Self employed second income from home - home baking business

boxer16

Hi all

Apologies if this is the wrong place to post this but I was just after some advice please.

I’m in the process of setting up a home baking business. I have the registration and kitchen inspection side all ready to go but I could do with a little help with the record keeping and tax etc.

I have been advised that you need to be able to trace all your ingredients, so all your receipts for ingredients need to tie up with your orders. Can anyone suggest a way to track this? I’m usually good with spreadsheets as it’s part of my job, but thinking of a simple way to set it all out has got me stumped!

Also, this will be my second income as I work full time. I won’t be doing a lot of orders at first as I don’t want to over face myself so I probably won’t be making a lot of money. Is there a certain amount you can earn before you start paying tax and NI on your second income?

TheBusinessFixer

Hi boxer16

In regard to the tax and NI on your second income - I would assume that as you work full time, your income is greater than your annual personal allowance of £8,105. This means that all of your second income will be taxable.

In terms of the orders and ingredients, If for each order you complete a form and give each order a number/reference, then next to the spreadsheet list of ingredients purchased you can have a column for order number. Then keep all the receipts for each order in individual plastic pockets in a lever arch file.

Hope that helps

Paul

PlutoinCapricorn

As you have a full time job, and assuming that this uses up your personal allowance, the profit from the baking will be taxed. This will be 20% unless you go into the higher bands.

As for NI, you must pay Class 2 unless you earn less than £5,595 from the baking in which case you can claim exemption on the grounds of low earnings. You need not claim this, but as you are paying Class 1 in your full time job this will give you benefits entitlement.

Have you looked at https://www.businesslink.gov.uk?

boxer16

Thanks for your responses.

I won't be earning anywhere near £5,595, I think I'll only be doing an order or two a week just to ease myself in gently.

Will I have to list on each order form how much I used ingredients wise? Does it have to go into that much detail?

PlutoinCapricorn

HMRC do free courses where you can learn about record keeping, legitimate expenses etc. If you registered after April 5th, your next tax return will be due sometime after April 6th 2013 and you have until Jan 31st 2014 to complete it, which gives you plenty of time to learn what is involved. Registering to complete the return online is a good idea.

Unless you earn over £50,000 or so from the home baking, HMRC will just want three totals: income, expenses, profit. You do need to keep records to back this up in case of an enquiry: receipts, invoices, orders etc. also bank statements.

Easing yourself in gently sounds like a very good idea. I hope that someone who knows about the baking side will be able to answer the ingredients question.

PlutoinCapricorn

In your position, I would read through this thread where other people on MSE have been discussing the various aspects of home baking, including insurance:

https://forums.moneysavingexpert.com/discussion/2167151

paulwf

Are you sure you have to trace all your ingredients? I haven't come across this for small scale production. Maybe you are thinking of allergy information and listing ingredients for the customer?

The best thing to do is call your local environmental health officer and have a chat with them to see what they require locally.

Mistral001

boxer16 wrote: »

Hi all

I have been advised that you need to be able to trace all your ingredients, so all your receipts for ingredients need to tie up with your orders. Can anyone suggest a way to track this? I’m usually good with spreadsheets as it’s part of my job, but thinking of a simple way to set it all out has got me stumped!

Is this a requirement of your insurance? If it is then ask them exactly what is required. If it is just receipts in a shoe box stored away in case there is a claim two years down the line, then do that. You will be busy enough trying to make a profit with the cooking and selling.

boxer16

I'm part of a cake group on Facebook and a lot of people on there are registered. Someone mentioned that you have to be able to trace all your ingredients to show that you're using what you've purchased, and you also have to keep a list for wastage.

They definitely said it was for tax purposes, not insurance or allergy information. This may be completely wrong and they might be tracing things a lot more than what they're supposed to.

PlutoinCapricorn

You could ask where they got this information from!

Some time after you register as a sole trader, you get a general letter reminding you that you need to declare all income and only claim legitimate business expenses: apparently when they do decide to check the figures it is common for people to have under declared income and claimed too much on expenses.

So you need to be ready just in case. You need evidence of purchase of the ingredients, and evidence of sales. Perhaps a general recipe sheet could be created showing the amounts and costs/profit, just in case you ever have to prove anything. I don't think that HMRC are really interested in what goes into the cakes, just that your figures are correct and that you have bought what you say you have bought and are using it.

martindow

I would have thought that it would be fine as long as you can show that the ingredients you buy bear some relation to the quantity of cakes you make. I don't think you need to account for every gram of flour. HMRC might be interested if you tried to include your entire weekly shop at Sainsburys