How far back can you claim purchase invoices before you started officially trading? I have a new client with a brand new business. They officially started trading in August and registered as a business with HMRC, which is when they made their first sales. However they started buying equipment back In April, for the business they were intending to set up. They can still claim these invoices can't they? They used their own money, which I was going to put as Capital introduced (I have the exact figure of all the invoices added up which is the figure I was going to use as the figure of Capital introduced). They aren't Limited, but would it still go as Share Capital or not? I know it wouldn't be a directors loan, but how would I balance it - I'm using QBs so the Nominal Codes/Names aren't the same as on Sage, so its sometimes not as easy to figure out how to allocate things.
Also they have only just set up a separate bank account so I was going to put all the payments and receipts made before the bank account, under a cash account heading. Is this the best way to do it or is there a better way? They are incredibly honest and have given me absolutely every detail they can so I think this is going to be an extremely easy/exciting job.
No problem with the pre trading expenditure. the equipment is just introduced as if purchased on day one of trading. The key to remember is that the equipment must still be in use and you must have the original documentation associated with it.
Is there any real reason why they could not have said that the business started in April even though no money was coming in until August as that fits in more neatly with the tax year. Starting in August you are going to need to consider basis periods and if they make a profit possibly double taxation.
Self employed do not have shares. The money introduced will be recorded in the capital account as owner capital introduced (not sure of the actual name in QB or Sage but it will be something similar to that).
Put everything that does not go through the bank through a petty cash account. Most software has one set up automatically and you can generally set up new accounts if one bucket isn't sufficient for your needs.
kind regards,
Shaun.
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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.
p.s. just realised that I gave a short form response without giving technical specifics which I think that you were asking for.
For expenditure on assets its up to seven years before trading starts.
For expenditure on services there is a six month rule on what can be claimed.
For VAT claims the limit is four years (#1) for normal pre trade expenditure and (as above) six months for services.
#1 perhaps someone can confirm this. My understanding is 3+1 rather than 4 (i.e. current period and three previous years, not four years before current period).
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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.
Thanks Shamus, thats all as I thought. Just needed to check I was doing it right. They do have all the correct documents/invoices for their purchases and I believe (without physically getting off my bum and checking) they even have the company name on them. They dealt with HMRC themselves (and luckily got a really informative person on the end of the line. What are the chances of that on first attempt?) and I think the understanding is that their tax year is April-March as normal, but I just needed to check that this was OK to do as they didn't call HMRC till I initially advised them to back in September/October when I first met with them.
Also how easy would it be to register as an agent so I can deal with HMRC direct, bearing in mind I am not a qualified accountant, though as they are a sole trader I do realise the whole tax return filing will be way more simpler than a limited company. I'm reluctant to do it as I'm slightly daunted by the idea, however they are clueless when it comes to business/accounts and the Lady they spoke to at HMRC told them it might be better for me to be allowed to file their returns direct or be able to contact HMRC direct if need be. I'm still thinking I'd rather just tell them what to do than do it myself.
