When do I register the new business

kte

Hi, hoping someone can help. 
I'm employed full time and last year opened an etsy shop for fun and the possibility of additional income. I was below the £1000 hobby threshold for 2019/20 and so didn't register as a small business and am planning to note the total earned in the additional information section when I fill in my tax return next week (I still due a tax return due to previous self employment several years ago). Is it correct to put the info here or do I not need to declare it as it is below £1000?
For 2020/21 I have now passed the £1000 income limit and will be claiming it an income/expenses rather than not paying tax on the first £1000 of income (I've now made some reasonable investment in stock/materials which makes this worthwhile). My question is that I now need to register as self-employed, but when do I backdate this too? The start of the 2020 tax year?
I've also always been confused with NI. Is it right that I will be paying through my employment, plus a weekly NI fee once registered as self employed?
Any advice gratefully received - thanks

tacpot12

You don't need to tell HMRC about the trading income if it is below £1000, so there is no need to declare it on your self assessment form. You don't need to register as a sole trader until your income exceeds £1000, so in theory, you could go all the way through the tax year and not register until the last day, providing your income hasn't exceeded £1000 - if your income exceeds £1000 on the last day you need to register then, but will be out of time to do so, so you need to a bit proactive about  it. 

As you are already completing a SA Tax return, I can't see any reason to delay registration, and it might be a good idea to register before 6th April 2021, and enter your trading income for this year on your return. As it will be within the trading allowance, you won't pay tax, but you will be fully set up for next year and will have already figured out which box to enter your trading income into.

oldbikebloke

re NI
as you appreciate NI is deducted on your salary, no choice over that

The first thing to understand about NI is it is how you become entitled to state benefits, the obvious one being state pension. To get that you must have earned a certain amount of income in the year either through PAYE or via self employment.
If your employment income is above the LEL (lower earnings limit) threshold of £120 per week or £520 per month depending on whether you are paid weekly or monthly. If yes, then you do not get any extra benefit from paying NI on your self employment - so if you don't have to, don't voluntarily pay NI on self employment!
The second thing is NI is a tax, and therefore there comes a point where you have no choice but to pay it. For self employment that means when your PROFITS exceed one or both of the thresholds for the 2 different Self employment classes!

class 2 - which is indeed a weekly value, but you pay it as a single lump sum at 52 x the weekly amount as part of your tax return. For 20/21 the threshold is £6,475 and will cost £158.60 (52 x £3.05), if your profits are above that, you must pay that amount, no choice.

class 4 - you pay this only when you SE profits are higher than a different threshold. For 20/21 you will pay 9% of the amount of your profits between £9,500 - £50,000. Any profits above £50k, you will pay at 2% instead on that excess. 

so... 3 permutations for self employed NI
a) profits < £6,475 = you do not have to pay any NI on them. You would only voluntarily do so if your employment income was too low to get you the NI credits towards your pension etc,
b) Profits between 6,475 - 9,500 = pay £158.60 class 2 
c) profits >£9,500 = pay £158.60 class 2 + 9% (and 2% if applic) class 4 

Rates and allowances: National Insurance contributions - GOV.UK (www.gov.uk)

kte

tacpot12 said:

You don't need to tell HMRC about the trading income if it is below £1000, so there is no need to declare it on your self assessment form. You don't need to register as a sole trader until your income exceeds £1000, so in theory, you could go all the way through the tax year and not register until the last day, providing your income hasn't exceeded £1000 - if your income exceeds £1000 on the last day you need to register then, but will be out of time to do so, so you need to a bit proactive about  it. 

As you are already completing a SA Tax return, I can't see any reason to delay registration, and it might be a good idea to register before 6th April 2021, and enter your trading income for this year on your return. As it will be within the trading allowance, you won't pay tax, but you will be fully set up for next year and will have already figured out which box to enter your trading income into.

Thanks so much for the info.
I'm trying to register as a sole trader for the current tax year (I'm under the 1K limit for 19/20) but can't work out how on gov.uk - I've been a sole trader in the past so still complete a tax return (although currently only employment income) - all of the sole trader registration options on the website seem to be about registering to allow you to complete a tax return - I can't find anywhere that just lets me give start dates for registration? Any thoughts?

kte

oldbikebloke said:

re NI
as you appreciate NI is deducted on your salary, no choice over that

The first thing to understand about NI is it is how you become entitled to state benefits, the obvious one being state pension. To get that you must have earned a certain amount of income in the year either through PAYE or via self employment.
If your employment income is above the LEL (lower earnings limit) threshold of £120 per week or £520 per month depending on whether you are paid weekly or monthly. If yes, then you do not get any extra benefit from paying NI on your self employment - so if you don't have to, don't voluntarily pay NI on self employment!
The second thing is NI is a tax, and therefore there comes a point where you have no choice but to pay it. For self employment that means when your PROFITS exceed one or both of the thresholds for the 2 different Self employment classes!

class 2 - which is indeed a weekly value, but you pay it as a single lump sum at 52 x the weekly amount as part of your tax return. For 20/21 the threshold is £6,475 and will cost £158.60 (52 x £3.05), if your profits are above that, you must pay that amount, no choice.

