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Going self employed. Pitfalls/benefits

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jimspeed
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PostPosted: 15:00 - 04 May 2018    Post subject: Going self employed. Pitfalls/benefits Reply with quote

Hi folks I'm a bit stuck at the moment.. I have worked at the same place for 25 + years but now I think it is time for a change.
I'm a mechanic and mainly work on vw group cars but the small family firm I originally worked for has grown and now there is just no respect or loyalty anymore.
I'm currently employed but seriously thinking about going self employed as I know someone who is starting up their own workshop mainly restoring and servicing old vws and he is quite keen for me to go work for him.
I have never been self employed but fancy a go at it I currently earn around 350 a week so not exactly brilliant money and should be able to better that but how does tax and vat ECT get calculated? And pitfalls against doing it ?
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Itchy
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PostPosted: 15:17 - 04 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

jimspeed wrote:
how does tax and vat ECT get calculated?



VAT

You can go flat rate or normal VAT.

Flat rate means you pay (looking at the VAT tables for mechanics) 8% of all your turn over gets paid to the tax man. In exchange for less paperwork you cannot claim VAT on inputs.

Normal VAT means you collect VAT at 20% on all your sales / mechanic income. You can claim the VAT off all your inputs.
So you keep a ledger one side gross, net and VAT amount. Then tot it up at the end of the week.

Then on the other side expenses you do the same. Write the invoices down and split it between gross, net and VAT.

Then calculate the difference. Pay HMRC the VAT amount. Usually you're going to owe them.


Tax

NIC class 2 is dead.

So you register on their portal as self employed. So if you work from say Now 2018 to April 2019 you will have to fill in your tax for 31st Jan 2020.

Dividends aren't worth the faff any more.

So you get turnover - expenses
That's your profit.
Keep back 28% of it to pay the tax man as he'll want it as a lump Jan 31st. Some people keep 33% back in a separate account just in case the tax bill is bigger or they get add backs.


jimspeed wrote:
And pitfalls against doing it ?


Yup, self employed people find it harder to borrow money as their income isn't as secure or stable as those of employees. Though this is pretty meaningless too.

HMRC these days prefer the accuse you of something and prove yourself innocent method. They do this because they have bog all staff.

This also means it is impossible to get in touch with them if there is an issue meaning you have to correspond with them by post.
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Baffler186
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PostPosted: 15:25 - 04 May 2018    Post subject: Reply with quote

Not sure about VAT etc, but my cousin is a mechanic. He threatened to up and leave his employer's garage about 15 years ago to go self-employed. They didn't want him to go so begged him to do 2 days at the garage per week.

This worked out for him because he stayed on top of training/competencies through the garage. It also allowed him to keep in check with all the up-to-date diagnosis software.

At home, he has a huge garage, inspection pit and is MOT certified. He can do most "parts" jobs on all cars, but is limited to Audi and VW and one or two others because the diagnosis software is so expensive and IIRC needs updating every year or two. For himself he works 40 hours a week minimum, not including 2 days/week at his employers. He's not short of a bob though.

The biggest problem is newer cars, especially because as a local guy he obviously gets lots of referals from local people, friends of friends and family. They expect diagnoses and parts for an Audi or BMW to be £100 and then moan when the bill comes in at £700. But he has to charge that to cover the software and other stuff I don't understand.

Will you get enough work where you live, and how much do you plan on advertising?
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stephen_o
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PostPosted: 16:13 - 04 May 2018    Post subject: Reply with quote

Firstly would you be self employed or employed as per hmrc definitions.

If you answer yes to most of these
-Will you be able to determine your own work times
-do you set your own charges
-do you supply your own tools
-do you rent or have to provide your own workplace


Then it is possible that hmrc will accept you being self employed. If no then they may consider that you are an employee and still subject to employee rules and your friend would be classed as your employer.

Be careful. VAT is only due if your turnover exceds £86,000. Ni is payable as a flat rate weekly and also on profits, you would get your normal tax free. your tax is based on your net profit before drawings - personal allowance. It would be good practice to save 19% of your drawings in a tax account so that it is their when ready.
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Shaft
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PostPosted: 20:54 - 04 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

jimspeed wrote:
Hi folks I'm a bit stuck at the moment.. I have worked at the same place for 25 + years but now I think it is time for a change.
I'm a mechanic and mainly work on vw group cars but the small family firm I originally worked for has grown and now there is just no respect or loyalty anymore.
I'm currently employed but seriously thinking about going self employed as I know someone who is starting up their own workshop mainly restoring and servicing old vws and he is quite keen for me to go work for him.
I have never been self employed but fancy a go at it I currently earn around 350 a week so not exactly brilliant money and should be able to better that but how does tax and vat ECT get calculated? And pitfalls against doing it ?



