Taxation for cottage industry

[FortuitousFluke]

Afternoon folks, thought I'd ask in here instead of GD as figured it's more relevant. My wife has recently started a small jewellery business that she's running as a sole trader alongside a permanent job. I've got insurances, trademarks, and website names all registered but I'm a bit unclear on the requirements around self assessment for tax.

Effectively the first couple of years we're anticipating running at a loss as we need to grow the business organically which means all turnover and then some will be invested in materials and tools. Does anybody know how this works in terms of filling in tax returns, would she still need to report earnings even though no profit is being made?

In addition if anybody has any resources they can point me to on this kind of thing it would be really useful.

Cheers in advance.

 

[cheesyboy]

A number of years since I've dealt with sole traders, but generally yes - you should report a simple profit and loss statement on your tax return to reflect the loss.

You can set the loss against employment income and get tax relief on it. There might be some restrictions on what constitutes a business (such as time spent, and genuinely running it as a business not just a hobby)

 

[inogen]

I'd be probably running that as a ltd company and not sole trader. You can then build up loss and offset that against future earnings.

Talk to a tame accountant.

 

[cheesyboy]

I'd be probably running that as a ltd company and not sole trader. You can then build up loss and offset that against future earnings.

Talk to a tame accountant.

Better to take the loss in the current year, surely? as a sole trader, I mean.

 

[inogen]

Better to take the loss in the current year, surely? as a sole trader, I mean.

Well that's why I suggested talking to an accountant, but my understanding of sole-trader vs ltd is that it would be easier to carry the current year's loss forward and have a salary and expenses owed still on the company balance sheet. But I'm no expert, but that's how I've seen it done. Not sure how it would work as a sole trader.

 

[Freakbro]

Afternoon folks, thought I'd ask in here instead of GD as figured it's more relevant. My wife has recently started a small jewellery business that she's running as a sole trader alongside a permanent job. I've got insurances, trademarks, and website names all registered but I'm a bit unclear on the requirements around self assessment for tax.

Effectively the first couple of years we're anticipating running at a loss as we need to grow the business organically which means all turnover and then some will be invested in materials and tools. Does anybody know how this works in terms of filling in tax returns, would she still need to report earnings even though no profit is being made?

In addition if anybody has any resources they can point me to on this kind of thing it would be really useful.

Cheers in advance.

Yes you fill in the self assessment, income, expenses and capital expenditure with the Annual Investment Allowance*

If it records a loss that's fine, you still submit it and carry the loss forward to next year. There's a box for losses carried forward yout would use in next years return. If you make a loss again next year you just carry it forward again next.

* It depends if the loss is from income/expenditure or only with the capital expenditure as well to what your want to claim. As you can decide how much AIA you want to use to be efficient with using her personal allowance as well, and put the rest in the capital pool and use the future Write Down Allowance instead

Also, things are going to change for next year with Making Tax Digital, when it's supposedly coming in for everyone else as VAT registered businesses are going MTD from this April

Edit : sorry, just seen it's a second job. The same as above applies but yes, the loss will be set off against her employment income / tax paid already in PAYE. So its just work out how much loss is the most efficient to use against her current income and carry any rest forward.

On the self assessment you would also enter the employment figures as well, if they aren't on there automatically

 

[FortuitousFluke]

Apologies for the late reply. Thanks for all of the advice given above, it's really useful. My wife is doing most of the hard work with the business but just having to learn about back office functions is causing me enough work!

Unfortunately I don't have a tame accountant I can approach, I'm severely lacking on the useful professionals as friends front. I think what I'll do is take on board everything that's been said in the thread and set about doing some additional reading around the subject so I'm clued up as far as possible.

In terms of the sole trader vs ltd company aspect, I'll be pushing to make the switch after the first year of trading but at the moment we're not in a position to employ a tax accountant to handle that side of the business.

 

[lurkio]

I went from full time employment to running my own business
currently I now have a full time job and run the business part time
You will have to get the mrs to register as a business and keep track of all expenses
when you submit your tax return at the end of the year and you have lost money
you will get money back

suggestion: register now on HMRC site and possibly see if you can go on a "running a business" course
I did when I started and it was very handy