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Accounting problem!

Liam2pH

New member
Messages
28
Location
Wokingham/Byfleet
So my best mate and fellow windy is moving abroad.

I'm buying his round off him at a price per month for 18 months. Our initial plan was for him to invoice me every month and then for me to transfer money into his UK account.

While I do my own accounts another friend of mine is a chartered accountant and after having conversations with him, he said HMRC won't allow it to be taxable as despite having a contract in place it's only a deal done on good will. He didn't suggest an alternative.

I'm a sole trader but surely this happens in business constantly... Does anyone have any suggestions? Screenshot_20180913-165724.jpeg

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It's obviously accountable money to your mate as your transferring it to him. 

If he could wait till next tax year and it's less than 10k, he would pay no tax on it.

just another thought ?

 
Or maybe just do it as the law says? Why are people so quick to suggest things that bend the rules? If we pride ourselves in not being bucket-Bobs and run our businesses properly, then why should we skirt around law at all?

What amount of money are we talking about saving anyway? Probably not that much in the grand scheme of things..

 
What your accountant has said is true. But you will pay out your money to your mate, it may seem difficult at the beginning, but you will be up and running from day one, earning your living. If you try to be dishonest and HMRC find out you will have consequences. Do the right thing in an honest way like Nudel says. We have bought rounds like you, it has provided us with a living and we have built up from there, so will you, with a good conscience.

 
So my best mate and fellow windy is moving abroad.

I'm buying his round off him at a price per month for 18 months. Our initial plan was for him to invoice me every month and then for me to transfer money into his UK account.

While I do my own accounts another friend of mine is a chartered accountant and after having conversations with him, he said HMRC won't allow it to be taxable as despite having a contract in place it's only a deal done on good will. He didn't suggest an alternative.

I'm a sole trader but surely this happens in business constantly... Does anyone have any suggestions? View attachment 14817

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He didn't suggest another way because there is no other legal way. There is no way your accountant friend is going to jeopardise his accountant's 'ticket' by recommending you break the Receivers tax rulings.

On the other hand you will have an asset that you can sell further down the line.

Personally I would split the business and let him do what he wants to with his portion. If the 2 of you working together have plenty of work, then you will have enough to keep going on just your half.

You could then canvass to grow what already is yours.

 
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Legally nothing you can do.

Illegally you could say it's for canvassing and have the invoice to reflect it..... obviously this can't be condoned or recommend though.

 
I want to do this properly and legally definitely as you all say as I always have been with my tax returns.

Cheers for all your help and advice - only reason I asked was to see if there was another way. If there isn't then so be it.

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This is one of those cases where the Receiver has his cake and wants to eat it as well @Liam2pH

Apparently the round you buy, even although goodwill (a customer list), is viewed as an asset to your business but not an expense. You can only claim tax relief against expenses.  It sits on your books as an asset until you decide to sell the business for example. It then becomes a capital gain and is liable to be taxed then.

In my days of working in the motor trade with Reg Vardy, if Peter Vardy was looking to buy a dealership he would send in his own property evaluators and identify the actual value of the land, buildings, equipment included in the sale etc and compare that to the asking price. The difference he classed as goodwill, a part of the business a buyer could expect to get because the dealership was trading. He would offer what the value of the property was worth in its condition only. He would never buy goodwill as he believed he had a team of people who would create their own customers. 

However, when he sold the business to Evan Halshaw that became very complicated as he also had to sell shares and goodwill was part of the asking price of a successful business, so he paid corporation tax on the capital gain.

Maybe someone else can chip in here. What is the taxation process if you rented your mates portion of the round. I'm sure you can claim that as an expense but your mate will have to pay tax on the rental received and will still have to show that portion as a capital asset until such time as he sells it. It then becomes part of his tax calculation. It must be the same principle as a house owner renting his house out when moving to another country to work. Unfortunately, your mate moving is making things difficult for you if you want to buy take on his half of the business.

 
This is one of those cases where the Receiver has his cake and wants to eat it as well @Liam2pH

Apparently the round you buy, even although goodwill (a customer list), is viewed as an asset to your business but not an expense. You can only claim tax relief against expenses.  It sits on your books as an asset until you decide to sell the business for example. It then becomes a capital gain and is liable to be taxed then.