A word to the wise - as a newly self employed person, don't get involved in restorations, unless you're on an hourly rate and can clock in and out, each time you put anything into a long term project.

All restorations do is eat time and space - it looks nice when the customer comes in with a few grand every once in a while, but by the time you divide it up into the weeks and months it takes you to get anywhere, not to mention the forgotten costs like hours on the net trying to source parts etc, you will realise there's no money in it.

The only real way to make money from restoring is to do nothing else and have a number of vehicles in various stages of work, so you have customers constantly drip feeding you cash.

Let your mate play at being Fuzz Townshend if he wants, you stick to the fast turnaround servicing and put some folding in your pocket every week.
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stephen_o
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PostPosted: 21:56 - 04 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

Shaft wrote:
jimspeed wrote:
Hi folks I'm a bit stuck at the moment.. I have worked at the same place for 25 + years but now I think it is time for a change.
I'm a mechanic and mainly work on vw group cars but the small family firm I originally worked for has grown and now there is just no respect or loyalty anymore.
I'm currently employed but seriously thinking about going self employed as I know someone who is starting up their own workshop mainly restoring and servicing old vws and he is quite keen for me to go work for him.
I have never been self employed but fancy a go at it I currently earn around 350 a week so not exactly brilliant money and should be able to better that but how does tax and vat ECT get calculated? And pitfalls against doing it ?



A word to the wise - as a newly self employed person, don't get involved in restorations, unless you're on an hourly rate and can clock in and out, each time you put anything into a long term project.

All restorations do is eat time and space - it looks nice when the customer comes in with a few grand every once in a while, but by the time you divide it up into the weeks and months it takes you to get anywhere, not to mention the forgotten costs like hours on the net trying to source parts etc, you will realise there's no money in it.

The only real way to make money from restoring is to do nothing else and have a number of vehicles in various stages of work, so you have customers constantly drip feeding you cash.

Let your mate play at being Fuzz Townshend if he wants, you stick to the fast turnaround servicing and put some folding in your pocket every week.


Just re-read your original post - as per above and my original reply - if it is that you are working FOR HIM and not on hourly rate as an employee then my advise would be - NO. I don't have experience of the motor trade but I have been self employed for most of my working life as Insurance Broker, Plumber and Retailer 3 times. It is very very easy to lose money, very hard to make money especially in an area where a customer can "nit pick".
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jimspeed
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PostPosted: 22:09 - 04 May 2018    Post subject: Reply with quote

Thanks guys I've just been to have a word with him. He would be happy for me to do 1-2 days a week on his personal vehicles and tgen more if he gets a bit busier.
I'm looking around now for a unit to rent and going to ask a few of the other places that usually call me up for advice each week and see if I can get a day here and there I think. Lots going on I want to sell my cottage and buy somewhere that is suitable for me to have as a decent base ( garage / shed). My missus suffers from fibromyalgia so I am spending more time looking after her so I think being self employed will be easier in the long run. Thanks for the advice so far guys..
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jimspeed
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PostPosted: 22:13 - 04 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

Shaft wrote:
jimspeed wrote:
Hi folks I'm a bit stuck at the moment.. I have worked at the same place for 25 + years but now I think it is time for a change.
I'm a mechanic and mainly work on vw group cars but the small family firm I originally worked for has grown and now there is just no respect or loyalty anymore.
I'm currently employed but seriously thinking about going self employed as I know someone who is starting up their own workshop mainly restoring and servicing old vws and he is quite keen for me to go work for him.
I have never been self employed but fancy a go at it I currently earn around 350 a week so not exactly brilliant money and should be able to better that but how does tax and vat ECT get calculated? And pitfalls against doing it ?



A word to the wise - as a newly self employed person, don't get involved in restorations, unless you're on an hourly rate and can clock in and out, each time you put anything into a long term project.

All restorations do is eat time and space - it looks nice when the customer comes in with a few grand every once in a while, but by the time you divide it up into the weeks and months it takes you to get anywhere, not to mention the forgotten costs like hours on the net trying to source parts etc, you will realise there's no money in it.

