Please help - Deposit from Sole Trader earnings

macfanuk

I wondered if anyone could advise...

I am thinking of buying a house and my income is solely from a full time job where I get paid via PAYE.

However, on the side, I have a Sole Trader business where I have been selling things on Amazon since September 2013. This money gets paid into my own personal bank account and I keep standard accounts to help when I come to filling out the tax return.

Over the last month, I have done quite well and by the time I get a payment on 15th January, I will have £25,000 which I would like to use as a deposit.

I was just wondering, am I likely to face any problems with using money from the Sole Trader business to fund my deposit? Especially seeing as I won't be declaring the income from the Sole Trader business as part of my income as it's a very new venture and therefore, I don't have the required 1-3 years of accounts.

I also don't see the Sole Trader business as a permanent job and would never leave my full time job in favour of having my own business, so I wouldn't like my mortgage to be judged on the basis of earning this money.

Thanks

ethank

I don't think there will be a problem with using the money as a deposit, but I don't think you will be able to use your Amazon income in any calculations of lending affordability.

macfanuk

ethank wrote: »

I don't think there will be a problem with using the money as a deposit, but I don't think you will be able to use your Amazon income in any calculations of lending affordability.

Hi ethank. Thanks, that's put my mind at ease a little. With the money coming from Amazon twice a month, I have statements from Amazon to back up the number of sales and the payments they've made so if the mortgage lender require proof of where the deposit came from, that won't be a problem.

I understand about not being able to use the Amazon income in any affordability calculations and that's completely fine as my proper wages are sufficient.

pcgtron

And as long as the money you're using is after tax and ni has been paid then you're all good

macfanuk

pcgtron wrote: »

And as long as the money you're using is after tax and ni has been paid then you're all good

Hi pcgtron. Thanks for this. Would I need to therefore have 'excess' money in my bank after covering the deposit or could I cover the tax/NI with future sales?

The reason I ask is because the mortgage lender isn't going to know how much of the £25,000 is profit (and I won't know that either until the end of the tax year in April).

ethank

There is an excellent information article on the HMRC website

As you only started trading in September 2013, you will have no tax return to submit until January 31 2015, but it can be done as early as April 2014.

You should contact HMRC to let them know that you have been 'Employed/SelfEmployed' since September 2013, and will need to submit a tax return from April 2014. You should also set up your Class 2 NI account at the same time. They normally take this by monthly direct debit.

pcgtron

macfanuk wrote: »

Hi pcgtron. Thanks for this. Would I need to therefore have 'excess' money in my bank after covering the deposit or could I cover the tax/NI with future sales?

The reason I ask is because the mortgage lender isn't going to know how much of the £25,000 is profit (and I won't know that either until the end of the tax year in April).

The mortgage lender won't care how much of this is profit or taxable income. You can pay your tax and ni out of whichever pot you want as a sole trader. It was more suggesting that you don't want a big bill from hmrc that you are not expecting. I have no idea how much of that 25000 is profit but if half is then either 2.5k tax at 20% or 5k at 40% is a chunkto find not including your additi onal ni liability which would probably be at 2% though if you have a full time job.
And if any of that money was earned in 12/13 then your tax return is due by the end of the month if you haven't already done it.

macfanuk

ethank wrote: »

There is an excellent information article on the HMRC website

As you only started trading in September 2013, you will have no tax return to submit until January 31 2015, but it can be done as early as April 2014.

You should contact HMRC to let them know that you have been 'Employed/SelfEmployed' since September 2013, and will need to submit a tax return from April 2014. You should also set up your Class 2 NI account at the same time. They normally take this by monthly direct debit.

Hi ethank. Thanks for your post. I have already informed HMRC that I am Employed/SelfEmployed since September 2013. They didn't mention setting up a Class 2 NI account but I will give them a call now so thanks again.

pcgtron wrote: »

The mortgage lender won't care how much of this is profit or taxable income. You can pay your tax and ni out of whichever pot you want as a sole trader. It was more suggesting that you don't want a big bill from hmrc that you are not expecting. I have no idea how much of that 25000 is profit but if half is then either 2.5k tax at 20% or 5k at 40% is a chunkto find not including your additi onal ni liability which would probably be at 2% though if you have a full time job.
And if any of that money was earned in 12/13 then your tax return is due by the end of the month if you haven't already done it.

Hi pcgtron. Thanks for your post. That's good that the mortgage lender won't care. I am sure the earning are likely to put me in the 40% tax bracket by April 2014 but I fully expect the tax bill/NI bill but as above, I wasn't aware that this was monthly so will call HMRC about this now.

Thankfully, I only started selling in September 2013 and upto December 100% of the earning have been put back into buying more stock so it's only since December that I've been able to claw some of this money back and put it to one side for the mortgage deposit.

tiger_eyes

macfanuk wrote: »

Hi pcgtron. Thanks for this. Would I need to therefore have 'excess' money in my bank after covering the deposit or could I cover the tax/NI with future sales?

The reason I ask is because the mortgage lender isn't going to know how much of the £25,000 is profit (and I won't know that either until the end of the tax year in April).

Perhaps I'm just a worrier but I'd be alarmed about any plan to cover your existing tax and NI liability with hypothetical future sales. You surely can't know what will happen in the future with enough certainty to risk this. What happens if the sales stop coming?

ethank

Note any income £32,011 from all of your sources is taxable at 40% - although most people have a tax free allowance of £9,440 - so it is actually income over £41,451 that it starts to have an impact.

Some benefits that you get from work for example a company car or medical insurance will reduce your taxable allowance, so it could be lower than £41,451.

macfanuk

tiger_eyes wrote: »

Perhaps I'm just a worrier but I'd be alarmed about any plan to cover your existing tax and NI liability with hypothetical future sales. You surely can't know what will happen in the future with enough certainty to risk this. What happens if the sales stop coming?

Hi tiger eyes. The way my Amazon account is set up is:

Sales between 1st - 15th: Get Paid 30th (or 28th in Feb)
Sales between 16th - 31st: Get paid 15th of following month

So, by the time I have the £25,000, I will already know what the next payment will be down to the last penny, and therefore, will know if this last payment will cover the Tax/NI liability.

ethank wrote: »

Note any income £32,011 from all of your sources is taxable at 40% - although most people have a tax free allowance of £9,440 - so it is actually income over £41,451 that it starts to have an impact.

Some benefits that you get from work for example a company car or medical insurance will reduce your taxable allowance, so it could be lower than £41,451.

Hi ethank. Thanks again for your thoughts. I don't get any benefits from work unfortunately but my 'profit' will likely take me over the £41,451 mark. I will be using an accountant to help with my tax return when the time comes but as you say, this isn't due until January 2015 anyway.