Registering as self employed

madmum33

I've been painting for a number of years, but never made an income from it, it was more of a self-supporting hobby.

I've just signed a contract to license my artwork for use on textiles, with the license starting from January 1st 2016. If things go well I should be earning enough to pay tax.

Which date should be the first day of working for myself on the self assessment registration? Should I actually go back a little further? It won't make a difference, although I did spend some money on art supplies in December.

If you have any other advice to help a self employed newbie that would be appreciated too,

Ruth

TheCyclingProgrammer

I wouldn't overthink this too much, but it seems reasonable to say the moment this turned from a hobby to actually trading is the day you agreed to an ongoing commercial arrangement so I would go with that.

My main advice would be to learn how to do some basic bookkeeping, keep good records and receipts for all business related expenditure, learn what is and isn't tax deductible - if you're working from home you'll certainly be able to claim a proportional amount of your fixed costs (I believe there's also a simplified method, so decide which works best for you), obviously all your art supplies will be a tax deductible cost, business calls if you make any etc.

Even though any profit you make is yours (as you and your business are one and the same) I'd still recommend setting up a small business account to receive your payments and make any business related purchases from. You can transfer any money out of your profits to your own account and record them as drawings when you need them. It makes no difference to your tax, but it's good to keep personal and business expenditure separate IMO.

madmum33

Very helpful, thank you TCP!

I've downloaded a basic spreadsheet template to use as a starting point. I'll look into a free business account, I suppose it makes everything easier.

I guess I'll be expected to complete my first self assessment around this time next year? How does NI work?

Ruth

Savvy_Sue

TheCyclingProgrammer wrote: »

obviously all your art supplies will be a tax deductible cost,

My emphasis, I'd slightly query that part, because my understanding is that only expenses directly related to the business are tax deductible, and if the OP is going to continue to do some 'hobby' painting then it could be argued that not ALL the art supplies are tax deductible, in the same way that if they took out a new phone contract not all the calls would be tax deductible UNLESS that phone was only ever used for business purposes.

Although having said that, we may not be talking very much money (depending on how much 'hobby' painting consumes), and it's unlikely to raise a query with HMRC, but IF there's a significant continuation of 'hobby' work then it would be wise to keep a note of % use, if that makes sense ... (it's where a spreadsheet can be really useful!!!)

TheCyclingProgrammer

I would argue that whilst somebody who creates artwork for a living may also continue doing it for pleasure/as a hobby, that the purchase of any art supplies could easily be justified as being wholly and exclusively for business purposes and any personal use of them being not considered significant.

I don't think trying to apportion your use of art supplies between "business" and "personal" is necessary and given that any work OP does could potentially be sold that the distinction is fairly meaningless in this particular context.

Just in the same way that if a person requires a laptop to do their job and they (or their employer) purchases one for this purpose, it is treated as wholly and exclusively for business purposes even if there is some personal use. In fact, you could use it more for personal than business and it would still be treated as wholly and exclusively for business purposes if it was bought solely because it was essential for the job.

madmum33

Savvy-Sue, I understand your point, but as TCP says, anything I paint could be sold, unless I choose to keep the odd one permanently, but even in that case the materials used would have a negligible cost. As I'm a watercolourist, all I need is watercolour paper (£1.50 per painting max) and paint (up to £15 a tube, but they can last for years). I already have brushes, again they last years if looked after, so those costs will be small.

My biggest expenses are likely to be related to technology... my computer has had it, so that's the first big purchase, along with office furniture. From what I've read, these are treated in a different way, I'll need to get advice from somebody.

Many thanks for your help so far... I've filled in the online forms to get the ball rolling, now I just hope I make some money!

Ruth

TheCyclingProgrammer

The computer and furniture can be treated as assets but it might be easier to use cash basis and treat assets like computers and furniture as an expense but it might be worth getting some advice from an accountant on this one (I run a Ltd company and its been a while since I was self employed).

https://www.gov.uk/simpler-income-tax-cash-basis/overview

madmum33

That sounds perfect, thank you!