class 4 - you pay this only when you SE profits are higher than a different threshold. For 20/21 you will pay 9% of the amount of your profits between £9,500 - £50,000. Any profits above £50k, you will pay at 2% instead on that excess. 

so... 3 permutations for self employed NI
a) profits < £6,475 = you do not have to pay any NI on them. You would only voluntarily do so if your employment income was too low to get you the NI credits towards your pension etc,
b) Profits between 6,475 - 9,500 = pay £158.60 class 2 
c) profits >£9,500 = pay £158.60 class 2 + 9% (and 2% if applic) class 4 

Rates and allowances: National Insurance contributions - GOV.UK (www.gov.uk)

Thanks, that's really helpful - I hadn't realised that you could opt out of paying them with a low sole trader income (as I've had in the past).
Looking at the history of my NI contributions on gov.uk, do you think that means that I can claim some of the sole trader NI payment back for some of those years (when I've already paid a full year alongside through employment?)
Thanks

Savvy_Sue

Registration as a sole trader isn't needed if you're already doing a tax return. YOU are the business, so if you're already on HMRC radar, nothing more is essential. (I'm assuming you'll already have any insurance / professional membership you need. If you don't need any, no problem.)

kte

Savvy_Sue said:

Registration as a sole trader isn't needed if you're already doing a tax return. YOU are the business, so if you're already on HMRC radar, nothing more is essential. (I'm assuming you'll already have any insurance / professional membership you need. If you don't need any, no problem.)

Thanks so much for the information - I had assumed that because I had told them I had stopped trading a few years ago, that I would have to give a date that I started trading again. 

Savvy_Sue

There's an awful lot of things HMRC just don't care about, and that's one of them! If you'd managed to persuade them you didn't need to do a tax return any more, because it was all going through PAYE, you'd need to register. Now, they'll just clock the extra income and calculate the tax accordingly. 

oldbikebloke

kte said:

Thanks, that's really helpful - I hadn't realised that you could opt out of paying them with a low sole trader income (as I've had in the past).
Looking at the history of my NI contributions on gov.uk, do you think that means that I can claim some of the sole trader NI payment back for some of those years (when I've already paid a full year alongside through employment?)
Thanks

sounds like to you were ticking buttons on your tax return that you should not have done
@ 20/21 rates 
class 2 - no opt out if annual profits > £6,475
class 4 - will not be charged at all unless profits > £9,500
earlier rates you can look up yourself 
Rates and allowances: National Insurance contributions - GOV.UK (www.gov.uk)

work through this set of questions re possibility of reclaiming overpaid NI, it is not a contextless yes or no answer
Claim a National Insurance refund - GOV.UK (www.gov.uk)

macman

kte said:

tacpot12 said:

You don't need to tell HMRC about the trading income if it is below £1000, so there is no need to declare it on your self assessment form. You don't need to register as a sole trader until your income exceeds £1000, so in theory, you could go all the way through the tax year and not register until the last day, providing your income hasn't exceeded £1000 - if your income exceeds £1000 on the last day you need to register then, but will be out of time to do so, so you need to a bit proactive about  it. 

As you are already completing a SA Tax return, I can't see any reason to delay registration, and it might be a good idea to register before 6th April 2021, and enter your trading income for this year on your return. As it will be within the trading allowance, you won't pay tax, but you will be fully set up for next year and will have already figured out which box to enter your trading income into.

Thanks so much for the info.
I'm trying to register as a sole trader for the current tax year (I'm under the 1K limit for 19/20) but can't work out how on gov.uk - I've been a sole trader in the past so still complete a tax return (although currently only employment income) - all of the sole trader registration options on the website seem to be about registering to allow you to complete a tax return - I can't find anywhere that just lets me give start dates for registration? Any thoughts?

You could have deregistered from SA at the point you ceased to be self-employed:
https://www.tax.service.gov.uk/shortforms/form/CeaseTrading

kte

macman said:

kte said:

tacpot12 said:

You don't need to tell HMRC about the trading income if it is below £1000, so there is no need to declare it on your self assessment form. You don't need to register as a sole trader until your income exceeds £1000, so in theory, you could go all the way through the tax year and not register until the last day, providing your income hasn't exceeded £1000 - if your income exceeds £1000 on the last day you need to register then, but will be out of time to do so, so you need to a bit proactive about  it. 

As you are already completing a SA Tax return, I can't see any reason to delay registration, and it might be a good idea to register before 6th April 2021, and enter your trading income for this year on your return. As it will be within the trading allowance, you won't pay tax, but you will be fully set up for next year and will have already figured out which box to enter your trading income into.

Thanks so much for the info.
I'm trying to register as a sole trader for the current tax year (I'm under the 1K limit for 19/20) but can't work out how on gov.uk - I've been a sole trader in the past so still complete a tax return (although currently only employment income) - all of the sole trader registration options on the website seem to be about registering to allow you to complete a tax return - I can't find anywhere that just lets me give start dates for registration? Any thoughts?

You could have deregistered from SA at the point you ceased to be self-employed:
https://www.tax.service.gov.uk/shortforms/form/CeaseTrading

Yep, that's the form I remember filling out...
Thanks for all the advice everyone, it's very much appreciated