I Don't think so. If you make over 1000 you pay tax on ANY profit.
Hmrc - ebay/airbnb/vinted etc new rules - 1st Jan 2024
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I Don't think so. If you make over 1000 you pay tax on ANY profit.
Gross profit vs net profit - Starling Bank
Gross profit and net profit sound like jargon, but they are both important measures of how well your business is doing.
www.starlingbank.com
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What Is Gross Income? Definition, Formula, Calculation, and Example
Gross income represents the total income from all sources, including returns, discounts, and allowances, before deducting any expenses or taxes.
"A company’s gross income, found on the income statement, is the revenue from all sources minus the firm’s cost of goods sold (COGS)."
Glossary : Gross business income
www.choicebusinessloans.co.uk
From the above
"Gross business income is calculated on a business tax return, and is calculated as the total business sales minus the cost of goods sold. In financial terms, 'gross' refers to an initial amount prior to any deductions, withholdings or expenses."
HMRC:
"If your annual gross trading income is £1,000 or less, from one or more trades you may not have to tell HMRC, however there are circumstances when you must register for Self Assessment and declare your income on a tax return."
STILL no one has given any actual evidence that gross income INCLUDES the cost of goods. Everything i have read refers to gross income being the amount AFTER the cost of goods, but not after all other business expenses...
It makes far more sense for it to be the seemingly widespread definition of gross income (ie it being after cost of goods), otherwise you could buy something for £1000 and sell it for £1001 and you would technically have to fill out a tax return for £1.
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Soldato
Gross income is actual income less expenses. This is the profit, remember your talking "company" accounts here.
The exemption is potentially reducing taxable income which is taxable at the relative rate.
So you have a £1k allowance you can use.
Eg you sell £3k worth of goods, you have costs of £2.5k you made £500 profit.
OR, you can substitute the £2.5k with £1k allowance.
Its designed that for small people with low income of less that £1k HMRC just exempt it.
Clearly if you have sales of £3k your not doing a very small side hustle, so you need to declare.
Remember
If you use the trading or property income allowances you must keep a record of your income.
Examples of the records you may need to keep are:
Summary, don't sell more than £1k of stuff thats not simply your old stuff. If you do you are likely to be liable for tax on the profit.
The profit being the difference between what you sold and the costs, or what you sold and using £1k as the costs, which ever gives you the lower number.
If your selling more than £1k of stuff thats clearly not just your old stuff you need records. Your clearly acting as a self employed trader.
The exemption is potentially reducing taxable income which is taxable at the relative rate.
So you have a £1k allowance you can use.
Eg you sell £3k worth of goods, you have costs of £2.5k you made £500 profit.
OR, you can substitute the £2.5k with £1k allowance.
Its designed that for small people with low income of less that £1k HMRC just exempt it.
Clearly if you have sales of £3k your not doing a very small side hustle, so you need to declare.
Remember
If you use the trading or property income allowances you must keep a record of your income.
Examples of the records you may need to keep are:
- copies of your invoices, paper or electronic
- a spreadsheet of your income receipts
- emails confirming income received
- statements from the company who paid you which show the amount you received
- bank statements
- bank deposit pay-in records
- a diary or appointments book showing your income from each customer
Summary, don't sell more than £1k of stuff thats not simply your old stuff. If you do you are likely to be liable for tax on the profit.
The profit being the difference between what you sold and the costs, or what you sold and using £1k as the costs, which ever gives you the lower number.
If your selling more than £1k of stuff thats clearly not just your old stuff you need records. Your clearly acting as a self employed trader.
Yes, but my point is what the definition of "gross income" is. As linked above and from searching, pretty much everywhere defines gross income as the income you make after the cost of goods.
You have given another completely different definition:
No one seems able to actually clarify the wording.
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Soldato
Sorry I was trying to put it more into common terms
Expenses for simple accounting would include the cost of goods sold, plus things like postage.
