Hello,
My client is a sole trader with a very simple business arrangements (trading income - expense) hence uses the cash accounting (CA) scheme. This year he purchased some shares. Seeing that all capital expenditure in CA is being treated as an expense, does the same apply to shares, i.e. they are treated as an expense? Doesnt seem right to me... If not, where do you report these share purchases on SA return please? Thank you
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No.
You dont.
Your thoughts are badly flawed Im afraid. You really should not be touching this.
Pass it on to someone who knows what they are doing.
have a think whether the purchase of shares has anything at all to do with this person's sole trader business
As a Sole Trader, why do you think that a personal purchase of Shares (unless he's opening a new 'business' trading in shares) has any more relevance to his tax return than, say, a personal purchase of cut-flowers for his dear old mum?
Or to put it another way ... what tax do you think might be in play due to the Share purchase (IT?, CGT?, VAT?, ...)
Thanks Bobbo, I understand that this is an investing activity and not a trading activity, the issue is with reporting this purchase. Does this purchase need to be mentioned on SA at all or only received dividends?
Only if he sold them.
Beware of thinking that every transaction has to be entered. He doesn't need to enter his weekly shopping from Asda either.
He doesn't need to enter his weekly shopping from Asda either.
The personal element of the shop could also go in box 99 (if paid from the business account).
Basic gov.uk guidance on cash accounting distinguishes between "business" and "private" expenses. It does go on from that to try to explain (and OP should read it - https://www.gov.uk/simpler-income-tax-cash-basis) - but there are accountants who can't always tell the difference. ST share purchase though - definitely private.
.
Box 98 - I mean box 98 (thanks Awol). Life just hasn't been the same since the 2021 Olympics.
You won’t find a link for something that doesn’t exist or to prove a negative.
What does your prof body think of you undertaking work when you don’t have the professional competence to do so? If you don’t know what you are doing you should decline the work. You say you have no one to pas it on to, but in this case this needs to be another firm. One who abides by their ethics; have the knowledge and experience to compete the work without having to ask such a basic question. Sorry, but it needs saying. You shouldn’t practice on your clients.
I would suggest you can some experience by working for an Accountancy practice.
You could add the cost of the shares to the number in box 99 if the money came from the business account and you're using SA103F.
Do you mean 98?
(Don’t mind me. I’m rubbish at box numbers - even worse, my eyes are rubbish so I read you r post as s103E first time - I thought there was a whole new part of the Return I’d never seen before, until I zoomed in)
Treat the purchase of shares as drawings, they are effectively not part of the sole trader's balance sheet.
Report dividends on the SA return each year.
Keep a good note of purchases (contract notes) and a record of the pools and if later sells any shares then report, if appropriate, the gains and losses on the SA Return when this happens.
DJKL is giving you more direct guidance (all of which is correct I hasten to add) than I did at 20:50 ... but a word of caution in that his guidance has a presumption that you know the basics of what you're doing.
The reason that I focussed on getting you to ask yourself questions was in the hope that, in best cartoon style, the proverbial lightbulb moment would ensue.
Why do I feel that you are struggling with the basics?
Because of statements like "Seeing that all capital expenditure in CA is being treated as an expense".
Really? - even if the expenditure has nothing to do with the business' trade?
I don't know what your role is (or indeed your relationship to your client) but you do seem to be out of your depth and should consider professional assistance, soon.
Op you’re a day early for this. Is tomorrow a bank holiday, and nobody has told me?
Monday is Yorkshire Day. Scotland recognises it with a bank holiday.
And today is Lancashire day. Maybe, seeing as Henry and Margaret fled to Scotland upon defeat, the OP thought that Scotland's holiday was today instead.
Go team York BTW
And today is Lancashire day. Maybe, seeing as Henry and Margaret fled to Scotland upon defeat, the OP thought that Scotland's holiday was today instead.
Go team York BTW
They've moved it, have they ? I thought it was more appropriate when it was in November, when the weather's bad.
No. My mistake.
I googled "Lancashire day" and it came up with 29 July in big letters at the top of the screen. It seems, however, that was just to tell me that's the date, currently, in Lancashire.
Good job im not in a job where attention to detail is important, eh? Mind you, it seems like a pointless feature in Google to tell you what day it is anywhere in the world (i accept that, due to time zones, it might be different, depending where/when you search - but most of the time it will be the same as it is here).
I would ask the MTD software folk. This is certainly a question that no one anticipated would need asking.
@ junior2022 (OP).
If I correctly interpret your initial question and later posts, your client has two entirely separate sources of income, ie:-
(i) Income from his “sole trade” (we are not told what type of trade, but the point is not relevant).
(ii) Income from buying and selling shares.
I understand that your client’s accounting records include a combination of BOTH the above income sources. This “combination” appears possibly to have resulted in your conclusion that both (i) and (ii) are treated as two self-employments (or perhaps one self-employment) for taxation purposes – this “conclusion” is INCORRECT.
Whilst (i) is indeed a Self-Employment, (ii) most very definitely is NOT a Self-employment (subject to the caveat below).
The “caveat” is that a VERY TINY number of persons fall into the category of “Financial Traders” (those Financial Traders are indeed classed as Self-employed or may operate as limited companies etc.) – this is the GOV.UK guidance:-
BIM56810 - Financial traders - instruments and shares: introduction - HMRC internal manual - GOV.UK (www.gov.uk).
I have no doubt whatever that your client is NOT a Financial Trader. Hence, in relation to his buying and selling shares [per (ii)] he must adhere to the legislation which effectively will treat any Gains and Losses under the Capital Gains Tax regime. The GOV.UK guidance is here:-
https://www.gov.uk/tax-sell-shares
I have to, in intending no offence, endorse the views of previous posters that your question indicates an understanding of taxation which is fundamentally flawed; and experience of working for an accountant’s practice should be your priority before moving too deeply into the world of an accountancy practice.
Basil.
It's equally plausible, I think, Basil, not that the OP thinks that the share transactions are from a self-employment but that the cash basis election applies to all sources of income. Equally incorrect, of course.
Gin and lemonade in our house (Tonic is not very nice IMHO). Perhaps we are just uncouth.
But yes, some form of carbonated, clear liquid with a fairly neutral taste is important