Registering with HMRC?

QueenoftheWorld

Hello,

I am new to it all - so bear with me! I've wanted to get a business going but not this, not that. I came across one thing that has worked (for now!!) and it's been online trading. Came across it a bit accidentally - I mean I tried for it but it was a small punt and it worked so I've tried it a few more times and still working out ok! I know that with online trading, if you buy something with the intent to sell it for a profit - you are a trader and should register with the HMRC. Before everyone jumps on me, I've only been doing this since March and obviously with things you're hoping it works but initially you just don't know so don't take premature steps that snag you up with bureaucracy and costs that will take you down before you even begin, know if it works or like it! Now that I feel this might be an option, I want to do the right thing and not get caught out and in trouble.

Obviously the advice is - go to HMRC. I know this but I guess I am hoping for a little extra information before I head in that direction. I don't know if I am still being premature as I am still quite new to it all. What is the threshold for how much you bring in? If your expenses in ramping up still exceed the money you bring in, what happens? What is the process in assessing what you're doing? What is the process after in reporting in to them? If this is my only means of income, then how does my 'salary' (which amounts to nada right now) come in?

I am not pulling in loads but obviously I hope that a trend continues but again I worry that in calling HMRC before I know what I have and what I don't, I'll snag myself with some answer because I just don't know better or know enough. No I am not saying that I am trying to hide something from them but sometimes when you don't understand your business well enough yet or maybe their questions, you could do yourself in unintentionally, then you're in a mess trying to right it - so better to get a good grasp from others who know before you put your foot in your mouth!

So any advice? Any good experience I can learn from? anything?

Savvy_Sue

Panic not. You say you have no other income, so until your profit from this (ie what you take in less allowable expenses) goes over £10,000 in the current tax year, you won't owe them anything. However if this is an ongoing 'thing' - and even if this thing doesn't work you may try another - you should register, which you can do online.

Also if your profit from self-employment is less than c.£6000 you can ask for a certificate of exemption so you don't have to pay any National Insurance.

The first piece of advice you need right now is to keep meticulous records and receipts: I don't know where you're buying and selling, but presumably you're posting things off so every time you go to the Post Office for stamps you need a receipt. You buy packing materials, you keep the receipt. You pay £5 for something and sell it for £10, you keep a record of that. And so on. Probably an Excel spreadsheet will do the job, if you often buy things when you're out and about then a small notebook to write everything down in may be a good investment.

But, do you really have no other income? Are you claiming any benefits (some are taxable, others not)?

QueenoftheWorld

I do keep a spreadsheet of what I've bought, at what price, what it sold at, ebay & paypal fees and of course the postage costs. I bundle some things up like my fees. I've kept all my receipts for purchase of the items and if I use Royal Mail I have all my receipts. Mostly I use MyHermes for a lot so I only have the slips they give you (which don't say anything of cost) but I have an account with them so I'd supposed I might be able to access that with all the costs? I'd also have my paypal account with ins & outs but that gets a little tricky as I also buy things for personal use from there and have also sold personal (used) items which may deposit in there too (which could factor into the Myhermes & Royal mail stuff too).

No, I have no income. No benefits or anything. I had for a short while contribution based income for job seekers while I did a lot of job seeking but that is all I was eligible for (and that is only allowed for a few months) as my husband makes too much, according to their rules, for me to qualify for anything else. Just to clarify before you think he's Richard Branson (more like his shoe shiner) - he doesn't make a lot but that's their rules that define it. Also, to clarify I am not a person who seeks benefits or looks for quick money - I've worked for many years in jobs but I've had to move a lot in the last 6 years so after a series of contract roles, spending enormous amounts of time with long applications, some interviews, short-term jobs that put money in the bank but no passion in my heart I thought I need to spend my time in a more profitable way than this! So began my path into how I could better use my time.

So when you say 10,000 less allowable expenses - does that include a salary for me? Or is that just stock, fees, packing and postage? As you said, if I make less than 6000 (which I definitely do right now and probably for a good foreseeable future) then if used as an expense of the business (as my time has to be worth something right?) reaching the 10,000 level in a year will take a while to achieve.

Also, I hope this doesn't sound stupid but right now - the items I've sold, I've made a profit on but I have more stock - which you always keep some on hand and have it ready if sold - and the profits don't cover that. As I said this is still very new so I haven't crossed the threshold to true profit yet. So if I've spent 2000 on 300 items, sold 100 of them for 1500, those 100 have seen a profit but when applied to the 2000 spent, I don't yet have a profit (numbers are made up but situation is true). Is that right? Or is it just seen that the items sold have been sold at a profit?

