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Sole trader - pre-trading expenditure

Alison
  • Member PM.Dip
  • Practice Licence
  • 27 posts
  • # 54010

A client has started trading in the last year, but purchased several items prior to the start of the trading date declared to HMRC.  The question is, can he claim for any of these items (some capital items, some expenses) and, if so, how far back?

He is a falconer, so what started as a hobby has now become a job. This means that some of the items he has obviously purchased to carry out his falconry as a business, but some he'd have arguably had to purchase anyway as part of his hobby. Any ideas on how to approach this would be gratefully received.

Many thanks.
  • 12 posts
  • # 54016

Hi Alison,
I'm fairly new to ICB, but have been doing accounting/bookkeeping type work for a number of years.

It is my understanding that if you have expenses in respect of your self-employment in the seven years before you commenced trading, you may be able to claim these items against your profits. The expenditure is treated as an expense incurred on the first day of trading.

 

This will have been paid privately due to no business bank account being open and therefore would be credited to the sole trader's current account as capital introduced and debited either to assets or expenditure appropriately.

As regards where to draw the line, I suppose common sense will have to prevail. The fact that he is now using them for the business means that some form of charge can be made to his accounts as they are being used to provide his income.

Maybe others will have more of an idea on where to draw the line. Hope that helps a little.

  • I have my own Bookkeeping Practice as of 1st Feb 2011. How exciting is that.


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  • 698 posts
  • # 54018

Hi Alison

I would be careful about going back to far in this case as the person concerned did this as a hobby.

The acid test is was the expense incured wholly and soley for carrying out their business and or trade if the answer is no then they should not claim it.

In this case I would probable not go back further than 3 months prior to declaring the business start up unless they could prove that they would not have bought the goods in the normal course of their hobby.

Helen is 100% correct that they can go back seven years and treat those as expenses on the first day of trading the issue here is simply were the expenses incurred for the purposes of carrying out the business or due to it being their hobby.

Kind Regards
Stuart 

  • Forum Moderator, South East & Greater London Regional Chairman

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Alison
  • Member PM.Dip
  • Practice Licence
  • 27 posts
  • # 54019

Thanks for the response, it confirms what I thought to be the case.

I set up on my own in practice just over a year ago and, although I have confidence in my bookkeeping abilities, it's these sort of questions it's hard to answer when sitting alone at home. I have found that every client is different, and each comes with its own querks. So, I am very grateful for the help thank you.
  • 12 posts
  • # 54022

Thanks Stuart for giving a clearer answer. I knew that someone more knowledgeable would be able to give more of an insight regarding hobby/business. Smile

  • I have my own Bookkeeping Practice as of 1st Feb 2011. How exciting is that.


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Loz Hughes
  • 25 posts
  • # 55336

I sent the ICB this email but have had no response.  Please can someone help me with this?

I am thinking of starting my own bookkeeping business later this year (when I've saved up for the software) but I still have some unanswered questions which I can't seem to find the answer to in any of my course material. Please could you provide me with some helpful information on start up costs and Capital/Equipment accounts so I know what to do with my own books please?

1) Can you claim for items you don't have a receipt for but physically own? i.e. Bought a PC scanner for cash without getting a receipt - To be used for business.

2) Can you claim expenses for tools & equipment I have already purchased before trading will commence but have no receipt for? If so, would this be based on Market value? Would HMRC accept this expense without a receipt? It's tricky because it physically exists but can't prove on paper that I bought it.

3) Can you claim for the cost of a car and PC bought for personal use which has then been used for business use years later? - Would this be based on Market value at the time trading starts?

I am asking this as I have a PC and Car bought within the last 3 years and want to know if I can claim the business percentage when I start using these for business use as well as personal. I also have other office equipment which I already own but will be partially used for business use - scanner, filing cabinet, desk etc. Some with and without receipts.

I don't want to include anything as Capital or try to claim as expenses if this is not allowable with the HMRC. Any advise would be great.
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