The Government have provided updated guidance on the basis of how grants will be calculated for the Self Employed and the definition of ‘trading profits’ as of 14th April.
HMRC will use figures on previously submitted tax returns for your total trading income and then deduct allowable business expenses and capital expenditure.
Capital expenditure effectively reduces trading profits by making a capital allowances claim on your tax return and you will then pay less tax.
For example, if you have trading income of £20,000 for the year and you’ve incurred business expenses (i.e. rent, telephone, material purchases etc) of £10,000, your trading profit for the year is £10,000.
If you’ve also invested in capital expenditure during the year, for example you’ve purchased a van for £10,000, your profit is reduced to nil and you pay no tax. Whilst this has always been an advantage of capital expenditure in terms of lowering tax bills, it is actually a disadvantage when HMRC calculate your profits for the purpose of the Self Employed Income Support Scheme.
The full guidance can be found here:
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