Sorry for all the questions! And thank you for all the information!

Savvy_Sue

You don't yet have a profit ...

QueenoftheWorld

So would a small salary for me be an expense to go against the profits? I work hard at what I do so I would hope that I would get a cut of the profits before the government takes their cut.

Also, as you summarised that I don't yet have a profit - so if I continued to buy more stock that exceeded what I brought in, I'd always be considered not at profit level. I know that's not the point in having a business - we actually want profit - but something seems strange that you could keep stock expense levels at a point which could define how much profit you are at. So if someone risks going over 10,000- buy more stock. But I guess everything can be manipulated, like rationing sales to keep it below a level. Sorry I think too much!

zygurat789

QueenoftheWorld wrote: »

So would a small salary for me be an expense to go against the profits? I work hard at what I do so I would hope that I would get a cut of the profits before the government takes their cut.

Also, as you summarised that I don't yet have a profit - so if I continued to buy more stock that exceeded what I brought in, I'd always be considered not at profit level. I know that's not the point in having a business - we actually want profit - but something seems strange that you could keep stock expense levels at a point which could define how much profit you are at. So if someone risks going over 10,000- buy more stock. But I guess everything can be manipulated, like rationing sales to keep it below a level. Sorry I think too much!

You are self employed, you cannot have a salary because a salary is only paid to employed people. Any money you take out of the business is drawings (on account of profit)
Gross profit (before expenses) is defined as sales less cost of sales.
Cost of sales is stock at start of period plus purchases in period minus stock at end of period. So if you keep buying more and more stock you increase the purchases and the closing stock, which is deducted so the answer is nil.
To buy more stock you need money, money comes from profit, profit comes from sales.

zygurat789

Savvy_Sue wrote: »

Panic not. You say you have no other income, so until your profit from this (ie what you take in less allowable expenses) goes over £10,000 in the current tax year, you won't owe them anything. Except class 4 NI on £2044 at 9%. However if this is an ongoing 'thing' - and even if this thing doesn't work you may try another - you should register, which you can do online. Otherwise you could be in a whole load of trouble because it looks like you are trying to defraud HMRC

Also if your profit from self-employment is less than [STRIKE]c.£6000[/STRIKE] £5885 you can ask for a certificate of exemption so you don't have to pay any Class 2 National Insurance.

The first piece of advice you need right now is to keep meticulous records and receipts: I don't know where you're buying and selling, but presumably you're posting things off so every time you go to the Post Office for stamps you need a receipt. You buy packing materials, you keep the receipt. You pay £5 for something and sell it for £10, you keep a record of that. And so on. Probably an Excel spreadsheet will do the job, if you often buy things when you're out and about then a small notebook to write everything down in may be a good investment.

But, do you really have no other income? Are you claiming any benefits (some are taxable, others not)?

.......................

Aquamania

HMRC recommend you contact them to register as self employed as soon as possible.

As you acknowledge you have already been trading 2-3 months, I don't think there is any danger if you contact them now of anyone accusing you of acting prematurely.

You only pay tax on profit, so if you've not made any there is no danger of the government taking anything this way.

As you don't even appear to understand even some of the most basics of business accounting principles, I would urge you to seek professional help in this area of running your business. (and perhaps take a course or two yourself on understanding the basics too as I believe any business owner really needs to understand the basic fundamentals if they are to succeed)

QueenoftheWorld

I wouldn't think anyone would accuse me of acting prematurely in registering...it is whether or not it is premature to assume I have a business and then register something that's a one time fluke. And of course month 1 wasn't as developed, then you try it out with a little more risk - so as you develop and test - you can be premature if you've had 2 of those months really as testing the waters. I am sure a lot of people sell their skills or wares to friends and family for a while to test it out before going straight to HMRC to register.

Gosh, it's a little harsh to say I don't even appear to understand even some of the most basics of business accounting principles. I'd like to give myself a little credit with business accounting in keeping my detailed spreadsheet, receipts, fees, etc - on top of trying to start my business by myself, buying stock low, developing sales from nothing, no feedback, shipping quickly and accurately and getting 100% good feedback and obviously wanting to do it legit - before going straight to unable to function level. : )

My uncertainty comes with taxes, which I think even a lot more savvy business people would be confused the first time out (and sometimes still are).