The only real way to make money from restoring is to do nothing else and have a number of vehicles in various stages of work, so you have customers constantly drip feeding you cash.

Let your mate play at being Fuzz Townshend if he wants, you stick to the fast turnaround servicing and put some folding in your pocket every week.

Shaft.. he has a decent collection of cars and vans that he wants help with initially I agree doing that sort of stuff is no way to earn living I would much rather spend an hour doing a REMAP or fitting some brake pads..
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BTTD
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PostPosted: 23:16 - 04 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

Itchy wrote:

Dividends aren't worth the faff any more.


Disagree. If his wife doesn't work due to illness and she is also a shareholder the tax savings could be significant if you utilise both personal allowances (assuming there are no sick benefit consequences). Definitely look at it with someone who knows your full situation and how it works.
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defblade
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PostPosted: 06:19 - 05 May 2018    Post subject: Re: Going self employed. Pitfalls/benefits Reply with quote

Itchy wrote:

Keep back 28% of it to pay the tax man as he'll want it as a lump Jan 31st. Some people keep 33% back in a separate account just in case the tax bill is bigger or they get add backs.


jimspeed wrote:
And pitfalls against doing it ?


Yup, self employed people find it harder to borrow money as their income isn't as secure or stable as those of employees. Though this is pretty meaningless too.

HMRC these days prefer the accuse you of something and prove yourself innocent method. They do this because they have bog all staff.

This also means it is impossible to get in touch with them if there is an issue meaning you have to correspond with them by post.



I've spent a lot of years self-employed although offering professional services (no, not that kind...) so the tax paperwork was very easy. It's easy to get sucked into spending all your money, but it is vital to put about 30% away, as Itchy says, because they will want it eventually! Premium Bonds is not a bad shout, instant access and the chance of a million quid Wink

I'd say the main downside is holidays... it becomes very difficult to take them as not only do they cost money, but also you aren't earning while you're not working, so it always feels like a double whammey Sad
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Diggs
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PostPosted: 14:39 - 05 May 2018    Post subject: Reply with quote

Been self-employed now since 1998 in a variety of roles.

The first thing you'll experience is a lack of cash as folk take too long to pay, so make sure you have enough put by to last 3 months.

Next thing will be the holiday situation. You'll start out thinking you are your own boss but soon realise that the demands of your customers determine when you work. You probably won't want to risk a decent holiday for a few years, until you have the confidence to know that your regular client-base won't go elsewhere if you aren't around for a fortnight. Took me 10 years to realise this...

Get an accountant. More expensive than a bookkeeper or doing things yourself, but a decent one will save you money in the long-run. The knack is to make minimal profit to reduce your tax bill...

Avoid VAT Registration for as long as you can as it is a ballache, will make you less competitive and opens you up to VAT inspections and fines...

As previous posters have said, put money aside for tax. Remember that this isn't your money so ffs don't do what I used to do and spend it on nonsense (like a Bimota) in the hope that I'd earn enough to pay when it came to it. It does catch up...

Learn when to say no to work - the worst mistake is to say you can do something when you can't, because you'll end up not wanting to answer the phone and you'll lose future business that way.

Don't be afraid to diversify - go on courses if you get the chance as this reduces your tax liability and opens new doors.

Avoid mate's rates as much as possible, because people will expect you to work at cost. This is a mug's game.

Don't be afraid to work regular hours for other firms whilst self-employed. Its how he world works nowadays.

Delete your old social media accounts if they make you look like a prat. Customers will look and judge you on the content of these.

Use forums to advertise, but do it on the appropriate days only.

Word of mouth remains the best form of advertisement, so you really are only as good as your last job. The customer isn't always right, but you will need to bite your lip and take a knock on occasion.

Don't work for peanuts for a new client on the promise of 'loads more work in the future' - lots of people will try this, use you cheaply if they can then move on to another mug.

Don't undersell yourself - people do realise that one gets what one pays for in this life and are prepared to pay the proper rate for a job if they know you will di it on time and well.

Reputation is everything - don't slag off others in your trade as this will come back to bite you.

Consider becoming a Limited Company - it works for many, myself included as I pay less tax than I would as a Sole Trader. Your accountant can advise.


Just a few thoughts. Hope this helps!
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winz
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PostPosted: 14:58 - 05 May 2018    Post subject: Reply with quote

Diggs has nailed it.

