So, you've decided to turn your craft into a little business. Or you've discovered the joys of the likes of Tropic Skincare, Avon or Usborne Books which are all easy to start and with some effort can turn into quite a lucrative side hustle.
What actions should you take to ensure that you comply with tax regulations?
Firstly, it is important to maintain well-organised records. The pace at which your business expands and the amount of revenue you generate may influence how you approach this task. For example, if you are only making occasional sales, using a tool more advanced than an Excel Spreadsheet may not be cost-effective. However, if your business is experiencing rapid growth and you are struggling to manage the paperwork, I suggest considering an investment in specialized software. There are numerous options available, and the choice largely depends on personal preference, but I personally recommend Xero as I find it to be the most user-friendly among them.
To ensure proper record-keeping, it is essential to retain all purchase invoices/receipts related to business activities, as well as sales invoices or alternative evidence of sales if invoices are not issued. Maintaining a separate bank account for financial transactions is also recommended for better organisation.
Next, you will have to notify HMRC about your earnings, which may vary depending on your circumstances. If you are not employed, you can earn up to £1000 before you are required to report it. However, if you are employed, you must disclose all untaxed income to HMRC through a Self Assessment. To do this, you must first register and obtain a UTR from HMRC. It is advisable to register for Self Assessment promptly, but keep in mind some crucial deadlines.
Should the income that needs to be declared pertain to the tax year 2023/24, you must register by 5th October 2024. This can be completed by visiting the following link: https://www.gov.uk/register-for-self-assessment
Similarly, if the income falls within this tax year, you have until 5th October 2025 to register, and so forth.
While not many opt to submit their assessment on paper nowadays, if this is your preferred method, the deadline remains 31st Oct. If you choose to file online, you have until 31st Jan, which is also the deadline for settling any outstanding liabilities.
Additionally, if you are uncertain about any of the points mentioned above or lack the time, it is advisable to seek the assistance of professionals. Bookkeepers and Accountants are highly experienced in maintaining accurate records, preparing and calculating tax returns. They can complete these tasks promptly and effectively, and may even identify potential deductions that you might overlook.
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So to recap...
Keep well organised records
Inform HMRC (when you've earned £1000 if it's your only income)
Register for Self Assessment by 5th Oct
File paper returns by 31st Oct
File online returns by 31st Jan
Pay any liabilities by 31st Jan
Engage the services of a Bookkeeper or Accountant if you are not confident in any of the above
I do love a small business and try to support them where I can so I wish you all the very best in your new venture's.
If you need any help, you know where to find me!
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