In my days of working in the motor trade with Reg Vardy, if Peter Vardy was looking to buy a dealership he would send in his own property evaluators and identify the actual value of the land, buildings, equipment included in the sale etc and compare that to the asking price. The difference he classed as goodwill, a part of the business a buyer could expect to get because the dealership was trading. He would offer what the value of the property was worth in its condition only. He would never buy goodwill as he believed he had a team of people who would create their own customers. 

However, when he sold the business to Evan Halshaw that became very complicated as he also had to sell shares and goodwill was part of the asking price of a successful business, so he paid corporation tax on the capital gain.

Maybe someone else can chip in here. What is the taxation process if you rented your mates portion of the round. I'm sure you can claim that as an expense but your mate will have to pay tax on the rental received and will still have to show that portion as a capital asset until such time as he sells it. It then becomes part of his tax calculation. It must be the same principle as a house owner renting his house out when moving to another country to work. Unfortunately, your mate moving is making things difficult for you if you want to buy take on his half of the business.




I think the best bet for the o.p is to not try to claim tax relief on the purchase of the round, then at least this way he can sell it with no complications like capital gains.

its a good idea to keep certain things out of the business, for example i buy my van on finance and charge the company mileage, its just easier that way, the vans mine to do what i want with...

The thing here is  (i think) is that to claim something as an expense it has to be essentially an item that will be used and not become an asset, think fuel, printer paper, phone bill etc.

whereas purchasing something larger, an expensive pole, van, pressure washer, or a window cleaning round as in this case it is a capital asset and as such would be treated as a capital asset when sold, you cant claim in as an expense and then sell it. That is why paying a canvasser or marketting company is the better bet here you can put it down as an expense and therefore there is nothing to sell. However the complcation may arise when trying to sell work aquired by canvassing as that then could be arued it was an asset all along and not an expense? 

Also assets are generally depreciated over time, im not sure how a round would go through the books in this instance.

i dont know by the way, im waffling, ask an accountant..... which you have done so take his advice

 
I think the best bet for the o.p is to not try to claim tax relief on the purchase of the round, then at least this way he can sell it with no complications like capital gains.

its a good idea to keep certain things out of the business, for example i buy my van on finance and charge the company mileage, its just easier that way, the vans mine to do what i want with...

The thing here is  (i think) is that to claim something as an expense it has to be essentially an item that will be used and not become an asset, think fuel, printer paper, phone bill etc.

whereas purchasing something larger, an expensive pole, van, pressure washer, or a window cleaning round as in this case it is a capital asset and as such would be treated as a capital asset when sold, you cant claim in as an expense and then sell it. That is why paying a canvasser or marketting company is the better bet here you can put it down as an expense and therefore there is nothing to sell. However the complcation may arise when trying to sell work aquired by canvassing as that then could be arued it was an asset all along and not an expense?

Also assets are generally depreciated over time, im not sure how a round would go through the books in this instance.

i dont know by the way, im waffling, ask an accountant..... which you have done so take his advice


This is the problem. Sometimes the implication is what happens further down the line with the next purchaser.

From what I understand the purchase price of the round doesn't depreciate. It remains on the books at the same purchase value. When selling it on and its value has gone up, those profits are treated as capital gains, but if its value goes down, I don't think you can claim it as a loss against business running costs - but I don't know for sure. But as you say, its best to really discuss this indepth with a qualified accountant.

With regard to claiming expenses you are wise to be careful what you claim. I never claimed a portion of my mortgage as the Receiver might feel he has a say as and when the house is sold at a future time. I do however claim portions of heating, electricity, telephone etc as day the day business running costs. A lady at the Receiver warned me about claiming a portion of our mortgage payments as business expenses.

Under the old regulations I took advantage of write down allowance (depreciation) on my van I've had for 10 years. It suited me at the time. It still has a value on my books. But now this facility is no longer available I will just write the full purchase price off in a lump sum as that helps my current tax situation this year. Hopefully it will last me at least another 5 years when its commercial value has dropped. I honestly couldn't be asked with making a note of daily business mileage so I know whats business and what's private. It easier for me to aportion a business/private mileage to my annual useage.

