eBay and Etsy Side hustle tax

MetaPhysical

My fiancee has been running a small high volume low margin business on eBay and Etsy where she makes about £5000ish per year in profit.  Clearly, this is above the £1000 sole trader allowance and so she needs to declare this on a tax return.  I'd have thought that HMRC would have bigger fish to fry but there you go.....  She is miles below the VAT threshold.

She also incurs expenses.  For example, she brought herself a computer for the purposes of this business and bought a printer to run off labels etc.  She has to buy stationary and postage materials and drive to the post office twice a day to drop off the items.

Does a small trader like this have to register as a business with Companies House in order to claim these expenses against her sales?

BoGoF

Only Ltd companies need to register at companies house.

For expenses it's either the trading allowance or actual expenses....not both. Does she have other income?

MetaPhysical

She works part time as a teaching assistant so will be over the PA threshold. her total income will be about 18k including the side hustle. 

MetaPhysical

It would be more beneficial for her to do expenses. But I wondered if she needed to register or formalise this side hustle somewhere in order to claim expenses?

BoGoF

MetaPhysical said:

It would be more beneficial for her to do expenses. But I wondered if she needed to register or formalise this side hustle somewhere in order to claim expenses?

Yes, with HMRC.

Are you sure actual expenses is better? She won't get the full cost of a computer unless 100% business use and it's a one off cost. You can't chop and change method in future.

MetaPhysical

Yes, I think so.  £1000 - or the tax relief on £1000 at 20% (in other words £200)  will not cover her expenses and costs.  Yes 100% business use.  She has a different computer for her personal stuff.

BoGoF

MetaPhysical said:

Yes, I think so.  £1000 - or the tax relief on £1000 at 20% (in other words £200)  will not cover her expenses and costs.

Thats not how it works.

You do realise that both the trading allowance and expenses reduce taxable profits in the same way?

DullGreyGuy

BoGoF said:

Only Ltd companies need to register at companies house.

Ltd, Unlimited, PLC, LLP... all forms of incorporated entity have to be registered with Companies House.

MetaPhysical said:

Yes, I think so.  £1000 - or the tax relief on £1000 at 20% (in other words £200)  will not cover her expenses and costs.  Yes 100% business use.  She has a different computer for her personal stuff.

Her expensive are more than £1,000?

Why did she need a new laptop if she has a perfectly serviceable one? Things like a computer are a capital purchase not an expense

For an unincorporated business you just need to inform HMRC you are a sole trader and need to do self assessments. 

MetaPhysical

Because she needs to run modern software on the trading laptop like excel to keep her records.  Her other "computer" is an iPad.  So she needed this "real" computer in order to keep records.  So that isn't an expense as such?

[Deleted User]

MetaPhysical said:

Because she needs to run modern software on the trading laptop like excel to keep her records.  Her other "computer" is an iPad.  So she needed this "real" computer in order to keep records.  So that isn't an expense as such?

She can claim the trading allowance which will reduce her profits by £1000

OR 

she can claim actual expenses, including the computer (as an expense if using the cash basis or through capital allowances if not). 

If her expenses are less than £1000 claim trading allowance. 

The important thing is to get registered or penalties can accrue. 

MetaPhysical

So if you bought a ton of widgets at £10 each, you sold them for £15 and incurred costs in sale of £3 (postage, packing, printing you own capital costs for shelving etc), your profit is £2 on the Tax Return right?  So what details would HMRC want to know here?  I thought it would simply be total gross sales, total profit and expenses.

Is the shelving in that example not an expense?  Is refunding a purchaser an expense|? Is driving to the Post Office to post them not an expense and deductible from the profit totals?  IS keeping the house from being the Arctic Tundra whilst doing this an expense?