Sole Trader - profit / income tax

[dimpy]

I work in industry but a friend of mine has asked for some help with his small business.
I'm ok with the book keeping and VAT returns but i'm a bit confused about the tax thing.

Does he pay income tax on all the money that comes in as income or does he pay tax on any profit that is made?

Also - he runs his business from home - where can I find rules of how much of his Gas / Elec bill can be charged to the company?

Thanks

[TC]

This is where you need the help of an accounting technician. It would be great for you to help with the book-keeping and the VAT, but when it comes to tax, you need someone who knows the "ins and outs".

[claudialowe]

Here here TC - a little knowledge is a dangerous thing. Tell your friend the limit of your expertise, and advise him to get professional advice on tax matters - it will cost him a lot less in the long run to have a properly completed tax return with all allowances properly claimed for.

Claudia

[blobbyh]

Hi all!

I'm now at the technician stage and have often wondered when we become suitable to start earning a little sideline income from book-keeping etc...

I know I can do the much of the pretty standard uncomplicated book-keeping stuff now, however, I know that if I was to start, sooner or later someone is gonna ask me about taxation. I think if you are charging someone for a service, it would be unfair to essentially pick and choose only the bits you like, unless you are completely honest about your limits. And I wonder how many are? As Claudia said, "a little knowledge is a dangerous thing" and I for one, wouldn't want to bite off more than I could chew too early.

So would you only recommend doing this sort of thing at completion of the technician stage? The foundation and intermediate forums seem full of people who, carried away with the exuberance of passing an exam, suddenly now feel free and able to become self employed and let loose on other peoples accounts!!!

Any thoughts or pointers?

Robert

Added 15.34 13/10/06; Oops, just realised students are not supposed to be in this forum - sorry!

[deanshepherd]

Robert

I don't think you are precluded from using this forum - maybe I should delete my posts in the student forums! :shock:

In my humble opinion, it is largely irrelevant what exams you have sat and what your qualifications are. It is purely down to competence and competence comes only with experience.

I took on my first client, a driving instructor, before I sat my technician exams but I had already worked in practice for 18 months doing nothing but sole-traders accounts and tax returns every day. In hindsight it was probably a little early to be taking on a client but at the time I felt I was competent to do the job and I was very open about my limitations.

Conversely, I know a number of newly qualified ICAEW members who couldn't knock up a set of accounts from incomplete records to save their life. Even though they have all the technical knowledge they do not necessarily have the practical experience.

The number of tax cases and nuances particular to different trades, that will never appear in any exam syllabus, are huge. These can only be learnt through experience.

After ten years in the industry I am still learning my trade and I will never take on work I don't feel completely competent to do. However, as each year goes by I learn a little more and am able to expand my services bit by bit as I develop. That's CPD for you.

Only you will truly know when you are competent to take on work.

[lincs]

sounds like i'll be sticking with good old trusty stress free (relatively?) employed work then.

[deanshepherd]

Don't let me put you off!

Just don't bite off more than you can chew.

Start off by offering the services that you do day in day out at work and have a support mechanism for when you get stuck.

I started off doing only sole-traders accounts and tax returns as that is what I did everyday at work. As my practical knowledge at work increased then the services I could offer in my spare time also increased.

If you wish to increase your tax knowledge then I would recommend doing the ATT exams. It will give you a great grounding in all aspects of tax that you are likely to come across on a regular basis in practice.

Once you have the technical knowledge, just as you do when passing AAT, you then need to accumulate the practical knowledge (experience).

If you are not involved in taxation matters at work then I would suggest regularly reading the Tax Tips Forum of TaxationWeb.co.uk and the Any Answers Forum of AccountingWeb.co.uk. You will soon learn a lot from other tax practitioners and accountants.

[blobbyh]

Thanks Dean, though I don't think I'll even consider doing any extra curricular work until my technician stage is out of the way! Too much to learn at the moment without trying to put it into practice (or is it practise?)!

Nothing like bumping up my own posts either, so how about hopping over to here and making yourself part of my "team"? Unless of course, the web administrators decide we're taking up too much space and "kill me"! :evil:

http://www.aat.org.uk/forums/posts/list/13328.page

Regards,

Robert