Submission of first tax return

ensjr

In late April 2011 I earned an extra £1500 in addition to my normal salary and want to declare it (as its ongoing each year and the correct thing to do). In preparation I purchased over £1500 of kit between Dec 2010 and March 2011 and kept the receipts.

Am I able to submit the receipts as outgoings even though they occurred in a previous tax year? Or will I get taxed on the full £1500 extra I earned?

As I didn't earn anything in 2010-2011 year I didn't complete a tax return. Now I need to, I worry I am going to get hit hard just because of when the tax year occurs.

Any guidance would be appreciated.

John_Pierpoint

Welcome to MSE.

Starting up a self employment business is tricky, so your posting is a year late;)

However if you can give more details of what you are doing - there are some good people on here who can give you the correct pointers.

Here is an example:

https://forums.moneysavingexpert.com/discussion/2684531

ensjr

Thanks for your reply.

It's not a business I'm starting, but I am now a qualified coach. I currently work full time and pay income tax by PAYE which I'd like to continue to do as I dont want to complicate things with work and i won't make any money from coaching-but the additional income covers my outgoings each year.

Each year I'll be able to write off my income with my outgoings, but looking at my receipts I found that £1500 was spent before April 2011 in preparation for the mid/late April coaching. I earned £1400 and hadn't the need to spend much in the remainder of the tax year-so am now worried I will have to pay tax on the £1400 earned after 2011 to April 2012, as my £1500 outgoings were between Dec 2010 and March 2011 (that Accounting year I didn't earn anything so didn't consider completing a tax return).

So, my question: is there a way I can avoid paying tax on the full £1400 when I spent £1500 on kit a few weeks before?

John_Pierpoint

So it is a hobby?

That is why you have to play the "self employment business" game.
You can if you want simply write down an extra £1,400 as "casual earnings" and pay the appropriate one off tax.
However perhaps from little acorns great oaks will grow?

ensjr

It is a hobby, and a way of giving back what I gained from the sport when I was younger. It'll never become a business, but I will continue to help out as long as I'm needed.

It works out I spend more on kit than I earn from the coaching (so don't want to pay tax on something I'm not making a profit from); but in the first year I earned, I bought kit in the previous accounting year. Is there a way I can avoid paying tax on the first years income?

chrismac1

If it is a genuine trade, then you can claim relief for pre-trading expenditure going back 7 years. There follows the relevant BIM so you can read up on this for yourself, as we can't say for more than about 90% confidence on the basis of your post that you qualify:

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

You'll end up with a small tax refund based on your post. As long as you are in business with a view to a profit that is fine. The law recognsies that not every person is the next Bill Gates, and that some speculations end up going wrong. It is the intention to make a profit that matters.

ensjr

Thank you very much, this was the sort of lead I needed so I can investigate further. I hope to be able to get some further clarification in the next few days!

jimmo

If you are generating income you are trading (selling your services to customers).Chrismac’s reference to genuine trading is, I think, misplaced at this point. You are trading and pre-trading expenditure is claimable.

From your own figures the pre-trading expenditure will cover your takings for 2011/12 and you will have no tax to pay.

If you have had other expenses such as travelling or use of your home as an office it is quite likely that you can declare a loss for 2011/12 but what do you do about that loss?

This is where the question of “genuine trading” rears its ugly head.

If you claim to be trading on a commercial basis with a view to realising a profit you can also claim to set your trading losses against your other (PAYE) income and create a tax repayment.

In your first year or two of trading HMRC are unlikely to challenge your claim to set trading losses against other income but as time goes by, if the losses continue the danger of an HMRC Enquiry increases and, if HMRC catch you out at some time in the future they can easily look back at earlier years.

I once had to challenge a DJ who had been claiming losses for years. It turned out that he was 76 years old and did about 10 gigs a year and it was pretty simple for me to assert that his business was not run on a commercial basis with a view to realising a profit and his claims to set trading losses against other income were invalid. I have to say that maybe, if he had an accountant, the result could have been different.

On the other side of the coin you also have to consider National Insurance.

You appear to have started trading in April 2011 and were required to declare that and start paying Class 2 National Insurance Contributions or claim the Small Earnings Exception.

http://www.hmrc.gov.uk/rates/nic.htm

HMRC now deals with Income Tax and NIC and, if you claim Income Tax relief on trading losses you are quite likely to be hit with automatic penalties for failure to notify your potential liability to Class 2 NIC.

That is all workable but do you need the hassle?

If I were in your situation I would leave well enough alone, not even bother contacting HMRC.