Accounting problem!

[P4dstar]

Unless i'm reading it wrong the question has been misunderstood half way through the post. The OP made no mention of his friend currently being a business partner, just that he was purchasing work from him. If this is correct then surely just making it a one off purchase would be exactly the same as hiring a canvassing company or purchasing someone's round. If its an issue as the person selling the round is a sole trader then just make it a limited company, have it valued and present the valuation to HMRC. As the director of the limited company you can purchase the business from him for up to £12,800 tax free. The limited company would immediately owe him the purchase amount and can pay that back over whatever time period it needs to. I'm sure that would make the purchase price eligible for tax relief... Wouldn't bet my van on it though.

 

[Liam2pH]

Unless i'm reading it wrong the question has been misunderstood half way through the post. The OP made no mention of his friend currently being a business partner, just that he was purchasing work from him. If this is correct then surely just making it a one off purchase would be exactly the same as hiring a canvassing company or purchasing someone's round. If its an issue as the person selling the round is a sole trader then just make it a limited company, have it valued and present the valuation to HMRC. As the director of the limited company you can purchase the business from him for up to £12,800 tax free. The limited company would immediately owe him the purchase amount and can pay that back over whatever time period it needs to. I'm sure that would make the purchase price eligible for tax relief... Wouldn't bet my van on it though.

We aren't business partners. We are both sole traders with our own established rounds [emoji1360]

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[P4dstar]

We aren't business partners. We are both sole traders with our own established rounds

My initial thought was you are buying a business as a sole trader so you should simply be able to offset this against your own personal taxes.... but thinking further into it, if I buy a franchise of McDonalds tomorrow I’m not allowed to offset the costs involved against that restaurants taxes. I have purchased an asset that I can sell on at a later date should I so wish.

You don’t get the tax break on this and your friend wouldn’t have to pay tax on the sale of a business so no way of offsetting anything against tax otherwise 2 people could sell each other thousands of pounds worth of work and pay no tax on it. I don’t agree with it but I guess I can see the logic.

what about renting the work from him instead. I have a customer who is a taxi driver, he is a sole trader and the director of a limited company. The limited company pays all expenses for the vehicle and he rents the vehicle from the limited company. He pays enough to avoid corporation tax on his profits. He then gets the benefits of being a sole trader also where he can claim his fuel, clothing, entertaining expenses etc etc.... if you were to rent the work from him each month it would allow you to pay him and get paid from the work you do. The issue would be the work remains his that way.

 

[spruce]

Don't know how that would work up here as we don't have water meters and no limit on what we use.

I don't know if taxation rules are the same in Scotland as they are in England TBH.

I have specifically asked that question as we aren't on a meter. The response was that it didn't matter how much water we used the household still paid it. So a portion of it can't be claimed against tax as a business expense. If you are on a meter then you can claim on the water you use to purify water for your business. As has been said, the Receiver would want evidence of your claim, so the way to do that is to fit a submeter onto the r/o's supply pipe.

Its the same with shoes and clothing. That isn't a claimable expense as you would need to wear clothes even if you weren't working. However the concession is you can claim on clothes that have your business name printed or sewn onto them. This is usually applicable to shirts. Reg Vardy got a concession to claim for trousers as part of their uniform by having a visible tag with a "V" sewn in a trouser seam.  You can claim for steel toe cap boots if that is a necessary part of workwear requirements such as working on a building site where wearing these shoes is mandatory.  However, if you clean residential windows where wearing of steel toe cap boots isn't necessary, then you can't claim. 

 

[Pjj]

I have specifically asked that question as we aren't on a meter. The response was that it didn't matter how much water we used the household still paid it. So a portion of it can't be claimed against tax as a business expense. If you are on a meter then you can claim on the water you use to purify water for your business. As has been said, the Receiver would want evidence of your claim, so the way to do that is to fit a submeter onto the r/o's supply pipe.

Its the same with shoes and clothing. That isn't a claimable expense as you would need to wear clothes even if you weren't working. However the concession is you can claim on clothes that have your business name printed or sewn onto them. This is usually applicable to shirts. Reg Vardy got a concession to claim for trousers as part of their uniform by having a visible tag with a "V" sewn in a trouser seam.  You can claim for steel toe cap boots if that is a necessary part of workwear requirements such as working on a building site where wearing these shoes is mandatory.  However, if you clean residential windows where wearing of steel toe cap boots isn't necessary, then you can't claim. 

Its intresting to note that when doing a rams anything that is needed to compleate the work safely can be claimed as a ligitamet expense , we don’t use steel toe cap boots but if you deem that nessasary evan for domestic work you can claim for it , as a example hard hats can be claimed for evan if vary rarely needed high vis clothing is another example , providing you are reasonable Hmrc do t have a problem with most claims , if you can justify having something it’s claimable 

 

[P4dstar]

I don't know if taxation rules are the same in Scotland as they are in England TBH.

I have specifically asked that question as we aren't on a meter. The response was that it didn't matter how much water we used the household still paid it. So a portion of it can't be claimed against tax as a business expense. If you are on a meter then you can claim on the water you use to purify water for your business. As has been said, the Receiver would want evidence of your claim, so the way to do that is to fit a submeter onto the r/o's supply pipe.