I've been self employed for 5 years now, 2 as a limited company and have a decent accountant, he basically paid for himself for 4 years in the first year I used him.
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stephen_o
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PostPosted: 16:09 - 05 May 2018    Post subject: Reply with quote

+1 for Reputation is everything

You can spend a fortune of advertising and have the whole lot written off by 1 poor review on Google or one of the other review sites.

Reputation costs nothing and is the best advertisement. When customers start to seek you out because "so and so says you" then you can breathe a bit easier. Conversely a poor reputation can mean the end of everything as the smallest issue snowballs out of all proportion.
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Powderhead
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PostPosted: 21:57 - 05 May 2018    Post subject: Reply with quote

+1 to finding yourself a decent accountant ASAP.
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Itchy
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PostPosted: 22:06 - 05 May 2018    Post subject: Reply with quote

Powderhead wrote:
+1 to finding yourself a decent accountant ASAP.



Part of the problem is a lot of them all give a good spiel but as to how good they are it's hard to judge.

Heh years ago a company I worked for took over the clients of a guy who called himself an accountant (he had no qualifications). His clients thought he was great as they never paid any tax. When we took over we had a look at all of the accounts and found them mostly to be made up and tax returns that claimed everything twice (miles AND motor expenses etc). I mean crap there were people claiming mortgage interest AND capital.


We re-jigged everything according to the law and were told we were bad accountants as they had to pay tax. Rolling Eyes
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Powderhead
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PostPosted: 22:11 - 05 May 2018    Post subject: Reply with quote

Itchy wrote:
Part of the problem is a lot of them all give a good spiel but as to how good they are it's hard to judge.


*sage nod*

It's a difficult one unless you can get a recommendation from someone you can trust.

I've seen some shocking accounts in my time Laughing

If you can't get a decent recommendation, then choose one who takes the time to explain everything clearly to you, and stay on top of it.

It's really easy to fvck up if you don't have at least some idea of what you're doing.
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Powderhead
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PostPosted: 22:21 - 05 May 2018    Post subject: Reply with quote

And perhaps some really obvious basic things:

- Company money belongs to the company. Your money belongs to you. Just because you are a director of the company it doesn't mean the company money is for you to spend on your personal stuff. It doesn't belong to you until you pay it to yourself or give it as dividends from profits and have the correct paper trail.

- Your accountant is not ultimately responsible for your company's finances. YOU ARE! You are the one that has to sign that you agree with his figures. Do everything you can to get to understand your accounts, question your accountant and don't sign anything unless you understand it.

- If you're thinking "can I get away with x...?" use some common sense Very Happy If it sounds dodgy, it usually is.

- Don't use any tax avoidance scheme.

- Set your corporation tax and VAT aside. Don't be tempted to spend it and top it up later!

And perhaps a less obvious one:

- Pick an accountant who supports Xero. If they don't support Xero, I wouldn't take a discussion with them any further.
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RhynoCZ
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PostPosted: 23:11 - 05 May 2018    Post subject: Reply with quote

Powderhead wrote:
+1 to finding yourself a decent accountant ASAP.

Do you really need one though? I know that UK is quite a different place, compared to where I live, but what exactly do you need an accountant for? Is that a legal requirement? In CZE, you ''just'' have to fill up a form every single year for the tax purposes and most of the self employed people do that by themselves.
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BTTD
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PostPosted: 23:25 - 05 May 2018    Post subject: Reply with quote

RhynoCZ wrote:
Powderhead wrote:
+1 to finding yourself a decent accountant ASAP.

Do you really need one though? I know that UK is quite a different place, compared to where I live, but what exactly do you need an accountant for? Is that a legal requirement? In CZE, you ''just'' have to fill up a form every single year for the tax purposes and most of the people self employed do that by themselves.


If you structure your business intelligently you can avoid a lot of tax. Knowing how to do that most effectively is somewhat dependant on individual circumstances, and UK tax rules are overly complex.
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Itchy
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PostPosted: 23:33 - 05 May 2018    Post subject: Reply with quote

RhynoCZ wrote:

Do you really need one though? I know that UK is quite a different place, compared to where I live, but what exactly do you need an accountant for? Is that a legal requirement? In CZE, you ''just'' have to fill up a form every single year for the tax purposes and most of the people self employed do that by themselves.



The need for an accountant depends on how complicated things are. The more complicated things get the more useful an accountant is.

Personally unless you're starting up something big then I think you don't need an accountant yet.

Anyway to answer your question. You can be incorporated (Ltd) or unincorporated.

