Hello all. Forgive my complete ignorance, but I have a few questions if anyone can spare a few moments to help?
I have recently started a side business, online retailing via eBay, Amazon, and very soon, my own website. I am also in full time employment, just scraping the 40% tax bracket. Decided to give it a year or so as a sole trader. I know I'll get hammered for tax should I make a profit, but the main point of the exercise is to see if its going to be a viable business, with minimal setup hassles, so not too bothered about that initially.
I started out in January of this year. Between January and the end of the financial year, I spent about 7k on stock. This money came from a cash transfer from a credit card, 0% until December 2015.
So thats the background, whether its relevant to anything, who knows :)
Now the stupid questions...
1. So in very basic terms under the cash accounting system, I calculate my profit / loss by taking allowable expenses from sales over the accounting period. For the period from Jan - April 2015, I will be showing a huge loss, given that the cost of stock, equipment etc etc has far outweighed sales.
I read somewhere I can carry it forward. Does that mean that 2015/2016 when ( hopefully ) I make a decent profit as I'm already sitting with healthy stock volume, I can offset last years loss against it?
2. While I'm on the subject, are the full time job and the self employment classed as two seperate entities on a return, can one be set against the other?
3. Back to the credit card / loan. Does it matter that I borrowed the money in one accounting period and payed it back in the next? Are the money in and repayments out included in any part of the calculations ( there is no interest involved ) or are you purely calculating what you've paid outin expenses vs whats come in through sales.
4. Stock taking. Under the cash system am I right in saying that you don't need to do stock taking for accounting purposes, i.e you don't need opening or closing stock values? So you would be taking stock purely for inventory and order fullfilment purposes.
5. Would you say that cash basis is right for me, at least for the first year. I don't deal in invoices or have to wait for payments, and have a reasonably small inventory. Would the upper limit to be eligible for cash basis include my full time income as well as the self employed income?
I will, of course get me an accountant to fully assess the postion should things take off spectacularly but for now just trying to get my head round the basics, please be gentle !
Hello all. Forgive my complete ignorance, but I have a few questions if anyone can spare a few moments to help?
I have recently started a side business, online retailing via eBay, Amazon, and very soon, my own website. I am also in full time employment, just scraping the 40% tax bracket. Decided to give it a year or so as a sole trader. I know I'll get hammered for tax should I make a profit, but the main point of the exercise is to see if its going to be a viable business, with minimal setup hassles, so not too bothered about that initially.
I started out in January of this year. Between January and the end of the financial year, I spent about 7k on stock. This money came from a cash transfer from a credit card, 0% until December 2015.
So thats the background, whether its relevant to anything, who knows :)
Now the stupid questions...
1. So in very basic terms under the cash accounting system, I calculate my profit / loss by taking allowable expenses from sales over the accounting period. For the period from Jan - April 2015, I will be showing a huge loss, given that the cost of stock, equipment etc etc has far outweighed sales. Yes will show a loss
I read somewhere I can carry it forward. Does that mean that 2015/2016 when ( hopefully ) I make a decent profit as I'm already sitting with healthy stock volume, I can offset last years loss against it? See point 2 below
2. While I'm on the subject, are the full time job and the self employment classed as two seperate entities on a return, can one be set against the other? Yes the loss from the sole trader can be offset against your employment income which will result in a tax refund.
3. Back to the credit card / loan. Does it matter that I borrowed the money in one accounting period and payed it back in the next? Are the money in and repayments out included in any part of the calculations ( there is no interest involved ) or are you purely calculating what you've paid outin expenses vs whats come in through sales. Where you got the money from doesnt matter. Doesnt appear anywhere in the profit calculation.
4. Stock taking. Under the cash system am I right in saying that you don't need to do stock taking for accounting purposes, i.e you don't need opening or closing stock values? So you would be taking stock purely for inventory and order fullfilment purposes. Cash basis means you account for cash in and cash out. So no need to account for stock.
5. Would you say that cash basis is right for me, at least for the first year. I don't deal in invoices or have to wait for payments, and have a reasonably small inventory. Would the upper limit to be eligible for cash basis include my full time income as well as the self employed income? Yes seems right for the first period as you will get relief for the stock purchased right away. Limit of £79k is just your sales from self employment.
I will, of course get me an accountant to fully assess the postion should things take off spectacularly but for now just trying to get my head round the basics, please be gentle ! If happy to deal remotely happy to give you a quote. We deal with about 170 small and medium sized sole trader and limited companies.
