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Self assessment return and cash basis v WDA

  • Member
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  • # 120468

Please can someone offer help

 

My nephew is newly self employed -  His business is very simple and paid by by the hour and started in January 2021

 

For this first year he has purchased computers and printers to a value of £3k   His return will be  as a cash basis.   Does this mean that he cannot use the WDA on capital purchases?     It seems such a waste to write off the £3k which provides no benefit as this year his earnings are below the personal allowance.  Whereas if he can use the WDA then he can at least claim over the next few years.

 

Any help would be very much appreciated.  I'm finding it hard to understand the ruling on the HMRC website 

 

Many thanks

 

 

  • Fellow PM.Dip
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  • # 120478

Woody said:

Please can someone offer help

 

My nephew is newly self employed -  His business is very simple and paid by by the hour and started in January 2021

 

For this first year he has purchased computers and printers to a value of £3k   His return will be  as a cash basis.   Does this mean that he cannot use the WDA on capital purchases?     It seems such a waste to write off the £3k which provides no benefit as this year his earnings are below the personal allowance.  Whereas if he can use the WDA then he can at least claim over the next few years.

 

Any help would be very much appreciated.  I'm finding it hard to understand the ruling on the HMRC website 

 

Many thanks

 

Hi Woody,

 

The first thing to remember is that the purchases must be wholly for business use only.  If not then the Simplified Expenses rules will apply.

 

All business equipment comes under the Annual Investment Allowances section for self-employed. So these are deduced from any  net profits.  If an overall net loss is the result, then this amount is carried forward to the following tax year. 

I hope this is of help.

 

Regards

Adam

FICB PM.Dip


 

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  • # 120489

Good morning,

If the individual is earning on a cash basis and income is received regularly with no outstanding sales invoices owed at the end of the year, Then the cash basis probably won't give any advantages. If hourly-paid, there is probably not issuing sales invoices as such. In that case, use the accruals basis and wait until next year to claim back the capital goods on a WDA basis - it will take a few years to claim back the tax, but better than losing it in the first year. One point to note - he might need to check the self-employment basis depending on the number of customers he has. This might be a way of the 'employer' getting around ER NICs by making the individuals self-employed which would also affect holiday and sickness claims.

Hope this helps!

Kind regards,

Alex



Edited at 09 Dec 2021 10:12 AM GMT

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