Self employed income - mainly cash?

freda

I am registered as self employed. I earn way under the limit to start paying tax or NI. I average c. £40 per week income from tutoring a couple of evenings per week.

I have been just taking cash each lesson as payment. I keep a record in my diary of what has been paid and when, but I do not take the cash to the bank as it is easier just to spend it when needed!

My question, having just received my self assessment form, is this. How can I possibly prove, if HMRC ask me, what I have earned? Should I have been paying it all into the bank and have a seperate account? For the small amount I earn it doesn't seem worth it.

I also have tiny expenses related to the 'business' - for example I spend £5 on pens, mathematical instruments and rulers as part of my supermarket shop recently. Should I keep the receipt? I doubt I'll spend much more for a year or so.

Thank you in advance for your help.


(Apologies for x post, didn't get an answer on the 'up your income' board!)

anamenottaken

Keep your diary. Do you issue receipts? If so, keep a counterfoil.

For the stationery items - yes, keep the receipt if you want to deduct the expense from your income.

freda

Thank you, anamenottaken

I do not give out invoices or issue receipts, it seems a waste of time as students pay each lesson.

So if HMRC ask to see proof of income, I just send them my diary which includes all of my daily family activities too!? I can't see how I could possibly prove I wasn't accepting cash in hand (I'm not!)

Am I correct in assuming that if I earn way under the amount where tax becomes payable, then there is no real point keeping any receipts as there is no tax to offset the VAT against?

I just feel slightly uneasy that I am laying myself open to HMRC saying that I'm not declaring all my income, when actually I am.

anamenottaken

freda wrote: »

Thank you, anamenottaken

I do not give out invoices or issue receipts, it seems a waste of time as students pay each lesson.

So if HMRC ask to see proof of income, I just send them my diary which includes all of my daily family activities too!? No, you keep the diary as your contemporaneous record of receiving payment and the work you did. In order to complete your tax return, you should keep a simple record of dates, amount received, from whom and for what so that you can produce a total for the year (6 April to 5 April). I can't see how I could possibly prove I wasn't accepting cash in hand (I'm not!) You are receiving "cash in hand", it's cash into your hand but you are going to declare it to HMRC. It's not for you to prove a negative, it would be for HMRC to prove that you had income which you weren't declaring.

Am I correct in assuming that if I earn way under the amount where tax becomes payable, then there is no real point keeping any receipts as there is no tax to offset the VAT against? What VAT? You are not charging VAT. You may be paying VAT (on petrol to get to teaching sessions?) but not charging it. You would be sensible to keep receipts for your purchases which are expenses of your business and keep a note of mileage and record these on your tax form.

I just feel slightly uneasy that I am laying myself open to HMRC saying that I'm not declaring all my income, when actually I am. Do you mention interest and any dividend income too?

...............

jimmo

Just checking, but £40 per week from tutoring is your sole source of taxable income and there are no complications like a full time job, taxable state benefits, tax credits, etc, etc, etc?
In practical terms the only reasons that HMRC could have for making a formal enquiry into you would be:
1) your declared income is clearly insufficient for you to live off.
2) Somebody shops you because they think you are fiddling.
In the circumstances you have described you are very likely to get advice to issue receipts from a duplicate book so that you have a carbon copy.
My personal view is that would be rather OTT. Your diary really should be sufficient.
In an Enquiry situation HMRC will definitely look at your business records to look for potential weaknesses but the reality is that they will be looking for the possibilities of unrecorded income. If you were fiddling there is every chance that your diary and your receipt book would be inconsistent and I would give you grief on that but with the prime intention of tripping you up to disclose business income which is not in your diary and not in your receipt book.
I really think you are worrying about nothing.
An annual gross income of £2,080 leaves you well and truly below the tax threshold and HMRC would have to establish reasonable doubt that you were fiddling something near £100 a week to get any tax out of you.
Its just not going to happen.

nexus2011

You really should issue receipts especially if cash to keep them off your back.