Do I need to pay capital gains tax? What are my options?

babsand16

Hey,

This is my first thread on MSE, however I've lingered around here looking at other threads for a long, long time. I wonder if you guys can help me.

I work 9-5 mon-fri. I am 21 and I am on £13,500 per year lol

In my spare time I like to develop websites. One such website has taken off in its popularity and is somewhat regarded as one of the best free services of its kind.

I have been approached by a buyer who is interested in purchasing the website off me for somewhere in the region of $20-30k.

I am wanting to move on to new projects and I am tempted to accept the offer, but I am worried about the tax implications of selling for such a high amount. Would I be required to file a capital gains tax form?
I earn a few pounds per day off the website, and it is classed as something I do in my spare time, not something I'd consider a second income therefore I have not declared anything to the IR. I pay £150 out of my own wage to a web hosting company every month as a rent the server to keep the website online and working.

Please can I have some advice regarding the above

Thank you

Rolo_Tomasi

"Only two things in life are certain........ death and taxes".

You have two taxes here - first of all it sounds like you are trading. You should be declaring the income you are receiving from your website development. this may even work in your favour if you are making a loss as this could be set against your employed income to generate a tax refund.

If your trade is running websites then the sale of one would be capital and as such capital gains tax would be due on its disposal. The profit made would be reduced by your annual CGT exemption (about £10k) with the balance being taxed at a maximum of 18% (it may only be 10% if the disposal can be classed as a business asset - another reason to register your business).

If your trade is the development and sale of websites then the money received would be classed as a trading receipt and so income tax and national insurance would be due on the amount.

babsand16

Thank you for your response.

The problem I have in declaring my "business" is that according to my costs/revenue breakdown since Jan-09 I have made £193.02 in total.

Surely I do not need to declare this? Isn't there a limit of around £2k whereby you don't need to declare anything less than that in one year?

jennifernil

Income is income, you should declare it all. Only your personal allowance is tax free.

babsand16

This does not class as personal? I don't see this as an income, I see it as a hobby by which I make a small amount of money from. Barely anything.

For instance, what if I made, nor spent anything at all, then sold this website and got a sum of money. How would CGT affect me then?

Mikeyorks

papa_face wrote: »

This does not class as personal?

No ...... your Personal Allowance is consumed by the PAYE on your £13.5k.

No ..... there is no de-minimis of £2k under which you don't declare income.

No ..... it's not a hobby if you're creating and selling websites.

Why ask advice ........ and then know better? If you haven't declared your business then the fines / penalties when HMRC catch up will likely cost you far more than getting it right now. If you've spent nothing developing the website ..... then the CGT / IT is higher! As you have no offset. But I strongly suspect HMRC would consider this as trading income ..... not CGT.

babsand16

I am not disregarding the advice, I am just questioning it as you obviously do not know every detail about my personal situation.
I will speak to the HMRC, there's no need to be nasty about all of this, I am just wanting to ensure you guys know exactly how I personally consider my "hobby".

In addition, I do not develop websites to sell them.
I have created a website as a hobby, which happens to be a popular website, for which someone is prepared to pay money for.

Mikeyorks

And thus ..... what perhaps set out as a hobby - becomes a business and you have to do something about it?

I wasn't being unpleasant ....... you just seemed to be wriggling at every response!

Elaine_Wilson

papa_face wrote: »

Surely I do not need to declare this? Isn't there a limit of around £2k whereby you don't need to declare anything less than that in one year?

I am quite interested in where this idea came from as I have seen something similar mentioned two or three times fairly recently. Something must have been misinterpreted and then passed on. I wonder if one of the national daily papers produced a sloppy piece of journalism?

Sorry, that was off topic. To get back to facts there is a de minimis amount but it is only £1, so no help here.

Income from hobbies used to be ignored if it was small enough. There was an unofficial limit of £800 turnover (not profits) in a year but I'm not sure if this has changed.

In the OP's case it would seem the turnover is at least £2,000. (Profit of £193 plus £150 per month web hosting) So I agree it could be argued this is more than a hobby.

But regardless of whether it is treated as a hobby or not, it is difficult to see how the sale of the site could be anything other than a chargeable gain. Depending on the amount you are actually offered it could be better to declare this as a business, pay the fine for late registration and then claim Entrepreneur's Relief as suggested by Rolo Tomasi.

TM1976

You always have to declare the income. What's being confused here is if you have some non-employment income and it's under £2,500 for instance from a small amount of freelance work you can declare it without being brought into self assessment.

Re: the original post. I think the position would be if you only did this once it could be a capital gain. If you do it regularly or possibly again you are probably trading.

From the original posts it does sound like you are trading because you say:
"In my spare time I like to develop websites." and "I am wanting to move on to new projects".

Whether you consider it a hobby or not if you are making money out of it it's a business. From the detail here you may not be making that much money but it would be much more beneficial for you to have this treated as a capital gain because you have a £10,000 annual exemption that you could make tax free and a favourable tax rate. However you don't have a choice what to catagorize it as because this depends on the substance of what you are doing.

babsand16

Thank you for your responses. If I considered it a business I would have most definitely declared it, however I (naively it seems) didnt realise I had to declare everything. With this in mind I am going to contact the HMRC for some advice on how to proceed.
I am due to get the funds some time in the next couple of weeks so I'll have to speak to them regarding that as well. I certainly don't want to do anything illegal and that was never my intention.
Am I correct in thinking, say I get £14,000. £4,000 of that will be taxable which will at most cost me around £720.00?