T: 01509 218028
Starting a small business
by Andy Turner,
Partner, Mark J Rees
When you start to become self-employed it is very important that you comply with the requirements to register this with HM Revenue and Customs. You can be self-employed in addition to a having full time job where you are an employee.
It can be confusing when what you are doing develops from a hobby into more. The factors that need to be considered if you feel this might be the case are the “badges of trade”. Some of the key factors are intention to make profit and frequency of transactions, basically if there is an intention to make profit and the transactions are repeated you are probably trading.
Once you start a trade in this way you have three months to register with HM Revenue and Customs to avoid a potential penalty. This is done by calling HM Revenue and Customs or using form CWF1. Once you are registered as self-employed you will be required to complete a self-assessment tax return each year showing your profit from the trade as well as other sources of income.
In order to calculate your taxable profit it is important to keep records of every transaction related to the business as well as keeping the various invoices and receipts. You should also record things like business mileage in your own vehicle and business usage of your telephone.
There are three types of tax potentially payable on these profits which are:
1. Income tax
2. Class 4 National Insurance
3. Class 2 National Insurance.
The current basic rate of tax is 20% and starts once your personal allowance is utilised. National Insurance Class 4 is currently 9% and starts when profits exceed £7,225. National Insurance Class 2 is currently £2.50 per week but is exempted if profits are below £5,315.
Your self-assessment tax return needs to be completed by 31 January each year if you are filing electronically or 31 October if filling on paper. The penalties for being late can be very harsh. Any tax liabilities are due in January and July. As these tax forms can be confusing many individuals prefer to ask an accountant to help them out.
More information can be found at
Andy Turner
Partner
Mark J Rees
Chartered Accountants
Granville Hall
Granville Road
Leicester
LE1 7RU
T 0116 2549018
We’d like to thanks Andy for clearing up these issues that can seem like a minefield when starting up a business.
Tags: jewellery business, jewellery business week, selling handmade jewellery, selling jewellery tips, trading
What do you do with invoices and sales that happened before you registered?
I have started my jewellery making of as a hobby, sold a few pieces here and there (about 5).
I have kept all the invoices of supplies I purchased inthe past, can I putthese in my tax if i decide togoself imployed?
What do you do with invoices and sales that happened before you registered?
I have started my jewellery making of as a hobby, sold a few pieces here and there (about 5).
I have kept all the invoices of supplies I purchased inthe past, can I putthese in my tax if i decide togoself imployed?
Great article, I had no idea I had to do this as I thought I wouldn’t make enough to pay tax so I can get on to this straight away and keep thins all above board!
)
Great article, I had no idea I had to do this as I thought I wouldn’t make enough to pay tax so I can get on to this straight away and keep thins all above board!
)
Sarauchka, I believe that pre trading expenses in the 7 years before trading commenced are treated as being incurred on the first day of trading. They must be expenses related to your trade though.
When you register with HMRC you have to decided on your year end date which for ease I would suggest being 5 April to coincide with the tax year end. If you register from say today ie 3 October, then your first accounting period will be 3 October 2011 to 5 April 2012. If your sales were after 6 April 2011 but before 3 October 2011 then I would just include them as happening on 3 October so they are included. If they were before 6 April 2011 then they fall into an earlier tax year and depending on how much the sales add upto would depend on your necessary action. Hope this helps
Sarauchka, I believe that pre trading expenses in the 7 years before trading commenced are treated as being incurred on the first day of trading. They must be expenses related to your trade though.
When you register with HMRC you have to decided on your year end date which for ease I would suggest being 5 April to coincide with the tax year end. If you register from say today ie 3 October, then your first accounting period will be 3 October 2011 to 5 April 2012. If your sales were after 6 April 2011 but before 3 October 2011 then I would just include them as happening on 3 October so they are included. If they were before 6 April 2011 then they fall into an earlier tax year and depending on how much the sales add upto would depend on your necessary action. Hope this helps
I’m in a similar position to another post – hobby for last 2.5 years – accumulated lots of beads and findings – now considering starting a business up in the new year. What do I do about existing ‘stock’ on a tax form?
I’m in a similar position to another post – hobby for last 2.5 years – accumulated lots of beads and findings – now considering starting a business up in the new year. What do I do about existing ‘stock’ on a tax form?
Andy Turner says to Sarouchka: You will need to declare the transactions after you started to trade but before you registered.
Pre-trading expenses can be claimed if incurred within seven years of the start date. They are treated as being incurred on the first day of trading. This only applies to expenses that are allowable normally.
Andy Turner says to Sarouchka: You will need to declare the transactions after you started to trade but before you registered.
Pre-trading expenses can be claimed if incurred within seven years of the start date. They are treated as being incurred on the first day of trading. This only applies to expenses that are allowable normally.
Andy Turner says to Jenny: It can be introduced into the business at the value when starting to trade.
It is like the “trade” purchasing the stock from you on the first day.
Andy Turner says to Jenny: It can be introduced into the business at the value when starting to trade.
It is like the “trade” purchasing the stock from you on the first day.