.

 
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This is the problem. Sometimes the implication is what happens further down the line with the next purchaser.

From what I understand the purchase price of the round doesn't depreciate. It remains on the books at the same purchase value. When selling it on and its value has gone up, those profits are treated as capital gains, but if its value goes down, I don't think you can claim it as a loss against business running costs - but I don't know for sure. But as you say, its best to really discuss this indepth with a qualified accountant.

With regard to claiming expenses you are wise to be careful what you claim. I never claimed a portion of my mortgage as the Receiver might feel he has a say as and when the house is sold at a future time. I do however claim portions of heating, electricity, telephone etc as day the day business running costs. A lady at the Receiver warned me about claiming a portion of our mortgage payments as business expenses.

Under the old regulations I took advantage of write down allowance (depreciation) on my van I've had for 10 years. It suited me at the time. It still has a value on my books. But now this facility is no longer available I will just write the full purchase price off in a lump sum as that helps my current tax situation this year. Hopefully it will last me at least another 5 years when its commercial value has dropped. I honestly couldn't be asked with making a note of daily business mileage so I know whats business and what's private. It easier for me to aportion a business/private mileage to my annual useage.

.




Interesting.

I recently had a conversation with my accountant regarding claiming water used for business as an expense.

She thinks (although she wasnt very confident she had not come across it before) that because you claim a percentage of all household bills such as leccy and water etc you cant then claim water used (and recorded via a submeter) as an expense.

Now im not sure that should be the case, water being used for window cleaning doesnt fall within the parameters of home use set out by Hrmc. in my mind that water is paid for and used just like fuel would be in a van. I think its a bit of a grey area as i have read other accountants saying its possible to claim both.

whats your thoughts on this spruce?

 
Interesting.

I recently had a conversation with my accountant regarding claiming water used for business as an expense.

She thinks (although she wasnt very confident she had not come across it before) that because you claim a percentage of all household bills such as leccy and water etc you cant then claim water used (and recorded via a submeter) as an expense.

Now im not sure that should be the case, water being used for window cleaning doesnt fall within the parameters of home use set out by Hrmc. in my mind that water is paid for and used just like fuel would be in a van. I think its a bit of a grey area as i have read other accountants saying its possible to claim both.

whats your thoughts on this spruce?






You need to get an accountant that knows what they are doing that’s utter rubbish what she has told you , you can claim a % of heating , be it gas electric etc and any other legitimate household running expense including all water used for the buisness 

 
You need to get an accountant that knows what they are doing that’s utter rubbish what she has told you , you can claim a % of heating , be it gas electric etc and any other legitimate household running expense including all water used for the buisness 

 
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You need to get an accountant that knows what they are doing that’s utter rubbish what she has told you , you can claim a % of heating , be it gas electric etc and any other legitimate household running expense including all water used for the buisness 


We are well aware of that.

Thats not the question i asked her.

i wanted to claim the home use plus water on top and since water is already claimed in the home use calc and she had not dealt with that issue before (and as hrmc guidelines are not clear) she said she would get back to me once she has clarified it.

In my opinion i should take the actual amount used for window cleaning off of the home use calculation and put it through seperately as @part timer suggests, otherwise you are claiming the same water twice.

I think i will do that anyway, seems logical.

 
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We are well aware of that.

Thats not the question i asked her.

i wanted to claim the home use plus water on top and since water is already claimed in the home use calc and she had not dealt with that issue before (and as hrmc guidelines are not clear) she said she would get back to me once she has clarified it.

In my opinion i should take the actual amount used for window cleaning off of the home use calculation and put it through seperately as @part timer suggests, otherwise you are claiming the same water twice.

I think i will do that anyway, seems logical.




If you hsbe a sub meter fitted you claim 100% of that water as it’s used for the buisness you can also claim a % tage of your normal water and sewage charge for home office use that’s not claiming for it twice it’s two separate bills or it is from sww where I am 

 
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