Barrister:
How can I borrow tax efficiently?
For an expense to be allowed for income tax purposes it has to pass the general rule, which is that it must be incurred wholly and exclusively for the purpose of the profession.
You may have built up an uncomfortable level of debt, perhaps on credit cards or student loans, which you want to consolidate with a view to reducing the interest and extending the loan period. Whilst this is to be recommended, you should be careful of the timing. If the consolidating loan is taken out immediately or very shortly after commencing self-employment, the interest arising on the loan will not be eligible for tax relief. This is because you cannot demonstrate that the interest is paid wholly and exclusively for the purpose of your practice.
By contrast, If you take out a loan to finance the cost of your computer and this computer is used wholly for practice purposes, then the interest that you pay on the loan will be fully tax-deductible.
When you have built up a sufficient level of aged debt, you will be able to borrow against this debt to finance your practice. You could free up personal borrowings (on which you get no tax relief) and replace them with practice borrowings, the interest on which will (with careful planning) be eligible for tax relief. A word of warning: this should not be tackled without speaking to us first.
Remember, if you are raising finance to acquire an asset which is not used exclusively for practice purposes then the finance charges will be tax deductible only to the extent that the asset is used for the practice. For example, if you are buying a car, whether outright, by hire purchase, or a bank loan, if the car is only used, say, 50% for business purposes, then only 50% of the finance charge will be tax deductible. Again you should take advice from us first, because it may well be more advantageous to take out a general practice loan rather than a specific loan for the purchase of the car. Also, care must be taken if you are considering entering into a lease or contract hire agreement, especially if the value of the car exceeds £12,000.
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Where next?
Within Pupil barrister…- Registering for tax & NIC
- Registering for VAT
- Opening a bank account
- Setting up your accounting records
- To what date do I prepare accounts?
- Will my pupillage awards be taxed?
- When do I pay my tax?
- How much should I put aside for taxes?
- My first VAT return is due. Can you help?
- Which expenses can I claim against tax?
- Do I need to maintain a mileage log?
- Do I get full tax relief for my car and computer?
- Can I claim tax relief on my court clothing?
- Am I taxed on my receipts or my earnings?
- I have no history of earnings: how can I get a mortgage?
Within Barrister…
General…