Unincorporated is easy and not complicated you are the business. You keep records (can be a small note book) of your income and outgoings and keep the invoices and receipts. You then fill in a tax return detailing your income and deductions (some things are allowed some are now). You pay your tax it calculates.



Incorporated is when it starts getting messy. Your company exists as a separate legal entity. You're a director who is employed by the company you are not the company. A Ltd company has a lot more reporting requirements (in addition to the tax return above) you've got annual returns to do you've got Companies house returns and money laundering requirements to do. But now you're an employee so you need something to reflect the salary you get (minimal payroll). So you want dividends as part of your pay? You need to have company minutes detailing them you have to have vouchers printed and put onto your tax return. You have to complete corporate tax returns which don't allow more things than personal returns. You also have to manage money you take out of the company as a directors loan rather than just drawings.



My personal view is all the above faff isn't really worth it any more as the savings in tax have been reduced considerably. Powderhead owned Mpd recently calculating the PAYE vs dividends tax route. He was £400 better off. All those things in that chunk of text for £400?

Nah...
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RhynoCZ
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PostPosted: 23:57 - 05 May 2018    Post subject: Reply with quote

jnw010 wrote:
If you structure your business intelligently you can avoid a lot of tax. Knowing how to do that most effectively is somewhat dependant on individual circumstances, and UK tax rules are overly complex.

We (the gov. of CZE) still chase people who had such intelligent ideas in the 90's. Shhh!

And I'm pretty sure you may google/ask the tax office what tax deductions you are entitled for.

Itchy wrote:
Informative stuff

So, not worth the money, in OP's case. Given, accountants do not work for free and what they might ''save'' you on tax deductions/evasion may not even cover their fees.
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Powderhead
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PostPosted: 07:27 - 06 May 2018    Post subject: Reply with quote

RhynoCZ wrote:
So, not worth the money, in OP's case.


It depends.

Although, if I had to guess, I would expect a good accountant to at least cover their fees in this particular case.

Without wanting to sound patronising, trying to do something like (for example) utilising the OP's partner's personal allowance will be complicated for the average person. Calculating the optimum method for distributing profits to two shareholders and then dealing with the resulting tax liabilities doesn't sound like something the OP should be doing himself yet, given the first question was "how is tax and VAT calculated?"

It'll cost £1,000 a year at the absolute most. Even if the tax savings were less than that, I'd be treating the cost as tax non-compliance penalty insurance Very Happy
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Diggs
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PostPosted: 12:37 - 06 May 2018    Post subject: Reply with quote

You can run a business without an accountant and it is easy to do as other posters have said. However, accountants are employed to take some of the stress off you and to minimise your tax bill. Go sit down with a few, explain your business model and see what they have to say. Most will say the same thing and it will result in a lower tax bill than if you do it yourself. It does depend upon your anticipated turnover, the structure of the business and whether you want to pay yourself dividends plus a salary, or whether you simply want an annual tax bill with no frills. Ask the accountants to project your likely tax bill given a set scenario, then deduct their fees and see who wins...
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Gone (in order of ownership) - Raleigh Runabout, AP50, KH125, GP125, KH250, CBX550, Z400, CB750FII, 250LC, GS550, ZXR750H1, Guzzi Targa, GSX750F, KH250 x2, Bimota SB6R and counting...
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Powderhead
Trackday Trickster



Joined: 06 Mar 2018
Karma :

PostPosted: 15:31 - 06 May 2018    Post subject: Reply with quote

Diggs wrote:
Ask the accountants to project your likely tax bill given a set scenario, then deduct their fees and see who wins...


...after discarding any which look too good to be true!
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"Now at inspector level!"
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jimspeed
World Chat Champion



Joined: 05 Mar 2010
Karma :

PostPosted: 22:08 - 06 May 2018    Post subject: Reply with quote

Thanks folks done decent info here I'll do the karma thing when I get home we are away in camper at the mo.. 👍👍
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Hyosung cruise 125(passed test on, sold) Kawasaki el 252 (better than expected but sold on) Kawasaki GPZ500S first "big"bike.(sold) ZZR600 E5..Z750 2007,ER5, currently on a 2008 Enfield bullet electra x and loving it..
,"Alpha-9: Is there any correlation between dyno rod and dyno kits?"
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Old Thread Alert!

The last post was made 5 years, 327 days ago. Instead of replying here, would creating a new thread be more useful?
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