Its the same with shoes and clothing. That isn't a claimable expense as you would need to wear clothes even if you weren't working. However the concession is you can claim on clothes that have your business name printed or sewn onto them. This is usually applicable to shirts. Reg Vardy got a concession to claim for trousers as part of their uniform by having a visible tag with a "V" sewn in a trouser seam.  You can claim for steel toe cap boots if that is a necessary part of workwear requirements such as working on a building site where wearing these shoes is mandatory.  However, if you clean residential windows where wearing of steel toe cap boots isn't necessary, then you can't claim. 

If you only use those clothes for work purposes then a sole trader can claim them. If you were ever investigated the tax man would want to see evidence of another pair of trainers being bought at the same time as your “work trainers” for example. Most sole traders bang things like that through because they get away with it. It’s not tax avoidance and you couldn’t land in trouble for it, the worst they would do is say they aren’t accepting that expense so you need to pay tax on that £40.

 

[scottish cleaning service]

I know there is no vat on steel toecap shoes/boots unless its changed. I got tax relief for washing my fire brigade uniform and we all made a claim, increased our tax allowance. The taxman has cut down a lot of things after the scandals but if you can justify things then it should be ok, I guess. I'm getting busy now and keep buying things for my business but there will come a time, quite soon that I will have nothing else to buy. That's when I will need to go and see an accountant. :1f644:

 

[P4dstar]

I know there is no vat on steel toecap shoes/boots unless its changed. I got tax relief for washing my fire brigade uniform and we all made a claim, increased our tax allowance. The taxman has cut down a lot of things after the scandals but if you can justify things then it should be ok, I guess. I'm getting busy now and keep buying things for my business but there will come a time, quite soon that I will have nothing else to buy. That's when I will need to go and see an accountant. :1f644:

My accountant said about HMRC seeing something as a hobby. If you’re making £24k a year and spend £23K each year they can remove tax relief on a lot of things or give you a percentage of it and declare you a hobbyist instead of a trader.

 

[spruce]

Unless i'm reading it wrong the question has been misunderstood half way through the post. The OP made no mention of his friend currently being a business partner, just that he was purchasing work from him. If this is correct then surely just making it a one off purchase would be exactly the same as hiring a canvassing company or purchasing someone's round. If its an issue as the person selling the round is a sole trader then just make it a limited company, have it valued and present the valuation to HMRC. As the director of the limited company you can purchase the business from him for up to £12,800 tax free. The limited company would immediately owe him the purchase amount and can pay that back over whatever time period it needs to. I'm sure that would make the purchase price eligible for tax relief... Wouldn't bet my van on it though.

I think that if the Receiver did an audit on some window cleaners who employed canvassers to find them customers could be in for a surprise. But that's my opinion.

The canvassing company has no tax issue selling a service, but the windie who employeed them is buying a customer list and as such the Receiver treats it as a goodwill purchase. That cost is held on the books as an asset for the duration at that rate and when the business is sold, its treat as a capital gain. It can't be claimed as a business expense - Receiver's rules. They tightened the restriction further in 2015 to close any loopholes left from previous regulations regarding the way Corporations deal with customer lists.

If the list is sold at a loss, that loss can't be claimed in the same business year as the sale and the loss can only be claimed against certain criteria that wouldn't apply to window cleaners.

 

[P4dstar]

I think that if the Receiver did an audit on some window cleaners who employed canvassers to find them customers could be in for a surprise. But that's my opinion.

The canvassing company has no tax issue selling a service, but the windie who employeed them is buying a customer list and as such the Receiver treats it as a goodwill purchase. That cost is held on the books as an asset for the duration at that rate and when the business is sold, its treat as a capital gain. It can't be claimed as a business expense - Receiver's rules. They tightened the restriction further in 2015 to close any loopholes left from previous regulations regarding the way Corporations deal with customer lists.

If the list is sold at a loss, that loss can't be claimed in the same business year as the sale and the loss can only be claimed against certain criteria that wouldn't apply to window cleaners.

I think you’re right Spruce, food for thought right there mate!!

 

[scottish cleaning service]

What would happen if you had a massive window round and you wanted to sell it? Would you have to pay Capital Gains Tax on it?

 

[P4dstar]

What would happen if you had a massive window round and you wanted to sell it? Would you have to pay Capital Gains Tax on it?

Well yeah basically, it’s the same as buying a business mate that cannot be put against tax as it’s an asset you know own. On the face of it I thought you would be able to but the logic is there when you look at it from another angle

 

[spruce]

I think you’re right Spruce, food for thought right there mate!!

The joke about taxation is that its called self assessment. But that doesn't mean that it is. I'm sure there is all sorts of stuff that window cleaner claim for that they shouldn't and there is stuff that they could claim for but don't. In the end I would imagine that we, as a group called sole trader window cleaners need to fit into an earning to expenses algorithm. So we must fit into the parameters set up for running our type of business.