Obviously I want this to succeed but on a no income basis, funds are limited for professional services/courses - which some people with a lot of backing and funds can do. I am already ordering books from the library, obviously seeking assistance on here and researching as much as I can but for the laymen, we're learning the ropes and in my past roles, if I needed to pick up a skill, knowledge or experience and my employer couldn't afford to send me to a full on course, I'd go straight to others who know on a forum. As a start up business without funds yet (and I have no salary), I have to likewise work the same way and manage how money from sales is used.

zygurat789

QueenoftheWorld wrote: »

I wouldn't think anyone would accuse me of acting prematurely in registering...it is whether or not it is premature to assume I have a business and then register something that's a one time fluke. And of course month 1 wasn't as developed, then you try it out with a little more risk - so as you develop and test - you can be premature if you've had 2 of those months really as testing the waters. I am sure a lot of people sell their skills or wares to friends and family for a while to test it out before going straight to HMRC to register.

Gosh, it's a little harsh to say I don't even appear to understand even some of the most basics of business accounting principles. I'd like to give myself a little credit with business accounting in keeping my detailed spreadsheet, receipts, fees, etc - on top of trying to start my business by myself, buying stock low, developing sales from nothing, no feedback, shipping quickly and accurately and getting 100% good feedback and obviously wanting to do it legit - before going straight to unable to function level. : )

My uncertainty comes with taxes, which I think even a lot more savvy business people would be confused the first time out (and sometimes still are).

Obviously I want this to succeed but on a no income basis, funds are limited for professional services/courses - which some people with a lot of backing and funds can do. I am already ordering books from the library, obviously seeking assistance on here and researching as much as I can but for the laymen, we're learning the ropes and in my past roles, if I needed to pick up a skill, knowledge or experience and my employer couldn't afford to send me to a full on course, I'd go straight to others who know on a forum. As a start up business without funds yet (and I have no salary), I have to likewise work the same way and manage how money from sales is used.

You are registering because you are in receipt of untaxed income, your sales. You are in business from the moment you render your first invoice.
You are doing good things but those you have listed are not accountuing principles. How to calculate gross profit, see above, the difference between capital and revenue, allowable and disallowable items, the difference between salary/wages and drawings. No one is trying to belittle your efforts, merely pointing out areas where you should also direct your research.
Professional input maybe expensive and it can also be cost effective, I have seen may people make very costly mistakes, it's not so much the backing as the funds which should come from profits. You go into business to make money, otherwise there's not much point.

Have you done a budget, what is your breakeven turnover?

QueenoftheWorld

zygurat789 wrote: »

You are registering because you are in receipt of untaxed income, your sales. You are in business from the moment you render your first invoice.
You are doing good things but those you have listed are not accountuing principles. How to calculate gross profit, see above, the difference between capital and revenue, allowable and disallowable items, the difference between salary/wages and drawings. No one is trying to belittle your efforts, merely pointing out areas where you should also direct your research.
Professional input maybe expensive and it can also be cost effective, I have seen may people make very costly mistakes, it's not so much the backing as the funds which should come from profits. You go into business to make money, otherwise there's not much point.

Have you done a budget, what is your breakeven turnover?

Thanks - there are accounting principles within what I am doing and I do understand a lot of things. It is when it is applied to taxes that it goes beyond my understanding. Sometimes we just don't know what we know and what we don't know, so go through a lot of stupid questions to get our heads around it and what we have and what we lack. And hopefully a forum is a place where no question is stupid - well it shouldn't be as no one would want to go on it and they'd head straight to dragon's den for a good dose.

I agree that professional help is certainly useful and could be your make or break but I am still at such little amounts that I have no profit to speak of to go towards this. If I get to that place where I am raking in the dough, I'll certainly look for more help as I am sure, along with being better able to afford it, I'll need it.

I am a few hundred pounds short of my break-even turnover (which I'll just say is small fry and not share details here). As for a budget, I maintain a budget but have I projected one, no - I would need more and consistent data than the small windows of testing I've done. And when I get stock, it isn't always a predictable amount (too long of a story to explain but what I get, how much and negotiation of overall price can change). I negotiate every aspect from stock purchase to sales, and sometimes fees if I can sell somewhere other than ebay, which I do list elsewhere. So the trend so far has been anything but fixed.

Just a note - obviously people come to a forum, humbled, looking for help with their hands in the air...so always good to give them some recognition for being at least reasonably sensible in seeking knowledge and their efforts to date. People want help but they'll stop asking for it if they're seen as numpties for asking.