Sole trader - am I doing it right?

CashUnderMattress

Hello fellow savers
My wife last year started a small activity from home that brings in some 8-10k/year. I now want to formally register it so she can start paying NICs to be eligible for state pension in many years time (she has never worked since she moved here - she has settled status).
Having read gov.uk it seems to me the right form is to set her up as sole trader, but the process seems so simple to me that I feel I may be missing something. In summary, as I understand it:

1.  she must notify HMRC that she intends to file a tax return
2. before 31/1/21 she must file a TR with the profits from 19/20 (retroactively) under income from self-employment, and then in april 21 for the 20/21 tax year.
3. NICs and income tax (will be within personal allowance) are calculated in the submission and will be payable then
4. no formal business registration required
5. she must have records of the business (invoices in/out) but she's not required to submit them.

is that it?
My main confusion is with VAT: she's way below the 85k threshold so she's not required to register for VAT, but does she have any obligation regarding it?
Thanks for your wisdom!

oldbikebloke

so she started trading in/after April 2019?
in which case she is late registering for a tax return since she had until 5th Oct following the end of the tax year she started by which to register, ie 5/10/20
Chances are however under current circumstances there will not be any repercussion from being late as long as she does then submit the tax return by whatever deadline HMRC give her - normally 31 Jan 21, but they may be kind and extend it (unlikely - they will send a letter notifying her to submit a tax return and by when) 
https://www.gov.uk/self-assessment-tax-returns/deadlines
https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

yes the tax year is April - April so yes she could if organised produce her accounts for 20/21 and file a tax return as soon after 6th April 21 as she wants

3. do you mean 10k income or profit?
for NIC she will only be required to pay if her profits are above the lower profit limit of £9,500. If they are she will pay both class 2 and, pay class 4 on the excess above 9,500.
if her profits are small, she can voluntarily pay class 2 only - she has to manually select that option on the tax return 
https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

4 - correct
5 - correct, you submit a tax return, not the paperwork  

Vat is irrelevant, if you are not VAT registered then you have no "obligations" regarding it, other than compulsory registration when your turnover breaches the registration threshold.

it is her business, why not trust her to research her own tax affairs?
You may be married, but it is her responsibility, not yours, so "I" should not be registering anything

CashUnderMattress

oldbikebloke said:

so she started trading in/after April 2019?
in which case she is late registering for a tax return since she had until 5th Oct following the end of the tax year she started by which to register, ie 5/10/20
Chances are however under current circumstances there will not be any repercussion from being late as long as she does then submit the tax return by whatever deadline HMRC give her - normally 31 Jan 21, but they may be kind and extend it (unlikely - they will send a letter notifying her to submit a tax return and by when) 
https://www.gov.uk/self-assessment-tax-returns/deadlines
https://www.gov.uk/log-in-file-self-assessment-tax-return/register-if-youre-self-employed

oh crap - I missed that. I'll see if they let us file anyway somehow.

oldbikebloke said:

3. do you mean 10k income or profit?
for NIC she will only be required to pay if her profits are above the lower profit limit of £9,500. If they are she will pay both class 2 and, pay class 4 on the excess above 9,500.
if her profits are small, she can voluntarily pay class 2 only - she has to manually select that option on the tax return 
https://www.gov.uk/government/publications/rates-and-allowances-national-insurance-contributions/rates-and-allowances-national-insurance-contributions

yes, voluntary class 2 was what we were going for. Not 100% sure how the different types of contributions stack together, but I admit I only did a superficial search.

oldbikebloke said:

Vat is irrelevant, if you are not VAT registered then you have no "obligations" regarding it, other than compulsory registration when your turnover breaches the registration threshold.

it is her business, why not trust her to research her own tax affairs?
You may be married, but it is her responsibility, not yours, so "I" should not be registering anything

I was assuming that Value Added Tax is applied to any value added - it sounded off to me that with a turnover of 85k which is not negligbile, you are not bound to any VAT contribution. In Italy, where I am originally from, if you are trading you pretty much have to register for VAT. Regarding doing her own accounts, my wife is an artist - if I didn't "consult" on that matter, she'd have to pay for someone. Her mind is wired differently

oldbikebloke

CashUnderMattress said:

yes, voluntary class 2 was what we were going for. Not 100% sure how the different types of contributions stack together, but I admit I only did a superficial search.

I was assuming that Value Added Tax is applied to any value added - it sounded off to me that with a turnover of 85k which is not negligbile, you are not bound to any VAT contribution. In Italy, where I am originally from, if you are trading you pretty much have to register for VAT. Regarding doing her own accounts, my wife is an artist - if I didn't "consult" on that matter, she'd have to pay for someone. Her mind is wired differently

NI is simply tax, it does not "stack".
Class 2 is unique to self employed, is a fixed sum, and provided she pays 52 x the weekly rate she will get a qualifying year state pension credit. As you say, for those below the compulsory payment threshold, she can choose on her tax return to pay voluntarily. Sounds like you will need to do her return for her if she is "unwired" 🤪

Class 4 is pure tax, it does not count towards any state benefit entitlements at all.

As she has no employment income, the main difference with only paying class 2 is she will not get entitlement to contributions based job seeker allowance, ie a self employed person cannot be "unemployed" in that sense. She will however get state pension as you know, plus she will get maternity allowance if she has a child,  see table here:
https://www.litrg.org.uk/tax-guides/tax-basics/what-national-insurance#toc-what-benefits-do-my-contributions-pay-for-

VAT for the UK is irrelevant if turnover <£85,000.
Below that you do not "apply" anything to anything. Your client pays you whatever you charged them, there is no VAT element of that charge, nor do you have to account for anything VAT related to HMRC as there is none, since you are not Vat registered. (It is actually illegal to charge VAT if you are not registered, ie add 20% to your bill, and tell the customer it is "VAT". She'd be heavily penalised if she did that).

Grumpy_chap

OP should consider an Accountant.  Will be worth the fees.

macman

When in 2019 did she start trading? Before or after 6/4/19? If before, she should have declared her income for the tax year 18/19 also.

CashUnderMattress

macman said:

When in 2019 did she start trading? Before or after 6/4/19? If before, she should have declared her income for the tax year 18/19 also.

after

Mistral001

CashUnderMattress said:

Hello fellow savers
My wife last year started a small activity from home that brings in some 8-10k/year. I now want to formally register it so she can start paying NICs to be eligible for state pension in many years time (she has never worked since she moved here - she has settled status).
Having read gov.uk it seems to me the right form is to set her up as sole trader, but the process seems so simple to me that I feel I may be missing something. In summary, as I understand it:

1.  she must notify HMRC that she intends to file a tax return
2. before 31/1/21 she must file a TR with the profits from 19/20 (retroactively) under income from self-employment, and then in april 21 for the 20/21 tax year.
3. NICs and income tax (will be within personal allowance) are calculated in the submission and will be payable then
4. no formal business registration required
5. she must have records of the business (invoices in/out) but she's not required to submit them.

is that it?
My main confusion is with VAT: she's way below the 85k threshold so she's not required to register for VAT, but does she have any obligation regarding it?
Thanks for your wisdom!

Yes that is it.   
And  do not have to register for VAT.