What can I offset before profit / tax - sole trader confused re own investment

josie0074

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Hi. I've recently set up my own sandwich shop business as a sole trader but am continuing to work in fulltime employment. We've only been trading a few months but have come to the end of the tax year and I have a couple of queries.

I invested £25k of my own money and also took out a similar bank loan. I understand I can offset the interest on the loan as business expense. However if there anything I can do with the capital repayment? I felt for sure that I would be able to deduct that expense before calculating profit?

Similarly - my own investment. I've not yet been able to take anything out of the business towards earnings or just to repay my investment. But when I do - where does the repaying investment sit in my books. Do I have to pay tax on what I give back to myself if it was my investment and I'm just taking back what I put in?

Finally - I run all the admin from home. Can I offset partial mortgage interest for using an office in my home.

Any help / advice appreciated.
Regards,
Josie
 
You could get up to 100% allowance on the 50k invested which is basically how you claim the capital amount. You need to go speak to an accountantant about capital allowances on capital expenditure.

Also can I ask why you would want to be a sole trader rather than setting up a limited company? Many benefits for someone in your situation as far as I can see.

You can claim an allowance for using your home as an office probably pushing it if you claim more than £10 a week or you can measure the square footage of your gaff and claim mortgage interest on the basis of office ft2/total ft2.

Long story short...get an accountant.
 
Hi. I've recently set up my own sandwich shop business as a sole trader but am continuing to work in fulltime employment. We've only been trading a few months but have come to the end of the tax year and I have a couple of queries.

I invested £25k of my own money and also took out a similar bank loan. I understand I can offset the interest on the loan as business expense. However if there anything I can do with the capital repayment? I felt for sure that I would be able to deduct that expense before calculating profit?

Similarly - my own investment. I've not yet been able to take anything out of the business towards earnings or just to repay my investment. But when I do - where does the repaying investment sit in my books. Do I have to pay tax on what I give back to myself if it was my investment and I'm just taking back what I put in?

Finally - I run all the admin from home. Can I offset partial mortgage interest for using an office in my home.

Any help / advice appreciated.
Regards,
Josie

I assume that you meant: Sole owner (of the business), not a sole trader as most of the members of T2W are doing.

Yes, you can deduct the interest that you paid on the bank loan from the net income of the business. The 25K capital that you invest in the business is your own capital, you can't imputed interest to the same rate with the bank loan and deduct from the business because it's your capital.

Your draws from the business or repayment of the loan to the bank have no impact on the net income or business deductions for your business. Only when the sell your business for a loss, your capital investment, and the net loan balance will be used to calculate the loss of your venture and will be deduct on your tax return.

Regarding home office deduction, yes the mortgage interest and real estate taxes, utilities, repairs and maintenance on your house can be prorated (for the business portion i.e. 25% of the total) and deduct to get the net income of the business. But you have to search for the answer regarding the city ordinance regarding doing business in your home, in the city where I live, if I use 25% of my residence for home office, there would be no issue, in some other cities, you have to get a permit, and you have to modify your insurance policy to reflect the business activities in the policy.

You pay for yourself, it's a draw of capital as I mentioned earlier. The government only tax you with your net income of the business, if it's 20K at year end, this is the amount that you have to pay self-employment and income taxes on, they don't care if you had drawn 10K or 40K during the year.

I'm from US, and try to provide you some of the issues that you can research further.

Have a good day,
 
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