Selling art and tax

kathrynha

Not sure if this is the right place to post, so mods please move it if it isn't.

I work for an employer who pays all my tax and NI, so I have no experience of tax returns or anything.

I am an artist in my free time, up till now just for fun. I have been given the opportunity to sell some of my work.

I am assuming that I should pay tax on this extra income. How do I do this? Is there an amount I am allowed to sell before I pay tax? What about material expenses? Do I need to tell my employer about this extra income and do they need to do anything different?
Anything else I need to know or consider?

Thank you

pinkteapot

I did some freelance work alongside my main employment a few years ago (4 I think?) and this is what I found. Someone will be along soon if any of my advice is out of date:

You're a "sole trader" (assuming you haven't registered as a limited company). You need to tell HMRC within three months of starting to trade (sell) and they will then ask you to complete tax returns for this and subsequent tax years. You just phone them and say you're a sole trader alongside employment and they note it. They'll ask for your business name (I just used my own name for that) and the date you started trading.

You don't need to tell your employer, for tax purposes. It will make no difference to how they tax you. If your tax code changes as a result of it, HMRC just tell your employer your new tax code and they implement it. They don't need to understand where it's come from.

Do however check your contract to see if you should have told them for HR purposes (some employment contracts prohibit work on the side or say you have to notify them).

You will pay income tax and national insurance:

Income tax: If you don't want to use an accountant, you can simply note how much you've taken and how much you've spent on obvious costs like materials. It's also possible to claim other less 'obvious' costs like portions of your electricity bill if you produce your work at home. I didn't bother with this as I didn't make much and didn't get an accountant. All the tax return asks for is total takings, total costs and total profit (takings minus costs). You pay income tax on the amount of profit. I could have paid less tax if I'd claimed for all the costs possible!

You won't get a tax-free allowance if your main job uses it all up (ie if you earn more than your tax-free allowance which I assume you do). If you pay income tax at 20% on your main job, you'll simply pay 20% of your profit in income tax.

For national insurance read this:
https://www.gov.uk/self-employed-national-insurance-rates

There are two you may have to pay - Class 2 and Class 4 - but if you're not making much you may only pay one or neither. See the page above. Read this through before phoning HMRC to register as they deal with both income tax and national insurance.

I found HMRC really helpful on the phone when I was freelancing as I had no idea what I was doing going into it.

kathrynha

Thanks for that pinkteapot.

Looks like I won't have to pay NI, as I doubt my profits will be anywhere near £5885 a year.

The tax looks not too difficult as long as my only costs are materials, and I don't claim for heating at home (I would be at home anyway at the times I will be doing stuff.
Only issue with costs to start off with is I already have a massive pile of materials at home, which I don't have receipts for, so how do I account for that? I could work out how much it cost from prices on suppliers website.

I think ring HMRC will be on my todo list for next day off.
Thanks

pinkteapot

You'll have to pay Class 2 (£2.75 per week) unless you apply for the Small Earnings Exemption, so make sure you do that.

I think you'll only be able to put material purchases made in the relevant tax year down. So, for 2014-15, purchases made between April 2014 and April 2015. There's a 'Cutting tax' board on these forums - ask on there to be sure.

I also think (but check with the tax board again) that you'll only be able to put down expenses that you have receipts for. I was slightly surprised when I started that HMRC didn't actually ask for receipts or proper accounts or anything. Just the total in, out and profit. But I assume they can choose to audit you if they want and then they'd want to see proof of the numbers you've given. For that reason, I'd only include expenses you have proof of, but I erred on the side of safety with all of it! Hence paying more tax than was probably necessary.

The tax board people will be able to advise more on this side of it. Good luck!

Claree__x

Pinkteapot's advice is pretty spot on to start.

With regards to expenses - it doesn't matter if you'd be home anyway, the more expenses you claim the less profit you have and the less tax you pay. As long as it's reasonable!

The materials that you already have you could claim as they were used in this tax year. You don't specifically need receipts and if you have secondary proof (ie. A bank statement showing outgoings to art supply shop...) that'd be enough for a tax enquiry.