Declaring last three years of trading?

rosesinwinter

I started making crafts about three years ago and thought I'd have a go at selling them on ebay, along with selling my usual clutter - used clothes etc - via a private account. However, I've always been running at a loss and genuinely (stupidly) thought I wouldn't have to register with HMRC until I started making a profit.

But in looking at setting up a shop in desperation to recoup craft expenditure, I've come to my senses & realise that I fit the description of a trader and should have registered with HMRC even if I have been making a loss. :eek:

But I'm now worried about potential penalties (being nearly £8k in debt - a lot from buying craft materials, I hasten to add).

Please could someone advise on:

1) How much HMRC are likely to fine me if I declare the last 3 years (again, it is at a loss!!)

2) How can I get proof of income from ebay (can only download csv files over the last 90 days). I have recorded the majority of the money I have spent on craft stuff in a simple table.

2) is it in my interests to set up a completely new shop on ebay (forgoing my 100% feedback) and keep a separate personal a/c? The shop will be to sell my craft items and any surplus materials I'm not using.

Thanks in advance

TheCyclingProgrammer

Strictly speaking you're only required to register for self assessment and submit a tax return if you have taxable income to declare, which if you've been making a loss will be nil. So I don't think there is any basis for you to be fined for failure to submit a tax return (you must also submit a tax return of HMRC send you a notice asking for one and I'm going to assume they have not). For income tax purposes you're only required to notify within 6 months of having taxable income.

However there is a separate requirement to notify HMRC if you begin trading on a self employed basis for the purposes of national insurance contributions. That is because you are supposed to pay class 2 national insurance contributions regardless unless you earn under a certain amount AND apply for a small earnings certificate.

So there is a possibility of penalties for failure to notify for class 2 NIC and also backdated NIC unless you can get HMRC to agree to a backdated small earnings exemption. If you've made no profits they may be lenient.

My suggestion would be to ring HMRC and explain the situation to them. I would expect that they will send you a notice to complete a tax return for this tax year and they may also ask you to submit them for each year you've been trading.

An overview of failure to notify penalties is here:
https://www.gov.uk/government/publications/compliance-checks-penalties-for-failure-to-notify-ccfs11

The penalty will be based on the "potential lost revenue" which on this case is the unpaid NIC. The penalty can be reduced as a result of you disclosing your mistake and fully cooperating.

If you can convince HMRC to apply the small exemptions certificate (if they are able to) retroactively then arguably there is no lost revenue and there may be no penalty (the £100 fixed penalty for late submission of a tax return would not apply in this scenario as you've never received a notice to file one).

Hope that helps.

rosesinwinter

Hi, thanks for this, much appreciated.
No I've not received anything from HMRC.
Will check the link and noted about National Insurance contributions.
Will call this week.
Thanks again.

PlutoinCapricorn

Are you working in a PAYE job? If so, you are paying Class 1 NI, and are not liable to pay any self-employed Class 2 ( low SE earnings).

rosesinwinter

Hi PlutoinCapricorn
Thanks for your reply.

Yes I work full time under PAYE and National Insurance does come out of my account.

rosesinwinter

*account - I mean wages!

PlutoinCapricorn

If your earnings from Self-Employment are over a certain amount - around £5,965 - you must pay Class 2 NI even if you are paying Class 1 under PAYE.

If your SE earnings are under the threshold, you are exempted from paying Class 2 - unless you actually want to pay, to get certain benefits. Anyone who has a PAYE job will get the benefits anyway.

So it seems that you don't owe any income tax nor NI.

http://pwc.blogs.com/private_business/2015/05/changes-to-class-2-national-insurance-contributions.html

PlutoinCapricorn

By the way, the exemption certificates are no longer in use - Class 2 NI is dealt with in the tax return - and it seems that further changes are being planned by George Osborne in the next parliament.

TheCyclingProgrammer

I knew the small exemptions certificate was going away, I wasn't sure if it was this tax year or next.

With this change, I assume the requirement to notify HMRC of self-employment remains unchanged? The requirement to notify was for the benefit of NI, not income tax (which could be nil if the person earned below the personal tax threshold), but I'm guessing you still need to register straight away as there is now a requirement to submit a tax return for NI purposes now.

PlutoinCapricorn

CP, the self-employment rules keep changing, and I find them rather vague about when you are supposed to register anyway. It depends a lot on what you are doing and the size of the business.

Someone whose income is very high right from the start - a very high-powered consultant website designer with a lot of contacts for example - is very different from someone who has made some items and plans to sell them on eBay or someone who hopes to build up a part-time home ironing business.

rosesinwinter

This is all really helpful - thanks again CP & PinC