Hello,

I am self employed (first year, and not a LTD company, so a ‘sole trader’) and I am interested to hear peoples experiences with the tax man.

Now before I go on, I am not trying to get out of paying tax, but I am aware that I can offset some business related expenses against my turnover, and I pay income tax on the difference.

Now, is there some kind of ‘threshold’ (i.e., a percentage) that the inland revenue considers ‘reasonable’ and so should not trigger some computer system to make them look more closely at my accounts? I don’t really want a tax investigation in year one.

Thanks on advance for any comments.

bump

If the expenses are legitimate and are backed up with receipts then there should be no problem.
You should speak to an accountant to identify what legitimate means for you though.

If you do it online, it takes you through your self assessment step by step – dead easy. My first two years in business my tax bill was sub £300 as I was buying lots of shiny new kit and not earning very much. I still know lots of sole traders who ‘break even’ tax-wise, paying next to nothing year in, year out and haven’t been investigated so far as I know…

Yep, all expenses are legitimate – not trying to fiddle anything.

I take it my (small) salary doesn’t count as a business expense? Without factoring in that, I don;t see how you could break even and still afford to live?

Get yourself a good accountant, they will more than recoup what they cost.

Depends on your business. If you run it from home, you can deduct a percentage of household bills. If you use your car, you can deduct a percentage of the running costs. In my line of work, there’s an endless papertrail of receipts I can include; online advertising, website costs, products sold to clients (at cost to me), equipment repair and replacement, computer bits, office furniture etc, etc.

I would second the idea of a good accountant – I only used one for the first few years. As soon as I had simplified and streamlined my admin, I found I could do it myself, but I do have a very simple business.

As a sole trader you have no salary as such; your net profit after expenses is your “salary” on which your income and NI is calculated.

Can’t recommend you getting an accountant highly enough – although not local I can recommend you one who’ll help getting you straight.

Good luck 😀

Thanks for all the responses – my business is a little complicated as there are a range of income streams, and it appears that unfortunately, their are also few overheads too and so a high proportion of the turnover is actually profit (I know that is not really a bad thing) – customers pay for my knowledge rather than me buying and selling on a ‘product’ per se.

An accountant may advise that a ltd co may be more tax and ni efficient.
Good luck

mcobie – if you have/know a good accountant I would be pleased to have their contact details.

Geoffj – I have been thinking about that for a few weeks.

Question to all – how do you k ow when you meet a good accountant? What should I be looking out for?

LM, email me, I have some knowledge re’ your work situation and tax issues.

Question to all – how do you k ow when you meet a good accountant? What should I be looking out for?

I was thinking the same thing. Just looking for one now. Anyone know a good one in Bristol?

Personal recommendation and/or go and talk to a few out of the yellow pages or look for one which you know provides services to other folk who do similar work to you.

I have actually spoken to a few local accountants, one stood out – but still, handing over a good few hundred pounds for someone to fill in some forms for me seems a bit steep… but, they may know lots of ways of making it worth my while… you just don’t know till you hand over the cash.

I have also had contact with what appears to be a very good online accountant (SJD accountancy) but they are about £1200 a year. How much do you all pay for your accountants?

In a similar position here but a fair few friends who are more experienced at it than I am

I bought a self accounting software package to assist. It’s called DIY accounting and was about £15. Based on Excell spreadsheets it does sales, purchases, financial stuff like filling in your tax return, and so on.

Worth a punt at £15 if only to help organise your accounts.

Now, what to claim for, that’s another matter.

Household bills (% of pro rata on rooms used to total rooms)
Laundry costs?
Clothing
Materials
Travel
Mileage
£5 a day or subsistence if away from the office ( no receipt necessary). Or £10 for dinner?
Stationary
Depreciation on computer equipment
Depreciation on office equipment etc
Depreciation on equipment
Wages for outside help

The list goes on and on. Can you still claim tax against an “intangible asset”?
Good luck

How much do you all pay for your accountants?

£250 for a sole trader, was told if I went ltd it would be wayyyyyyyy more.

£400 per year and worth every penny 😀 …saves a lot of hassle IMO

I run my business as a limited company. I use SJD, they are quite hands off and not a hand holding company. This does mean you have to take more of an interest in your own affairs and I think this is a good thing. My previous accountant did everything and I did not really know what was going on. I don’t think that’s a good thing as its your neck on the block if it all goes wrong.

SJD are very reliable though, if I email them they get back to me really quickly and everything is done on time etc.

I think its a little bit over £1200 a year now. This includes my PAYE, VAT returns, yearly accounts and my personal tax return. I send them a spreadsheet every quarter at VAT time.

Hope this helps.

Don’t underestimate the advantage of being a Ltd company if the shit hits the fan and someone sues you etc. Obviously depends on your business how likely this is. I pay about £45 a month for my public liability/indemnity insurance. I resent that more than the accountancy fees at least the accountants do something 🙂

You reckon? It’s not a limited liability company… Your personal assets can be accessed regardless.

If you are considering SJD type accountants, have a look at crunch.co.uk
I use them, but you have to be proactive in asking them for advice.

Crunch are a bit cheaper than £1,200 per year too.

Coolhandluke – thanks for the DIY accounting link. I think I will have a look at one of those spreadsheets, I have one set up already, but seeing how the ‘professionals’ do this sort of thing might be useful.

Bazzar – Thats interesting abut SJD, they seem to be very helpful via there emails and free guides etc. What I want though is an accountant to say that I should do X and Y, and suggest Z if it is appropriate (and more so if I didn’t know about Z). I don;t need my hand holding, but I do need guidance – I am a scientist not an accountant (despite each, liking/loving numbers).

