A bit of advice please

connel42

I have a small business that is operating for the past few months.
I also have a full time job on PAYE.
I registered the business with revenue for tax purposes.
This year I am happy to cover the set up and running costs which looks likely.
So when I do a tax return in march for 2011 there will be no income.
My capital investment is €13000 for the main equipment.
I understand that I can write off 1/8th of the per year - Depreciation?
My question is - can I treat the initial investment as a loan to the business so the loan must be repaid?
If so - do I then write off 1/8th for depreciation annually and say €2000 per year as loan repayment?
If I do this and the €2000 goes directly to me - is that it or do I have to pay tax on this?
Sorry in advance if its a bit rambling but would like to start off the first trading year on the right foot.

dbran

Hi Connel

If you are trading as a sole trader you are assessed on the profits of the business alone. Whether you loan or withdraw money to the business is a matter of cashflow and does not effect the level of profit that the busines generates in the year.

So you can deduct the capital allowance/depreciation but you cannot deduct the repayment of the loan or drawings.

Kind Regards

dbran

connel42

Thanks for the reply but I am still confused.
If I borrowed the money from a bank to set up the business and but fixed assets say €13k.
The business would have to pay that back to the bank say over 3 years so that would come out of the turnover monthly.
Is it not the same for me lending the money to the business that I can receive a monthly payment until it is all paid back?
And if this is the case - it is not income to me but a repayment - in other words i dont have to pay income tax on it.
Does this make sense or have I got it all wrong.
Really do appreciate your help.

paul71

Ok, I see your point op.
Look at it this way.

If you borrow money from a bank for the purpose of financing the requirements of your business you are allowed tax relief on the interest charged by the bank, the capital repayment has no effect on tax for you. The interest the bank charge is income in their accounts and they pay tax based on their profit.

Conversly, if you put the money in from personal savings and you charge the business interest the effect is you would create an expense for your business but an interest income for yourself. One which gives you a tax relief the other gives you a tax income, both net to zero.

In practice no-one actually does it this way, they just put money into the business and withdraw it again in stages thus creating a zero tax effect.

connel42

Yeah that's what I was thinking
I have no intention of charging inetrest just want my money back in time.

Fabo

you can claim capital allowances on the equipment which will reduce your tax bill