England - Tax Question and help please for therapist's self assessment/accounting?

Question

Hi, I'm a therapist of 2 years, and I bought a treatment couch last year. Normally I just buy products to use on clients, they pay me for the treatment and I bank the cheques, so accounting is very easy. My question is - how do I...include this couch in my accounts. Tried getting help before now, but none forthcoming. Have heard that this couch is, perhaps, 'capital'? and that I should be only including a % of it per year for 3 years...? Does that make sense to anyone - because I'm lost and have been putting off doing my self assessment because of this. Daft I know - I dont have enough money to ask an accountant at their office, I'm afraid. Any accurate information would be gratefully received - in plain English too (I'm not good with technical-speak).
thank you in advance.

Ok Skip - you're being very helpful here. The couch cost 900 pounds. what you say makes sense so far, but I have no idea where to write this down. i have only ever done v. simple tax before (i know, this is also simple but it only is if you know where you're writing it). I have accountancy-phobia due to parents being made bankrupt big time in the 80s due to terrible mistakes by a fraudulent accountant, so I have big issues with understanding all of this due to a total brain block. i am really not unintelligent (just damaged...!). Please help, if you have time. thanks...

The accounting periods are not a problem - they coincide with tax year - april 5th

Answer 1

The cost of the couch can be deducted using 25% of the cost on a reducing balance method. Lets assume that you paid 1,600 for it. Your deduction in year 1 will be 400. The balance at the start of year 2 will be 1,200 so your deduction will be 300. Get the picture?

Do you have any other capital items (as a rule of thumb, anything likely to last more than one year)? What you do is basically treat them as one asset (called a pool). you add to the pool the cost of anything you buy during the year and you deduct the selling price of anything you disposed of. If you scrap it and don't sell it, you do nothing in tax terms. If you use a computer, you can deduct the business proportion of that but you have to put items with any element of private use in a separate pool. Lets say the computer also cost 1,600 and that in year 1 you used it 50% for business. The 400 deduction would become 200 (plus the 400 for the couch of course). Of course, the 400 still comes off the value so the value at the start of year 2 is 1,200, just as it is for the couch. Lets say in year 2 the business use of the computer drops to 33%. Your deduction would be 1/3 of 300 so that is 100 for the computer and 400 for the couch. (Try writing this out side by side on a sheet of paper if you can't follow my description).

There are separate rules for accounting periods which are not a year long but I won't bore you with the details. Here are a few technical terms for you which may help as you read the instructions - what you are doing here is claiming Capital Allowances. The balance of the pool at the start of each year is the Written Down Value (WDV). You claim Writing Down Allowances (WDA) - that's the 25% bit.

Edit: OK here goes...
You can take a 40% deduction in the first year you had the couch, if you wish. So if the couch cost exactly 900 then the deduction is 360. That figure goes in box 3.16 on the Self-Employment pages and you then total that column and put the total in box 3.22. They should be the same. In year 2, you can take 25% of the balance. See my explanation above.

Now if you earned less than 15,000 gross you simply add the figure in box 3.22 to your other expenses and put it in box 3.25. If you earned more than that fill in page SE2. The capital allowances go in box 3.70. Now that you understand the basics, it is just a matter of following the instructions on the "orange form." As a check write this all down on a separate piece of paper. Deduct expenses and Capital Allowances from income and see what the net result is. Once you have filled in page SE2 the result should be the same as the one in box 3.73 unless you have adjusted any other expenses.

My usual billing rate is $100 per hour but I will settle for 10 points :-)

Answer 2

in the starting up you want to sign in with HMRC as self employed. no count number how a lot or how little you earn you'll favor to do a tax go back. once you should pay NI then the way is to set up an instantaneous debit, I pay about £15 in step with month.

Answer 3

If you really dont want to be dragging it forward into subsequent years you could always just declare it as an expense. Create a new column in your accounts and record the payment for the couch as Furniture Purchase - completely up to you.

Answer 4

40% in first year like said - furniture is a capital exps so you can only do it this way!