Are you accidentally working illegally? Learn when you need to tell HMRC
Do you have a part time job or small home business? If so, you need to register with HMRC. But it’s not all bad news – find out why doing so could even lead to a tax refund if you’re lucky!
Many people with young families work part time and have a second part time job that they might do on an evening or weekend (or even online) that helps boosts their income and doesn’t result in having to find extra childcare for their children.
And it’s easy to assume that, as these jobs, one-off freelance projects or micro businesses aren’t our main income, we don’t need to declare them to HMRC. Or they’re so small that it doesn’t matter – we’ll never get caught. But you’re wrong, as accountant Rebecca Bowes explains.
HMRC are targeting second incomes
HMRC are well aware that people up and down the country are earning money they’re not declaring, and recently ran a campaign on their website targeting second incomes, in which they asked people to declare any previously undeclared income.
So what exactly counts as a ‘second income’? HMRC classes second them as coming from:
- Consultancy fees, for example for providing training.
- Organising parties and events, or direct selling.
- Providing services like hairdressing, massage, bookkeeping, admin or fitness training.
- Making and selling craft or food items.
- Buying and selling goods, for example at market stalls or car boot sales.
Why declaring a second income could save you money
But declaring your second income isn’t necessarily a bad thing. There’s a good chance that you have incurred some costs in setting up a business or offering your freelance services.
For example, you may have needed to buy equipment, pay for local advertising, buy stationery and business cards, ring suppliers, and source materials. All this takes time, effort and money before you even make any sales, and you may well make a loss in your first year of trading.
The good news is that you can offset this loss against your employed income. And with the increase in the personal allowance to £10,000 this year, it could be that you don’t even have any tax to pay, depending on how much you earn in your employed income. Or, if you were taxed on your employed income you could even receive a tax refund.
Registering with HMRC is quick and easy
If you have been thinking about setting something up from home but worry about whether you should be self employed and registering and keeping records, don’t worry! Registering with HMRC is simple and takes around 10-15 minutes on their website.
Keeping records is now very simple too. In fact, HMRC have been working with software developers to develop simple record keeping apps for smart phones and tablets. There is even an app to log your business mileage that you use on your phone when you set off in your car.
You can use the cash basis or the simplified expenses method to record your expenses. Both these methods are accepted HMRC practices and allow you to record your income based on ‘ins’ and ‘outs’ or as an estimate of your expenses, with a flat allowance for expenditure such as vehicle cost and business use of home costs.
Both the HMRC and Direct.Gov websites are useful tools and have lots of information on these methods.
Don’t let this put you off!
This is just an outline of some of the information you need if you are a home worker or looking to be one. But don’t let the thought of being self employed and having to declare your income through self assessment put you off doing something that you would enjoy doing and will boost your income.
The paperwork isn’t as time-consuming or difficult as you think, and not only could it help reduce your tax bill, but it can stop you worrying whether HMRC will catch up with you one day.
And if you find that the bookkeeping and accounts side of your potential business is something you can’t or don’t want to do, there are plenty of bookkeepers and accountants that will set you off in the right direction and give you advice and help.
A quick recap on what you need to do
So, to recap, the things to do when you realise you are a home worker or are about to be one are:
- Register with HMRC as self employed.
- Decide which method of record keeping you are going to adopt.
- Get out there and make money!
Rebecca Bowes is an accountant specialising in small businesses, sole traders and mumpreneurs.