information regarding sole trader

SJ_MB

I have spent some time researching into businesses and have a few questions regarding sole traders and the situation I have ended up in.

To put my questions into perspective I will quickly explain my situation first.
I have been unemployed for a while now with relatives supporting me, after finding it difficult getting a job I decided to try and start my own business up.

My skills are in digital content and I have been working on a project for several months now, as I started I was unsure if I would complete this project and was just a project/hobby at this point.

I am now close to completing this project and I have been looking to form a proper business to sell the final product.

My first question is regarding informing hmrc about self employment.
On many websites they say register as soon as you can, however in my case I didn't know if this would turn out to be a full product, as such I have not had any trade yet.
What is actually classed as self employed and how long after this can you leave registering with hmrc?

My next question has multiple parts and is in regards to accounting, tax, and somewhat upon the first question.
Most web sites suggest to start a separate account for the sole trading business income and outcome but is not a legal requirement.
To date I have not had any sales (no finished product yet) however I have payed some expenses and this has been by my personal account (software, partial utility bills due to working at home etc)
I understand that these can be tax deducted as expenses while the company has been running (thus the relating to the first question)
What is the process of filling out self assessment and providing evidence (if needed)?
every where I read they say to keep your invoices/receipts but no where does it say that hmrc requires a copy of these, is this only if you are investigated or do they require these when you send in your self assessment? (I understand that you need to keep these for your own personal use to keep track of expenses etc and that this then helps to fill out the self assessment.)
bringing me to the last question, having a personal and (potential) business account in one, how would one separate personal expenses with business ones for self assessment purposes, would this be where the evidence is needed for invoices/receipts?

These questions are aimed to help myself put a start date on my business and to see if it is worth starting a separate account, not claiming any tax deductions, and officially start "trading" when I go to sell my product.
Or to set the date when initial concept was thought up of (so technically running as a trader during product development) and claiming tax deductions for the duration of the project/hobby.


I understand there's a lot of information and questions here and hope that someone can point me in the right direction, I would most appreciate any website with information regarding those specific questions as I have gone through many and they generalise on tax and accounting like "It is a good idea to keep the accounts separate".

Wywth

SJ_MB wrote: »

I have spent some time researching into businesses and have a few questions regarding sole traders and the situation I have ended up in.

To put my questions into perspective I will quickly explain my situation first.
I have been unemployed for a while now with relatives supporting me, after finding it difficult getting a job I decided to try and start my own business up.

My skills are in digital content and I have been working on a project for several months now, as I started I was unsure if I would complete this project and was just a project/hobby at this point.

I am now close to completing this project and I have been looking to form a proper business to sell the final product.

My first question is regarding informing hmrc about self employment.
On many websites they say register as soon as you can, however in my case I didn't know if this would turn out to be a full product, as such I have not had any trade yet.
What is actually classed as self employed and how long after this can you leave registering with hmrc?

My next question has multiple parts and is in regards to accounting, tax, and somewhat upon the first question.
Most web sites suggest to start a separate account for the sole trading business income and outcome but is not a legal requirement.
To date I have not had any sales (no finished product yet) however I have payed some expenses and this has been by my personal account (software, partial utility bills due to working at home etc)
I understand that these can be tax deducted as expenses while the company has been running (thus the relating to the first question)
What is the process of filling out self assessment and providing evidence (if needed)?
every where I read they say to keep your invoices/receipts but no where does it say that hmrc requires a copy of these, is this only if you are investigated or do they require these when you send in your self assessment? (I understand that you need to keep these for your own personal use to keep track of expenses etc and that this then helps to fill out the self assessment.)
bringing me to the last question, having a personal and (potential) business account in one, how would one separate personal expenses with business ones for self assessment purposes, would this be where the evidence is needed for invoices/receipts?

These questions are aimed to help myself put a start date on my business and to see if it is worth starting a separate account, not claiming any tax deductions, and officially start "trading" when I go to sell my product.
Or to set the date when initial concept was thought up of (so technically running as a trader during product development) and claiming tax deductions for the duration of the project/hobby.


I understand there's a lot of information and questions here and hope that someone can point me in the right direction, I would most appreciate any website with information regarding those specific questions as I have gone through many and they generalise on tax and accounting like "It is a good idea to keep the accounts separate".

As soon as you plan to progress your hobby to something that is designed to earn you an income, then that is self employment.
i.e. when you are supplying a service or buying or producing something with an intent to sell it for profit.

You should register with HMRC as soon as you plan to become self employed. I think HMRC say you must register at the latest within 3 months of becoming self employed, but I'm sure you can check the exact details on their site as easily as I can

You can't have it both ways. If you are currently doing something as a hobby, you cannot reclaim any expenses you incur in undertaking that hobby. If it is developing and producing something you intend to sell for profit, then it is self employment and appropraite expenses may then be offset againt tax.

I suggest you consult an accountant if you plan progress this hobby to self employment as it may be possible to claim certain start up expenses against tax even if incurred before your self employment actually commences.

If nothing else, at least this post should get you a few more responses to your thread

Mistral001

One thing is that you could probably bring the present second hand value of your computer equipment and software etc. into the business when you start and and use this as an expense.

Wywth's advice is good But there are a lot of urban myths about setting up a business flying around the internet and the canteen table at work. See an accountant they will put you in the picture.

PS. Spend time over choosing your accountant. It is a business decision that is importat in my view. (I am not an accountant).

InsideInsurance

It used to be you had to register within 3 months or you'd be fined. Now it is said that it must be as soon as possible but there are only penalties if you dont pay your NI or do your self assessment in time.

There is no harm in registering straight away, you can do a Class 2 small earnings exemption and thus have nothing more to pay and avoid the risk of a fine.


You need to get advise over part utility bills/ rent etc being seen as business expenses. Some accountants would advise that you dont do this as you effectively need to say part of your home is dedicated purely to business use and if this is the case you open yourself up to being checked that you have the right planning permission, that you may be liable for business rates on top of council tax etc etc. A laptop costs about £5 a year to run, not worth the hassle of an HMRC and council investigation for the sake of £5


No evidence has to be sent with the self assessment however HMRC has the right to audit you. Some are done randomly others will be triggered by what they are putting down.

As a sole trader under investigation you would have to supply all bank accounts irrespective if you think you use them for personal or business purposes. For those outgoing transactions in either account you claim are for business you would need to have evidence to support it. To a lesser degree, you may also need to provide evidence to support all incomings across either accounts that you claim are not business. HMRC will accept you get a £20 cheque for Xmas each year from Aunt Flo but if there is £4,000 being deposited every month that you claim is not business related then they'll want evidence of where thats coming from to prove it isnt business.

The purpose of having a separate bank account is for your benefit not HMRCs as it effectively becomes your cashbook so when doing your accounts you can simply look at the statement and know 100% of the transactions are there and are business. If you use your personal account then you need to pick through them remembering which was for which