Sole trader question

DFlights

Hello, I don't have much to add except that if your friend's wife requires insurance (which is really a must if you are trading, as anything could cause injury! And some people are very litigious in nature) then the Artists' Network do good cover on both public and product liability for £36 per year. This covers for accidents caused by the product itself, and accidents caused by perhaps, someone tripping over the leg of your craft market stall, as an example. I think the public liability part of it covers you for up to five million pounds.
There are also other specialist insurers for artists/craftspeople, who offer affordable services.
I make pewter jewellery, dragon pendants and the like, and also paint pictures, and I make around the same amount a month (trying to improve on that figure) that your friend's wife does, and I've informed HMRC, managed to get an exemption form for NI, and don't pay any income tax yet, so it's definitely worth registering.
I also don't use an accountant as my books are very simple, but I registered immediately I decided to start trading, so didn't have the worry of fines for late registration, so it would be worth finding a good accountant just to sort that out and, as a previous poster said, mitigate any impact.

soolin

Savvy_Sue wrote: »

Except that the 'hobby business' which makes no profit (and possibly even a loss) is of no interest to HMRC. And that is probably how this started.

I'm not suggesting this as a delaying tactic, but working out at what point she started making a profit could be worth doing.

Actually, there is not a requirement for a business to make money before they register, the registration requirement is absolute. A person should register as soon as they start to trade and it is quite possible to submit accounts when required showing that no profit was made.

Mistral001

soolin wrote: »

Actually, there is not a requirement for a business to make money before they register, the registration requirement is absolute. A person should register as soon as they start to trade and it is quite possible to submit accounts when required showing that no profit was made.

Some countries require you to register a business. In the UK there is no such requirement.

Savvy_Sue

Mistral001 wrote: »

Some countries require you to register a business. In the UK there is no such requirement.

And my understanding is that you don't have to register with HMRC if you do not have [additional] tax to pay.

I'd suggest that keeping records from the outset is essential, so that you KNOW whether or not you're making a profit. We had a thread here not so long ago where a mobile DJ had had their earnings assessed by HMRC after a failure to register / declare, and let's just say that HMRC is not as generous at allowing for expenses as they might be, and very optimistic about the earning power of such activity.

In the OP's friend's wife's case, there may well be tax to pay, and working out how much could be very difficult if records haven't been kept, and yes, HMRC CAN fine for late registration, and may do so here. But equally they may not do so.

tom.senex

Thank you Sue. This is something I did ask actually. Sales records have all been kept, as most receipts relating to the purchase of material. Some, as it seems, have been lost including some relating to bus / train fares.

Point of the matter is they thought this whole thing wouldn't last this long and in any case it's not been constant due to personal / family issues.

In any case, having a chat with an experienced accountant is not going to do any harm. I wonder how many start up started life in exactly the same way.

Thom

soolin

Mistral001 wrote: »

Some countries require you to register a business. In the UK there is no such requirement.

There is no UK register of businesses that one is required to sign up to . However, it is a legal requirement to register with HMRC whether you are using a business name or trading as a sole trader. Failure to register with HMRC in a timely manner can have severe repercussions.

Savvy_Sue

soolin wrote: »

There is no UK register of businesses that one is required to sign up to . However, it is a legal requirement to register with HMRC whether you are using a business name or trading as a sole trader. Failure to register with HMRC in a timely manner can have severe repercussions.

£400 profit per month, x 12, £4800. This is below the personal tax allowance of £10,000.

Although we do not know what other income there might be. And the Tax Credits question raised earlier is very important.

It may well be of benefit to register with HMRC sooner than that, and it is definitely wise to keep records from the outset, but I am not convinced that the OP's friend is going to be in deep doodah for not having registered if there is nothing owed to HMRC.

Percy1983

I do believe if you contact them and confess they do infact reduce or waive many of the fines.

If you want until they catch up with you they will hit you with everything you have.

antrobus

tom.senex wrote: »

....The question therefore is what do they do next? They asked a few of us down the pub and I said I'd post something on this forum. What they are looking for really is some guidance. ...

Your friend should go off and find themselves a local accountant who will have seen it all before.

This would not be the first time in recorded history that someone has started off making a few quid from a hobby type activity and then woken up one day and realised that they have a business.

HMRC will be more than happy to accept this voluntary disclosure and the most they will do is charge interest on any back tax or NI that is due.

soolin

I have seen quite a number of people get into huge amounts of trouble for not declaring themselves as a trader- regardless of whether they are above or below the tax threshold.

Strangely enough though the ones caught quickly were caught by DWP in the first instance, mostly turned in by friends and relatives who knew that benefits were being calculated on a household income that did not take into account a 'bit of trading' on the side. HMRC seem to catch people much later- but hit them with enormous penalties to get them to comply.