Part 2 – Register with HMRCPosted 01/05/2014 by Rebecca Cannon
Register with HMRC
You must register with HMRC within at least 3 months of becoming self-employed (even if you’ve got a job), or you could face a fine. Online registration is quick and easy, so don’t put it off!
Once you’re registered, your Self Assessment tax return will be due every January. It covers the previous year’s trading up to April 5th. Be prepared for your tax return by keeping all your receipts (be vigilant – keep everything, even petrol receipts!) and of course your invoices.
The current personal tax threshold is £10,000 (2014/15) – you will be taxed on any profits over this. However, if you already have a job and use your full personal allowance there, any profit made will be subject to tax.
You also need to start paying Class 2 National Insurance contributions at a flat rate of £2.75 per week (2014/15). You can register for this when you register your business with HMRC https://online.hmrc.gov.uk/registration/options BUT if you expect to earn less than £5,855 – (2014/15) you should apply for a Certificate of Small Earnings and will not need to pay.
Once registered you can choose to make your payments either monthly or 6 monthly by Direct Debit.
Payments dates for both Self Assessment and Class 2 National Insurance contributions will become due on the 31st January and 31st July – so remember to put money to one side from your baking profits or you could find yourself landed with a bill and no funds to pay it!Q. Hi, I just wondered if you could advise me on starting a cake business. I’m currently already working full time but want to set up a cake business from home part time. Do you know how this will affect my tax, as will only be doing a few orders each week so just not sure if it’s worth me doing it because of the tax, hope you can help? A. There are a few things to consider: firstly you’ll have to complete a Self Assessment form every year, or hire an accountant to do it. You’ll be taxed at your normal rate on your earnings (Look at your total income, that’s 0% on the first £10,000, 20% up to £31,865 and 40% up to £150,000). When you become self-employed, you also have to pay NI Class 2 contributions – currently at £2.75 per week – unless you earn less than £5,855 a year in self-employment. Q. If you set up part time business with a full time job do only pay tax on profits? A. Yes – but remember you have a £10,000 personal tax allowance – if you do not use all of this in your full time job you can use the balance in your part time business. For example: full time job salary £7,500 – no tax due and £2,500 can be used against profits made in your part time business Q. If you spend your profits on equipment (new cake tins, moulds etc) do you still have to pay tax on those profits? A. You can offset the cost of equipment from your profit before tax applies – this will become clearer when you complete your self assessment. Remember to keep ALL your receipts as proof of purchase. Q. Does the above mean you pay NI twice, once with full time job and one with cake business? A. If you expect to earn more than the £5855 profit limit you need to pay Class 2 NIC flat rate Q Is the £5858 mentioned above profit or turnover? A. Profit – that means turnover minus any valid costs and expenses. What To Do Next
Read on… Part 3 ‘Set up business banking‘