is fine.
For instance I have a handyman that has just finished his first year. In his business he has various assets but he doesnt have the receipts and they were bought by him personlly before he started. He has just given me a list of them, about 20 of them, and has estimated at £1,800 in total. Therefore valuing at less than £100 each. Seems reasonable for the stuff he has listed so I will include in his accounts as assets and claim WDA, just not FYA.
As long as you make the client aware that HMRC may question it if they look at their tax return then you are doing your job. At the end of the day it is self assessment with the client assessing matters with assistance from the accountant/bookkeeper. If they push it too hard then you can always go your separate ways.
Another example, was out seeing a self employed contractor last night who wasnt happy that he was having to pay a few hundred £s tax when his colleagues always get tax rebates. I explained happy to put additional costs through if he could justify but he said he couldnt. Then told him based on his proft, in the mid £30k's, that he would be better incorporating and although my fees would be higher he would save about £2k in tax by avoiding class 4 NIC. He has taken his records back and said he will see what he can do himself. I said not a problem. But his parting words were that would it be ok if he came back in a few weeks about setting up a limited company. So expect to see him again in the not too distant future.
That's really helpful advice. We are talking about a massage bed and two chairs here so I think in this instance the bank statement plus the actual bed/chair in the corner should be enough to convince HMRC.
I will make her aware of the consequences of this.
Some of the pre-trading receipts are for decorating the premises with soft furnishings and redecorating the walls of the salon prior to trading. is this allowable? My feeling is that the painting of the walls would be classed as re-decorating and so allowable. What about the soft furnishings (i.e pictures, a vase, curtains)? My feeling is that this would also be allowable?The salon was in fit condition and ready for use without painting the walls etc but my client redecorated so as to make the salon more appealing and so Im assuming this would fall in redecoration and so is an allowable expense?
Could anyone confirm that my understanding is correct (or not)?
