Client is a "young" 62 year old food photographer/nutritionist (highly qualified).
She has a half decent occupational pension, considerable savings and mortgage paid off etc. So she is sitting comfortably.
She has been running the above business for a handful of years now. Recent turnover has increased to around £17k with expenses around 65% of turnover (includes ongoing purchases of high-tech cameras, lenses etc. food £550 and props £900.)
She puts lots of hours in but gets very little profit out. I suspect that because she is not desperate for profit she may not be running the business as efficiently as she could.
She seems to spend a lot of much money on "high end" stationery and goes on lots of courses, training and events etc. But I wonder whether she could produce the same turnover if she were a lot more frugal with the expenses.
How does the above level of expenses compare with any clients you have doing similar things. Is it possible to run a profitable internet-based photography business on a shoestring. I have no other similar clients to compare with.
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"She has a half decent occupational pension, considerable savings and mortgage paid off etc. So she is sitting comfortably".
From what you say, here, I'd assume that your client is effectively using the photography business to acquire quite high end camera equipment and the periphery, from her business activities? I have a similar scenario in my own practice.
Have you put your enquiry (concern) to your client, directly? It's always worth opening the debate, noting the response accordingly and, if necessary, commenting appropriately, in the white space, on the Tax return.
Bear in mind that the purchase of cameras and lenses will be fixed assets for the business. Then ask yourself whether the costs are incurred wholly and exclusively for the purposes of the trade. Is there any private use?
The fact that a taxpayer chooses to spend more than the absolute minimum is not in itself a reason to disallow.
Thanks. If you were to see the end product client produces you would realise that 100% business use is almost certainly correct. Disallowing the business expenditure I do not think is in point. What is in point however is that were she to halve her expenses could she still produce the same great end result. I have put this to her (see my response above) but I do not think the point sank home.
If the expenditure is 100% business and she makes a profit, there's no problem.
She just needs to run her business with a view to making a profit. She doesn't need to rip folk off or make the most she possibly can.
If you are sitting with a business adviser’s hat on then raise these points, which may or may not be welcomed.
(I asked two of my younger clients - half your client’s age - whether they were generating revenue from spending 2-3 hours a day posting in their Facebook groups and it didn’t go down well with either, some clients can’t see the wood for the trees.)
If it is for the tax return then it does not sound like a hobby business with that level of turnover, so address each item of expenditure in turn and adjust for private use, check if W and E etc. as already advised.
Professional camera lenses can cost upwards of £1000 and one fall can ruin it. typical professional camera and lens life is between 6 months and 1 year before technological advances take over, so would consider them to be a direct cost . If considered as an asset, apply for short life asset pool and agree with HMRC in advance.
. typical professional camera and lens life is between 6 months and 1 year before technological advances take over,
I am aware that camera manufacturers are rolling out new bodies (and lenses) at an ever-increasing rate. However, bodies aimed at the professional market appear at much less frequent intervals than consumer bodies (the latest version of Canon's 1D appeared nearly 3 years ago). And for pretty much every professional photographer that I know their lenses tend to be several years old, generally being replaced only when needed and not just because there happens to be a newer version available.
Professional kit (for whatever industry) lasts until:
1) it breaks
2) it is no longer fit for purpose
Not until the maufacturer brings out a new one!
As such I'd capitalise based on the expected economic life
Need to check about personal use and make the appropriate adjustments
Sounds like she is making a small profit from something which could almost be a hobby - she uses her business to buy 'tools' as part of it. But just because something is 'fun' or a 'passion' can still be a serious business.
It would depend on the use of her expenses but given her turnover is low and indicated she is in good financial health, it is likely she can afford to incur high business expenses which might normally be excessive as % of turnover.
It all simply boils down to whether she cares about becoming more profitable and whether there is a misuse of business expenses. She can probably afford to be extravagant because the business has become less relevant to her as a source of income. Presumably the depreciation of camera equipment will be significant over a short space of time.
But unless she is struggling financially or at the start of building a business or career (which I'd assume not) , is there any value in her reducing expense? Probably not.
Its not your job to tell her how to manage her business.
I spent a lot on software. More than necessary but that is because I like software (Yes I am odd) and like to think it improves productivity (it does so I can sit around Googling and answering Any Questions) but that is MY choice.
If I had an accountant, when he knew I was financially comfortable, who told me to be more frugal in my expenses I would suggest in rather colourful language to mind his own business.
If she were generating losses then HMRC could argue that she is not trading but just subsidising her hobby, but as she is in profit and paying some tax I don't think thy would have a case. Also bear in mind that when the business ceases there may be a balancing charge on the value of the assets.
Of course the Training Courses may not be allowable for a sole trader if they just put her in a position to carry on a trade thus being capital expenditure.
I had a photographer client who, apart from commissioned photos for publications, did a lot of speculative work, taking travel photos and other subjects that he deemed appropriate, for stock photo libraries. He might spend, say, £900 for a week's travel, subsistence and incidental expenses, take over 2000 photos from which only a fraction went to the stock libraries and, of those around 12 might be sold at £35-£45 each within the following year. Many subjects would have to be refreshed to keep them current. It was occasionally a difficult conversation separating his personal holidays from working trips. So it is not always a high profit margin business, unless something like wedding or commercial photography where there are regular high value commissions.
she's a food photography so will be mostly studio-based.
her overheads for camera/lens should not be consistent as a camera body does not need to be replaced every 2 years, nor does a lens. There will be some upgrade of software and digital cards. If she had her own studio there would be some bigger overheads - maybe with lighting, flash and props but most of it will be table-top still life. Any assistant/stylist tends to work on freelance basis.
Most food photographers I worked with had their own studios as they need a kitchen to do some prep. But this should be charged back as studio hire to her clients so her margin should be more than suggested.
Possible she could travel and do location shoots - really depends on her clients. But those costs are rechargable.
Expensive stationery - hard to see why - might be difficult to prove as valid business expense since everything is now digital.
In a previous life I used to process food photographer's invoices. Charges of £1,000 a day were not uncommon. If anything, she is too cheap!
yes though with no film to process and Photoshop to retouch it is no longer the profession it was. It is quite possible for an amateur to get great results on their iPhone - good enough for most digital reproduction. Gone are the days of printing contact sheets - selecting the best lit shot and then printing a high quality print to strip into a page (literally cut and paste) - maybe why she likes the toys but doesn't make much profit any more - and probably does not need to.