So you could do
Sales £x
Expenses £y (cost of goods plus allowable costs to perform the activity)
Profit £z (where z is x-y)
or
Sales £a
COGS £b (COGS = cost of goods sold)
Costs £c (stuff like fuel, vehicles)
Profit £d (a-b-c)
HMRC could want to know that level of breakdown but in the correct box on SA you need to in effect give them z or d as that will be the taxable income
(Bearing in mind you have the option to replace y, or b+c with £1,000)
But you cannot claim the £1000 AND actual costs
You seem to be avoiding the question somewhat.
HMRC explicitly state that you do not have to file a self assessment if your "gross income" is not above £1000 (ie under the £1000 trading allowance).
Therefore the definition of what "gross income" means is the most important thing. Everything i have found has stated that "gross income" means income after cost of goods (but not after all other business expenses).
Therefore if we take that definition as correct, and say (for example) you sold £1500's worth of goods, but the goods cost you £1000, your gross income is £500 and you therefore do not have to fill in a return.
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Soldato
How do I work out my taxable profits? | Low Incomes Tax Reform Group
How do I work out my taxable profits? Taxable profits are usually based on the profits shown by your business accounts after they have been adjusted to comply with the tax rules. We explain how to prepare business accounts and how to make adjustments for tax purposes later on this page. However...
Are you using the trading allowance correctly? | Low Incomes Tax Reform Group
What is the trading allowance? The trading allowance is an amount of up to £1,000 per tax year which you can use against any gross income made from self-employment, casual or miscellaneous sources (such as babysitting or selling goods through a website). You can use the trading allowance as well...
If this isnt clear I suggest you 1) either call HMRC SA helpline or 2) pay someone for advice
It's clear to me since starting this thread.
If you go over 1k of sales you need records.
You them pay tax on profits.
Sell something for 1100 that cost 1000 where you are trading (ie buy a sealed lego set and sell it) you pay tax on that profit.
Sell something for 900 and it cost 100 pay no tax, no need to declare. Even if it is trading.
If you go over 1k of sales you need records.
You them pay tax on profits.
Sell something for 1100 that cost 1000 where you are trading (ie buy a sealed lego set and sell it) you pay tax on that profit.
Sell something for 900 and it cost 100 pay no tax, no need to declare. Even if it is trading.
So what would Net income be then?
Soldato
Don't really have it in this scenario.
Really the conversation on income should be profit, but its not that simple.
The problem is people are confusing the two things they need to take into account here, the need to make a declaration and the potential need to pay some tax.
Gross income in this instance for individuals does mean 'turnover' effectively. It's the amount you take in your side trade before any expenses have been taken off.
That's why you can deduct either the £1,000 trading allowance or business expenses from your gross income, whichever is the greater.
Yes, Gross income in a company accounts means something different, which is Turnover - Cost of Sales.
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The reason I'm asking what net income is, is just to have a clear understanding of the terms. Because I always thought that "actual income less expenses" was net income. But it turns out it's gross income. So what's net income then? Actual income before expenses?
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In simplistic terms it goes :
Turnover - Cost of Sales = Gross Profit - all remaining expenses = Net proft - capital allowances = Taxable profit
The reality is that "gross income" and "net income" and similar aren't formal terms in UK accounting, so the reality is that any definition depends on who is using it.
The only scenario I would recognise those words as being somewhat valid is in relation to a sales invoice with VAT. "Net" income is before adding VAT, "gross" is after adding VAT.
Also beware of using google as a resource. Americans do things differently and there's definitely been links to Americanised definitions of those terms.
Soldato
Yeah sorry its a pain because for companies its kinda different (but not) and self employed.
The links I put above are far better at explaining than we can cover without one of us needing to post massive walls of text!
The most important was the second "am I using the trading allowance correctly"
Thanks for explaining. And this is the reason people like me, regular civilians (not business or self-employed) want to stay away from self-assessment and want to know the rules of the game so as not to get dragged into this madness.
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Soldato
To be honest SA has a terrible rep, but unless you have made life quite difficult for yourself its a pretty simple and quick job to do.
HMRC language however often leaves a lot to be desired.
Caporegime
Last few hours to pay your taxes people for those who do SA!