Self employed

Maxrara

Hi

Started self employment ( Sole trader - Local food - Market stall) last year, just prior to the end of the tax year (therefore had to post returns; done). The returns shown a loss of approx 5k, and the current position will probably show a smaller loss or at best a break even result - if things pick up a bit.

I submit the returns through the self assessment on-line process, and therefor don't employ an accountant (things are tight and I have self funded the business.

The tax office have informed me that my pension (took early retirment from the NHS) of approx 91/2 K per year will be subject to the full 20% tax (BR). On the face of things this is correct (as it is a second income) but may result in me paying more tax than I should - hard to know for sure!

Now my question is, as I use this pension to live on (not relying on the business to provide a wage at this early stage); and where necessary to provide additional funding when/should the business need it, is anything that I could/should be doing or should I accept this and hope that it balances its self next year.

I am sure that most people that runs a business will appreciate, is that every penny is critical during the early stages of a new buisness!

Thanks

Possetjohn

Hi Maxrara,

I am not sure the tax office is correct here. If you do not have any other employment then I think your tax allowance should be set against your pension ( which is regular income) and then you should pay the remaining full tax on your self employment via the SA tax return and payment on account.

This is certainly my situation made redundant in May 2006 and starting SE late 2006.

Are you sure they don't have any reason to think you have another employment? It may be that in your last SA tax year you were showing employment, pension and self employment and they may not have twigged the employment has ended!

I would give them a call!

Maxrara

Possetjohn
Thanks for the speedy and helpful reply. It sounds feasible so I will indeed contact them.

Savvy_Sue

I agree with Pj that your pension should have your personal allowance set against it BUT you must make sure that you put aside from your gross self employed income enough to cover the tax bill, and remember that the way it works is that once you do have to start paying tax on your self employment, you pay half of the current tax year's bill in advance too.

I know I'm not explaining this well, but when you say 'every penny counts' you mustn't think that means you can put off saving for your tax bill ...

jimmo

In my days at HMRC the normal policy was to allocate your personal allowance to PAYE income first because this is normally more efficient for the person.
My guess would be that your NHS pension has been allocated code BR because HMRC are not aware that you have retired.
So, as far as HMRC are concerned, you are still working for the NHS and drawing an NHS pension and it is nothing to do with your new business.
A quick phone call to HMRC (if you can get through) should sort it out.

zygurat789

Maxrara wrote: »

Hi

Started self employment ( Sole trader - Local food - Market stall) last year, just prior to the end of the tax year (therefore had to post returns; done). The returns shown a loss of approx 5k, and the current position will probably show a smaller loss or at best a break even result - if things pick up a bit.

I submit the returns through the self assessment on-line process, and therefor don't employ an accountant (things are tight and I have self funded the business.

Then the periods you put in your tax return are:-

Start to 5/4/11
First 12 months trading
Accounting year ended in tax year to 5/4/13

It is usual to draw up annual accounts to a specific date so
the first period will have to be an estimate and will be determined pro rata on the first accounts.
The second period is usually the first accounts (for a full year) although it may be pro rata if this period is not for a year.
This is for the annual accounts.
You will now have paid tax on a certain period twice typically from your year end to the next 5 April. You need to keep this figure handy because it will be a deduction from taxable profits when you cease trading.
So make your year end 5 April and avoid the problem altogether.

Oh BTW you can choose where your personal allowances are used. Phone HMRC (if you can get through) and tell them to put your allowances against your pension.

Maxrara

Savvy -Sue/Jimmo/Zygurat789

Thank you all for your valuable and useful input.

I will be contacting HMRC to discuss my personal allowance matter ASAP - may well be down to some misunderstanding re:my work situ. Thank again

Savvy-Sue - The reason for my 'Everypenny Counts' comment was my awareness of keeping a good cash flow line, in order to maintain and (hopefully) grow the business. Upto now I have managed to run the business without the need to take on a loan(s); nor have I taken advantage of any offered credit. That way I only buy things that I can afford - a healthy state if I can maintain it; although I wouldn't rule out either of these, at a later date, if I think they might be of benefit and/or necessary for the business.

This website is really good in obtaining advice - on one forum the general advice was to set aside 30/40 % of any profit each week (and to pay this into the best interest bank accounts you can find); ready for when you receive the dreaded tax demand!

Zygurat789 - Great suggestion re:annual accounts! One that I will certainly be following!