Today I spent some time with a lady who has started in business and had some questions about how she needs to record her income and expenses, what she can claim against income and, of course, how to take money out of her business. I often have these 1-1 consultations with new business owners and am happy to answer their questions and provide them with information that they weren't aware of.
We spent some time today talking about the income a business receives when selling online through a third party. Many new businesses will have started up over the last year or so as people have more spare time and can earn some extra income from their hobby to supplement their furlough pay or replace their earnings if they have lost their job.
Do you receive money from selling goods online?
If you are in this situation and receiving income from selling you need to be aware of the following points:
1. Any income you earn over £1,000 in a tax year is taxable and must be reported on a Self-Assessment tax return
2. Even if you are employed and paying taxes you are still required to file a tax return if you have more than £1,000 additional income
3. The money you receive into your bank account from selling through a third party is not your income - it is the profit on your sale
4. Profit is the difference between the sale price and the costs deducted by the third party for commission, advertising, delivery, etc.
5. The income that you must declare on your tax return is the sale price of the product before costs are deducted and this figure is the one used to identify whether you have over £1,000 of income in the tax year
6. Turnover is the figure used to identify whether you need to become VAT registered - currently if your turnover reaches £85,000 in a 12 month period you will need to register for VAT (and will be able to claim back VAT on your purchases)
7. All your expenses which are associated with making your sale, as long as they are wholly and exclusively for the purposes of running your business, can be deducted from your turnover leaving you with a profit
8. As a sole trader any money you take out of the business is not an expense of the business
9. The profit you make after expenses is taxable if it is over the personal allowance threshold, or you have already used up some or all of your personal allowance in employment. You will also have to pay National Insurance contributions which are calculated on the profit.
You can find more information about keeping records of your income and expenses and how to register as a sole trader and complete a tax return on HMRC website.
Or if you need specific help in relation to your business please telephone us on 01722 341820 to arrange your 1-1 consultation.