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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Doing self assessment for the first time for our very small

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Doing self assessment for the first time for our very small business. At the outset and at various other points we transferred money from our personal account into the business to cover costs. Also we received a grant from Business Gateway. All these show as credits to our business account but are they classed as income? Do we declare them on the tax assessment or is the income purely our income from our bike and kayak hire receipts? Also all the initlal outlay for equipment? What is that classed as? We also used a non business credit card to pay our public liability insurance for the year - how do we record that? Thanks in advance


Is your business run as a sole-tradership, as a partnership or through a limited company? What specifically did you use the grant money for?

Customer: replied 3 years ago.

Its my husband as a sole trader. I say "we" because I do this kind of stuff ! The grant money was used to buy equipment like bikes and kayaks, lifevests and marketing. We had to pay it out and then reclaim the money by giving them the receipts and detailed invoices then the council put the half the money back into our account - it was a micro-grant - we had to pay £5000 and they matched it. So at the outset we put £5000 of our own money into the account and then we bought the stuff and claimed it back. Also my husband has another PAYE employment..this is just a seasonal business.


Leave this with me while I draft my answer.
Customer: replied 3 years ago.

ok thanks very much!

Customer: replied 3 years ago.

Maybe should have said its the SA100 form we have to fill in.

Thanks for your patience.

I'm working on my answer now. Please don't respond to this post as it will require me to respond again before I'm ready with my answer. You will receive an email when I post my answer.

Hi again.

Take a look here, here and here as part of my answer.

The tax treatment depends on what you use the money for. There are two main types of business expenditure, revenue and capital. Revenue expenditure is everyday expenditure such as rent, business rates, business loan interest, telephone costs, costs of stock for immediate sale etc. Capital expenditure is money spent on assets that will be used by the business for a certain amount of time until their useful life has come to an end. In your business, the bikes and kayaks would definitely count as capital expenditure, probably the life vests too though they may have a shorter useful life and depending on what they cost may be able to be written off as revenue expenditure.

To the extent that the grant money was spent on revenue items, you would put the total in the "other income" box of the self-employment pages and it would be matched by the money spent on individual items of revenue expense as split between the different types of expense headings on the self-employment pages. You can normally claim what might be considered a capital expense as a revenue expense for very low expenditure, particularly on very short life items. See page 17 of HS252 here.

To the extent that the money was spent on capital items, you deduct the grant from the cost before you claim capital allowances. So, if a kayak costs £1,000 and you received a 50% grant, its cost for capital allowances is £500. How you then claim capital allowances is up to you and your husband. You may want to write off the whole cost under the Annual Investment Allowance rules in one accounting period or at 18% per annum on a reducing balance until the cost is written off or you dispose it. Refer to HS252 here for more on the types of capital allowances you can claim.

I hope this helps but let me know if you have any further questions.

Customer: replied 3 years ago.

Hi tony

Think I'm starting to grasp it a bit. So we could put 50% of all the equipment costs that we received a grant for in the box numbered 49 Annual Investment Allowance. We would do this as a one off for this accounting period only? Is that right?

Or - I notice that under box 17 - it specifies goods bought for resale or goods used - would our equipment not be classed as goods used and then we wouldn't have to put anything in the capital allowances section?

Could you also clarify where we would input our own contributions to the business? I couldn't make it out from your answer. I'm assuming its in box 15 (any other business income). Is it possible for us to keep everything in the business expenses section (that makes sense to me - capital allowances I'm struggling with). Thanks

You can claim AIA for 50% of the cost of the capital equipment since you had half paid back to you via a grant.

You don't claim capital allowances for goods bought for resale at a profit.

Your own contributions to or investment in the business are obviously not taxable income of the business. That would be a ridiculous state of affairs. Most people put their own money into a new business venture when they start or even later if they want to expand for example. Your investment is effectively your capital investment. It doesn't need to be included in the tax return unless you prepare a balance sheet for your accounts which you don't have to do.

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