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Help! Sole trader - cash basis or accrual?

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Sole trader, not VAT registered (yet), Only recently self employed and doing books for the first time. Large sum of expenses including a vehicle bought and paid for in the first tax year, established for only 6 months of that year.

Cash basis leaves behind a substancial loss which obviously can be carried forward.

Would accrual be a better choice and use AIA strategically to zero the tax bill for the first year and WDA in the subsequent years @ 18% for better spread of tax relief?

Thanks in advance for your help.

 

Replies (21)

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paddle steamer
By DJKL
27th Jan 2022 13:08

IMHO cash basis is too inflexible and ought to be avoided.

You do want to be careful in year 1 re ensuring you do not say waste your PA, generally a visit to an accountant will likely be money well spent.

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Replying to DJKL:
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By Car.courier
27th Jan 2022 13:19

DJKL wrote:

IMHO cash basis is too inflexible and ought to be avoided.

You do want to be careful in year 1 re ensuring you do not say waste your PA, generally a visit to an accountant will likely be money well spent.

Thanks for your reply.

Unfortunately i`ve been let down by an accountant. You are correct, I need to get this right from the offset to maximise the tax relief from the expense. For the next set of accounts a different accountant will be used.

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Replying to Car.courier:
By ireallyshouldknowthisbut
27th Jan 2022 14:36

Fine is £100 and not until end of Feb.

I would suggest you find someone competent if you have a vehicle. Would generally be £400-500 well invested.

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RLI
By lionofludesch
27th Jan 2022 13:16

I'd never use cash basis.

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Replying to lionofludesch:
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By Car.courier
27th Jan 2022 13:28

lionofludesch wrote:

I'd never use cash basis.

And would using part if the expense as AIA and then WDA for the next few years be the best option then? The vehicle should be in use for 3-4 years approx.

One of the other adjustments using accrual for the part year will be calculating prepaid expenses which cover 6 months of the next tax year. Insurance and vehicle road fund licence being two which come to mind. Under accrual i assume to divide these expenses by 2.

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Replying to Car.courier:
RLI
By lionofludesch
27th Jan 2022 13:49

Car.courier wrote:

lionofludesch wrote:

I'd never use cash basis.

And would using part if the expense as AIA and then WDA for the next few years be the best option then? The vehicle should be in use for 3-4 years approx.

There's not enough information to say.

Luckily, you have a year to amend your return so you can ask your new accountant to check things over.

I see you're keen to describe this asset as a "vehicle". Worth pointing out here that a key piece of information would be what sort of vehicle. If it's a car, forget any AIA, whether you're on cash or accruals basis.

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Replying to lionofludesch:
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By Car.courier
27th Jan 2022 17:57

It is a van, i`ve done my homework enough to realise that if it was a car the rules are different.

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Replying to lionofludesch:
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By rmillaree
27th Jan 2022 14:51

individual with 52k employment sets up as sole trader 1/3/2021 and bills 12k per month paid mid month following month. Never say never - but i do see where you are coming from ref the extra complications and potential for things to be done wrong ref cash basis.

Ref op's question - you really need 1-2 years projected figures and details of how losses could have been used had accruals method been used - the unknown here is that parking losses for later use could beenfit or not benfit the following year

Trying to work out best option from 1/3 of the info needed is not easy

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Replying to lionofludesch:
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By Winnie Wiggleroom
27th Jan 2022 15:27

lionofludesch wrote:

I'd never use cash basis.

never say never, it works for some people

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Replying to Winnie Wiggleroom:
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By zebaa
27th Jan 2022 16:32

He is retired. So it is never.

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By Catherine Newman
27th Jan 2022 14:22

What's being VAT registered got to do with it? Do you anticipate your turnover to be in excess of £85K from the outset?

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Replying to Catherine Newman:
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By Car.courier
27th Jan 2022 18:01

I am considering registering for VAT if my future account advises me its beneficial. The vehicle purchase is VAT Q, and along with my large fuel bill each month give me reason to believe it may be feasible.

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Replying to Car.courier:
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By Catherine Newman
27th Jan 2022 18:34

What does VAT Q mean and what is your likely turnover?

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Replying to Catherine Newman:
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By TheNovice
27th Jan 2022 21:53

Catherine Newman wrote:

What does VAT Q mean and what is your likely turnover?

I think he means VAT qualifying but I'd be guessing.

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By TheNovice
27th Jan 2022 21:56

Potentially could use accrual, AIA, and sideways relief against other taxable income (if you have any)?

There are of course many options with the losses.

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By Paul Crowley
28th Jan 2022 12:02

Cash basis does not get used by accountants for the self-employed
Vehicle not a useful word
Different vehicles exist and have different rules based on what it is

Always put as much detail in the opening post and a good decision to use words rather than abbreviations that we have never heard of

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By Car.courier
28th Jan 2022 12:13

As accountants I would have assumed that you would all have been familiar with VAT Q being an abbreviation for VAT Qualifying, and I apologise for using other abbreviations such as AIA and WDA which you may not have come accross.

Having read through previous threads on this website I was aware that the level of sarcastic comments and general amount of responses that are not useful was very high. Congratulations to the majority of responders in keeping up this reputation.

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Replying to Car.courier:
RLI
By lionofludesch
28th Jan 2022 12:19

Car.courier wrote:

As accountants I would have assumed that you would all have been familiar with VAT Q being an abbreviation for VAT Qualifying, and I apologise for using other abbreviations such as AIA and WDA which you may not have come accross.

I've heard of AIA, WDA and VAT. Not VAT Q though.

What does it mean ? Qualifying for what ? It's a word I'd never use to signify deductibility as input tax.

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Replying to Car.courier:
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By Hugo Fair
28th Jan 2022 13:44

Good to see you holding up the standards of those who throw words like 'sarcastic' around ... only to be the first on the thread to truly demonstrate what the word means.
I was so impressed that I've tried to follow in your footsteps.

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Replying to Car.courier:
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By Catherine Newman
28th Jan 2022 14:04

Not to mention WDV.

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Replying to Car.courier:
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By Leywood
28th Jan 2022 15:09

Typical FL

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