If the computer is happy with our tax return as it fits into the algorithm then they pass over us. Most of us won't be worth the Receiver spending money on manpower to investigate our tax returns as any discrepancies are small amounts. They would rather use scant resources to chase much bigger fish.

 

[P4dstar]

The joke about taxation is that its called self assessment. But that doesn't mean that it is. I'm sure there is all sorts of stuff that window cleaner claim for that they shouldn't and there is stuff that they could claim for but don't. In the end I would imagine that we, as a group called sole trader window cleaners need to fit into an earning to expenses algorithm. So we must fit into the parameters set up for running our type of business.

If the computer is happy with our tax return as it fits into the algorithm then they pass over us. Most of us won't be worth the Receiver spending money on manpower to investigate our tax returns as any discrepancies are small amounts. They would rather use scant resources to chase much bigger fish.

Yeah but not too big a fish. The Daily mail for example will tell you that foreigners and benefit claimants are the reason for the problems in this country while registering the bulk of their business off shore to avoid paying tax. Boots the chemist has avoided £1Billion worth of tax by taking on excessive debt and some other things I don’t remember, Amazon is Another high profile culprit. But god damn you Spruce, if you put through an invoice from a canvassing company that you genuinely paid or a woolly jumper to keep you warm in winter they will flog you in the streets..... ok that was a bit dramatic but you get the point.

the basic rule is the nail that sticks out gets hammered! My wife runs an eBay business, on her last tax return £56K turnover left her with barely enough net to pay any tax. We are keen to close that business as soon as we can because every year she sticks out and one time she may just stick out enough for them to care. Thankfully most eBay sellers are in a similar boat as profit margins are so low so a lot of others stick out also. Keep it realistic, stay below the radar is the general plan for all of us I reckon!

 

[adamangler]

I think that if the Receiver did an audit on some window cleaners who employed canvassers to find them customers could be in for a surprise. But that's my opinion.

The canvassing company has no tax issue selling a service, but the windie who employeed them is buying a customer list and as such the Receiver treats it as a goodwill purchase. That cost is held on the books as an asset for the duration at that rate and when the business is sold, its treat as a capital gain. It can't be claimed as a business expense - Receiver's rules. They tightened the restriction further in 2015 to close any loopholes left from previous regulations regarding the way Corporations deal with customer lists.

If the list is sold at a loss, that loss can't be claimed in the same business year as the sale and the loss can only be claimed against certain criteria that wouldn't apply to window cleaners.

True. You have to be careful what you are claiming and make sure you have the correct invoices and records to support your claims.

After all it's ok claiming mileage and water usage but if you have no evidence of what was actually done or used you will only be creating yourself a massive debt if ever investigated.

I think taxes are something a lot of us take too lightly, it'll be alright claim this and that.

If in doubt don't claim it imo, it's not worth having to pay it all back in 20years or have the worry what if the tax man comes knocking .

 

[P4dstar]

True. You have to be careful what you are claiming and make sure you have the correct invoices and records to support your claims.

After all it's ok claiming mileage and water usage but if you have no evidence of what was actually done or used you will only be creating yourself a massive debt if ever investigated.

I think taxes are something a lot of us take too lightly, it'll be alright claim this and that.

If in doubt don't claim it imo, it's not worth having to pay it all back in 20years or have the worry what if the tax man comes knocking .

If they move someone to a water meter and they can prove a previous cost it’s really easy to work out a difference.... most won’t have that luxury but for the few that do it could make accounting for the water a little easier.

 

[Skxawng]

True. You have to be careful what you are claiming and make sure you have the correct invoices and records to support your claims.

...you have no evidence of what was actually done or used...

...If in doubt don't claim it imo, it's not worth having to pay it all back in 20years or have the worry what if the tax man comes knocking .

How long back are they interested in? I.e. how long should you hold onto paperwork proving expenses etc.?

 

[Pjj]

This topic is very intresting , the whole reason to have an accountant is to be guided as to what you can and cannot claim for legitimately, it’s not in there intrest to give bad advice as they also would be liable for submitting false accounts for there clients , if all the previous points are taken into account you don’t need to worry or be concerned about a tax investigation 

How long back are they interested in? I.e. how long should you hold onto paperwork proving expenses etc.?

I belive its 7 years for most things 

 

[Part Timer]

How long back are they interested in? I.e. how long should you hold onto paperwork proving expenses etc.?

I think it's 5 years, might be 7, but if they find any "errors" they can go back as far as they want. 

I travel a lot on business, both on windows / gutters and on my other business  I don't claim for food, subsistence, parking, Toll Booths etc. By the time your Accountant has charged you for processing them you won't actually save much money. You also run the risk of attracting the Tax man to investigate you.

Anyone that earns a decent living who wants to save a few hundred quid by putting dodgy / false claims in deserves everything they get. 

 

[Iron Giant]

My accountant said about HMRC seeing something as a hobby. If you’re making £24k a year and spend £23K each year they can remove tax relief on a lot of things or give you a percentage of it and declare you a hobbyist instead of a trader.

I think he might be a hobbyist ?

 

[Liam2pH]

Great read guys [emoji122]

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