Going self employed, my friend is worried about what and when to declare

[Itsnowhatyouknow]

Hello! I am new to the forums, it is great to see such a valuable resource online

Thanks for reading my post! I have looked through all the previous threads and can't seem to find a problem similar to my friend's.

I was wondering if anyone could offer a bit of advice?

 

Basically she has been off work quite along time due to illness, but has been on and off the books at a local restaurant, she has hardly worked there in the last 1-2years. But alongside this, she has been doing tailoring for people on a private basis. She has earnt money from this over the last 2 years, but never declared any of it (some of which did go straight into her bank). It is still way under the income tax thresholds for the years in which she did that work. (so this year £10,600)

She has also been supported by family, and when asked by a creditor to show her income (because she wasn't really paying any and they of course got suspicious when their records with HMRC showed unemployed) she was able to show this in her statements. They had obviously taken her off the books again at the restaurant.

 

Now she is much better and feels like the tailoring business could pick up and potentially be a full time self employed job for her. She wants to register as self employed, but is nervous as to when she should start her earnings from, as she is worried she will get in trouble for the previous years she didn't declare.

 

Do you think its ok if she was to start the self employment from now onwards, which is when she is really going to start work full time. Or do you think it could come back to haunt her in the future.

 

Help would be much appreciated!

[maroondevo52]

Hello and Welcome Itsnotwhatyouknow,

 

Good to see you on the forum, hopefully you will get some advice shortly.

 

Regards,

 

Scott.

[martin2006]

She will need to inform HMRC of her s/e status within 3 months of initial startup.

Was she in any benefits which would have restricted her working/earning whike these "bank deposits" were going in her account?

[Itsnowhatyouknow]

No she has never received any benefits, not sick benefits or job seekers. She felt it was too stressful of a process to go through. Hence relying on the restaurant work and occasional tailoring work to feed herself. Eventually she was living with family who fully supported her until now. She is now ready to go full time with the tailoring and I have advised she go self employed. (she did the tailoring work in absence of any knowledge about Self Assessment - I think her condition could of contributed to lack of understanding the processes involved)

[martin2006]

If she were to inform HMRC now she could include the last 3 months in her tax return when she receives it, i think from memory NI are notified by HMRC but worth a call followed by a letter to confirm to both

[ericsbrother]

If she phones the HMRC self employed line shew ill be asked when she became self employed and if in the recent past what she has earnt in that time and what her projected income is likely to be. As it is a piffling amount so far they wont be that bothered and just send her a TURN (trader unique reference number) and other paperwork about class 2 and 4 NI and then a tax return in about june for the 2015/16 tax year. They will ask about the business name and what business sector it fits in as they have to produce tons of stats for the government to tell lies about but it is really not that onerous..

[Itsnowhatyouknow]

Thanks for your replies guys. So you think its not her worth mentioning this work done over the last two years, and to just start her self-employed status as from now?

[martin2006]

If she has earned from the tailoring business in the last 2 years and there is traceable payments going into her bank account then i wouldnt advise trying to cover that up, HMRC can backtax for 6 yrs i believe.

If its a negligible amount and falls under the tax threshold for each year, i would declare it personally, if they choose to investigate her at random as HMRC tend to do and they uncover irregularities after you have told them a later start date, its a can of worms and hassle you dont want

It may involve a small penalty now but alleviates a larger fine later

[Itsnowhatyouknow]

Thanks for your reply, we've been looking into this, and believe you might be right. Any idea of what penalties she could be facing?

[martin2006]

late returns, late payments etc attracted an initial £100 penalty.

 

She would be well advised to employ an accountant to deal with her tax, they are able to claim far more than you would be as an individual. For me, it was worth every penny of the approx £500 a year it costs.

[tezza1234]

late returns, late payments etc attracted an initial £100 penalty.

 

She would be well advised to employ an accountant to deal with her tax, they are able to claim far more than you would be as an individual. For me, it was worth every penny of the approx £500 a year it costs.

 

 

Please bare in mind your friend would need a sizeable net income to warrant the use of an accountant, which may be unlikely in the first year or so, if your friend was to earn under 10k net profit doing basic calculations then there would be no tax to pay anyway so paying for an accountant would be almost silly, if your friend earns over the tax threshold by a worthwhile amount then you may want to consider one, just keep good, organized records as they go, I myself have never found the need for a accountant but then I am good with numbers and I really dislike the thought of paying someone for doing a job I can do myself, but that is just personal preference of course

[martin2006]

 

Now she is much better and feels like the tailoring business could pick up and potentially be a full time self employed job for her.

