Guest blog: Cow Hats

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There is a large population of budding Richard Bransons in Cornwall, writes Brendan Thomas. They are energetic, fearless and innovative.

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They are students. They are OAPs. They have jobs. They are slaving away in their spare time on their business idea. It does not matter what others think of the idea – what is important is that you are serious about it. An idea for “Cow Hats” once won a business competition! Yes, that’s right – hats for cows. Is your idea as good as “Cow Hats”?

You may not think you have a business as you only do it part time at home, and you are not earning any income (at the moment!) – but you could well have a business for tax purposes and you don’t know it. If you do, you should tell the taxman.

Why would you do this? You must think I am mad! Surely the taxman will just, well, tax you? Well, if you have no revenue there is nothing to tax – but you have costs. Add up all of your costs that are directly related to your new business that you have incurred to date.

Are your costs more than your revenue (if any)? If yes, then you have made a loss and you can offset it against your other income. This could be your employment income or other business income. You will lower your tax bill or even receive a tax repayment! If you have no other income, for example, you are a student, you can carry these losses forward and offset against future profits of your business. You will lower your future business tax bill.

The only obstacle is that the taxman may challenge you on whether you have a business – you have to meet what are known as “Badge of Trade” rules. These are the tests the taxman uses to assess whether you have a business or whether it is just a hobby. Basically, if you have a business you conduct on a regular basis, in an organized manner, with the intention of realising a profit, then it is a business. But you must have a serious intention to make money. A business plan, a cash flow forecast, a business name and all that would support your case to the taxman.

It is not important if the taxman thinks the idea is a good or not. That is not the job of the taxman. What is important is that you are serious about it – think about the “Cow Hats”!

Lastly, in Cornwall there is a huge amount of support for new entrepreneurs. There are start-up loans through the likes of SWIG – Google them. Oxford Innovation, Grow Cornwall and others can provide expert advice for new businesses. Contact them! There are grants you can obtain from the likes of BIG and the Business Innovation Fund – send them an email. They all want to help you. And it will support your case to the taxman that you have a real business.

About the author:

A chartered accountant with over 18 years of accountancy, taxation and business experience, Brendan Thomas is MD of Bumblee Accountancy