Self employed - question about expenses/raw materials/losses.

jiras410

Hi
I have a few question regarding the above.
I have been self employed (as a side job on top of my PAYE) for 6 years and have done my tax return every year so far. I have been working as a freelancer in a workshop, invoiced them at the end, declared it, paid my tax, no problems there.

Now I am hoping to start a new adventure and work for myself. I want to turn my arts and crafts hobby into a side job and sell things i make. I gathered so far that any raw materials/stock/tools/ basically anything needed to make my items i can claim back under expenses. As I have already lots of material in stock but never kept the receipts my first question is - do i need a receipt for everything i use in my crafting? I will be keeping receipts from now but what about all the stock i already have, can i claim that too if i use it in items i sell? Is it acceptable to just do a spreadsheet with details of things i have used, some supported by receipts, others not?

my hobby does eat up a lot of money on tools/materials etc, overall i dont think ill be making much or any profit at the moment. Can I make a loss even though i have been self employed for 6 years? I seem to have it in my head that you are only allowed to make a loss in the first 3 years.

Also, i am wanting to ring up HMRC but the links on their website leading to contact phone numbers are all about issues that are nothing to do with expenses/making a loss etc. Anyone know who to ring or any other helpful organisations that offer advice on these issues?

THanks so much, i hope my questions are clear.
Anika x

chrismac1

Receipts - strictly you need those. But clearly arts and crafts do not suddenly appear out of thin air. I would be claiming the costs of the items you sell - in the unlikely event you were to be challenged, the argument is that without the materials there is no income, so fine if you want to remove the costs go ahead and remove the sales too! From now on keep receipts, file them for 6 years then bin them. I keep mine in a dusty corner of the loft.

You can claim relief for your loss against your other taxable income in the tax year of the loss. There are lots of ways you can also claim relief, one temporary one allows you to go back 3 years which is where your 3 years might have come from. Various loss reliefs were "recession" loss reliefs so this one may have been restricted. I have not had any clients wanting to go back with loss claims recently so would need to check the latest position if I did.

Do NOT ring HMRC, most people on the helplines barely know the very basics. Also they tend to trot out the "HMRC view" of things. So for example you might well get someone saying "only claim for receipted items".

Google "pre-trading expenditure" for details on the historic items you can claim for and take a look at this HMRC link too:

http://www.hmrc.gov.uk/manuals/bimmanual/bim46351.htm

The one thing you want to watch for down the tracks is if this business makes losses year after year. The issue then is whether it is truly a commercial business with a view to a profit. If not then HMRC are entitled to challenge all loss relief claims made up to that point. So start early and gather a little file together of evidence that you intend to make a profit. Note you do not actually have to make one - though it's better all round if you do! - as the law accepts that not everyone is the next Richard Branson.

As an example, I had a singer client who made losses for four tax years in a row. But one of the reasons for this in year 4 was she'd had 10,000 CDs produced and was selling them at gigs. had we been challenged, I would have said that "hobby singers" don't go to the trouble of having 10,000 CDs produced, which was clearly evidence of a commercial business.

jiras410

Thanks so much for your help.
I will definitely keep all receipts from now on and start a spreadsheet with all expenses.
When it comes to the shop taking on some of my craft items to sell i may just offer them items that i can a) easily and cost effectively produce and b) are easy to break down when it comes to expenses involved, should i ever be challenged about this.
I guess its just keeping it simply and easy to overlook for myself and the taxman. Cause after all it is still a hobby of mine to be creative and i dont wanna take the enjoyment out of it too much.
Thanks so much again for your help, im sure more questions will pop up soon so ill be back to post! In the meantime i wont ring the hmrc. hehe.

OH, one more question, a friend mentioned that she was told she can make £20 profit a week without having to declare it, does anyone know whether this is true or false?