 

In which case, an accountant would be a sound business decision and would save the OP more than the cost of the accountant.

 

The only silly thing is the suggestion that having one is "almost silly"

[andydd]

Plenty of people fill in the tax self assessment without an accountant also you could get help & advice at tax centres although never used this myself.

[tezza1234]

In which case, an accountant would be a sound business decision and would save the OP more than the cost of the accountant.

 

The only silly thing is the suggestion that having one is "almost silly"

 

Thanks Martin for the little dig there, very helpful and professional slagging of a forum member who simply has an opinion, do you feel threatened by me or something because I do not need to enlist the services of an accountant because I am capable of doing it myself. My post was bang on accurate in its content, if a brand new business start up is going to earn more than 15k NET profit after BASIC expenses in its first year then dang, well done that person, but id doubt it.

[martin2006]

Thanks Martin for the little dig there, very helpful and professional slagging of a forum member who simply has an opinion, do you feel threatened by me or something because I do not need to enlist the services of an accountant because I am capable of doing it myself. My post was bang on accurate in its content, if a brand new business start up is going to earn more than 15k NET profit after BASIC expenses in its first year then dang, well done that person, but id doubt it.

 

Please enlighten me how i have "slagged" anyone off?

 

I am certainly not threatened in any way, i gave my opinion based on 20 years experience.

 

I fail to see how "sizeable net income" and "worthwhile amount" help the OP in any way, especially from somebody "good with numbers" who chooses to use none.

 

Your post was vague at best and far from "Bang on"

[tezza1234]

Are you even serious haha, so what are you saying, if you have a 50k turnover and a 10k net profit you would enlist the services of an accountant would you, even though your net earnings are already below the tax threshold, to warrant the use of a accountant you either need to admit you need a lot of help with numbers (which is fine) or the accountant needs to 'pay' for themselves, or you need to be a high roller who just generally needs an accountant, but I highly doubt that applies to a small business start up with little initial capital to invest, which is what this sounds like.

[martin2006]

You are of course entitled to your opinion, as i am entitled to mine, lets leave it at that before this takes over the OP's thread

[ericsbrother]

I would suggest that she learns how to create a spreadsheet and keep it up to date. If it looks like the turnover is going to approach the VAT threshold then it would be worth someone else looking at the figures to make sure they are right, regardless of the net income. She can also claim for a proportion of heat and light, telephone internet etc as business expenses but I would advise caution on this if she doenst own her own property as it can cause proplems with leases/rental contracts/insurance etc.Better off factoring this into the charge to the customer

[Itsnowhatyouknow]

Thankyou for all our replies and assistance. I think maybe I wasn't that clear she is most concerned about though. Its not so much the self-assessment itself, but the worry of leaving it two years before registering for self assessment. She is worried about getting into trouble, as we have been reading up and its seems there is danger of that. We have worked out her earnings and they are no where near the thresholds for either year. Do you really think she needs to mention them at all? She has earnings from different clients for different things, but no massive earnings. It seems it like be hassle for nothing. But I wouldn't know, I'm not experienced with this kind of thing. Hence being on these forums!

[martin2006]

Nobody here is going to advise that you keep the last 2 years quiet from HMRC

 

If your friend doesn't disclose then she takes a risk, if she does disclose she may face a penalty for late filing, "she" has to choose her course of action herself

[ericsbrother]

does she have any paperwork about income/expenditure?

She cant be penalised for late filing as she doesnt have a UTR as self-employed yet but any tax calculated to be due can accrue interest.

For example, if someone makes a few quid selling stuff at fairs and markets and the tax man gets wind of it they will be asked to show something regarding purchase of stock or materials and sales revenue. They will then be told to register as self-employed and the tax man will them make a decision as to whether there is any liability for previous years. Ther is no authomatic penalty that can be applied, only prosecution and they arent going to spend thousands doing that when no tax is due as it will be a massive abuse of process and no conviction possible.

If she phone up to register as self-employed all she has to do is answer the questions she is asked honestly and not proffer anything that could cause confusion. So, would I mention the past(where no tax liability created anyway)? no, unless directly asked.

As she is not claiming benefits there are no repercussions regarding time spent on this or ability to work so nothing to fret about there.