Geoffj – Thanks, I will have a look at Crunch (I actually recall that name, now you mention it).

Email sent – but here’s the link for their website: http://www.krwaccountants.co.uk/

Regarding how do you know – personal recommendation is one, but I just had a gut feeling with Keith (at KRW) and went with that. He’s been looking after my affairs coming on four years now and I’ve never had any issues; always found that he’s gone above and beyond and if he spots something applicable to me/my business he contacts me, so no chasing from my end required.

As long as his fees are less then the tax he saves me then I’m happy.

You reckon? It’s not a limited liability company… Your personal assets can be accessed regardless.

That’s what the limited means in a limited company. There are some instances such as health and safety legislation where you can be held personally responsible.

A limited company is treated like a person in its own right in law and separate from its owners. The liability of the share holders is limited to the value of the share capital.

Exactly. Many actions against small companies and traders are for public liability or breaches of health and safety legislation. For which you can be held personally liable as, effectively, an officer of the company.

If paying 45 quid a month aggrieves you so much, why don’t you cancel it?

If paying 45 quid a month aggrieves you so much, why don’t you cancel it?

Because some of my clients insist on it.

put everything through the books and move to the seychelles…..!

but as above… get yourself an accountant.

i pay my man Otto about 400-500€ a year. the biggest saving i get is that i don’t have to stress about with paper work, forms and the crazy german tax system. and i’m pretty sure he has saved me more than that in the last six months.

I have also had contact with what appears to be a very good online accountant (SJD accountancy) but they are about £1200 a year. How much do you all pay for your accountants?

We (Ltd company) are with SJD and have been for about 10 years, works for us.

You can usually get accountant recommendations on freelancer websites.

Thanks everyone, really helpful advice so far!

One of the key things for me is that an accountant has to save me more money (as in from things that I do not know about, not the standard deductions) than the cost of the accountant themselves. So if they cost £1000, and they only save me an extra £500, then I am £500 down on where I would have been without an accountant at all – I can fill in the basics of the HMRC website myself with little problem (said, ‘confidently’. haha).

As an accountant I can see 5 items on Coolhandluke list that will cause you problems, 3 of them are not even tax allowable. Get your self assessment wrong and you can find out how difficult it can be to deal with an HMRC inquiry. Get an HMRC investigation and even the £1200 fee from SJD will seem cheap by the time they have finished with you.
Alpin and Doubledunter are in the right area for fees for a soletrader who keeps there records in good order i.e. not a carry bag of receipts.
A good accountant will take you through your accounts and ensure you understand how you are performing and benchmark you against your competition, help you invest at the right time to maximise your tax savings. They will ensure that your accounts are correct, tax returns submitted correctly and calculated to claim all allowances to minimise your tax liability, dealing with all parties involved on your behalf.
If you can do better yourself then do so but if not then pay someone to make sure the job is done right. I’m sure that is the case in your field of expertise too.

Craigxxl – great, a real accountant! Thanks for offering your thoughts! I like the sound of what a ‘good accountant’ should do… I just need to find one that knows my business area.

I take it my (small) salary doesn’t count as a business expense?

You don’t have a salary, you’re a sole trader. You have revenue, you have expenses, you have resulting profit, that’s what you pay tax on.

I still know lots of sole traders who ‘break even’ tax-wise, paying next to nothing year in, year out

You have to be living pretty cheaply to do that.

I ran as a sole trader for two years, I’ve just set up a limited company and hired an accountant. I went for one who deals with other local small businesses. He also works from home, so I’m paying for his services, not for swanky offices that I’ll probably never visit 🙂

LabMonkey – Member
Craigxxl – great, a real accountant! Thanks for offering your thoughts! I like the sound of what a ‘good accountant’ should do… I just need to find one that knows my business area

Most good accountants will have a varied list of clients. There are very few areas of specialised fields that an accountant couldn’t deal without previous knowledge as we operate within a framework. They normally fields such as legal and ABTA travel agents that require specific reporting and others not specialised but require expert 3rd parties for valuations such as mining.
Speak to an accountant and if they talk to you in a manner whereby you feel at ease and understand everything they are telling you then you’re on the right track. Ask them about clients in your field, they will give you details of what they look for when dealing within that field but of course will not give you specifics of the client or name them. Don’t think you have to have someone local as it makes very little difference to how they produce your accounts and returns if they are based in London or Newcastle, the fees will probably be vastly different though.
If you do visit their office and they are still very much a pen and paper operation then they are not taking advantage of technology to reduce their costs and these old, time consuming and expensive methods will be passed onto you in their fees.

I still know lots of sole traders who ‘break even’ tax-wise, paying next to nothing year in, year out

You have to be living pretty cheaply to do that.

I agree, or tell lots of lies….

Just curious as I’m investigating working for myself – can you tell me which of the items claimed are not allowable?

Another vote for SJD here.

I take it my (small) salary doesn’t count as a business expense?

LOL I wish – if your drawings were a business expense you could never have to pay tax ever again.

The one thing I do to keep my tax liability down is to have a car via my business (a partnership). As a sole trader or partnership, it is accounted as a tax deductible expense (whereas in a Limited Company situation it is counted as a tax liability).

So I take a smaller ‘salary’ and top it up with a nice new car (it helps that I love cars so I am happy doing this).

Also – if you have lots of profit at the end of the financial year, be sure to ‘spend’ it one way or another (assuming you don’t need it for something else) or the tax man will just take a big chunk of it – I set up a pension and put any ‘spare’ money into that as one-off contributions. Or at least I used to before the world imploded three or four years ago and we used to make decent profits.