Hmrc Setup Help

[Steven98 0]

Hi all,

 

I've decided to give this Mobile Disco a go, did some radio work back in uni around 2 years ago, now that life has settled down a bit more i can have a go at this.

 

Just wondering, how do you talk to HMRC about declaring this?

 

Reason i'm asking im currently working for a company and paying tax via PAYE, but obviously i will be declaring this to the tax man (looking at doing max 2 per month cause of work/family commitments) so only looking at taking 4k but then obviously expenses will probably leave me with about 2k now i currently earn a certain amount so how does it work do they add this to my earnings and then tell me what tax i owe? do i need to pay via DD a set amount then adjust at the end of the year? Do i pay the higher rate cause this is a second job?

 

Any information is welcome.

 

Thanks

Steven

[McCardle 1]

Welcome to the forum.

 

Yes, you will need to declare your new business to the Inland Revenue ASAP, they will send you a self assessment form at the end of each year for you to fill in, and its a very good idea to register on the Self Assessment website, so that you can complete and file the form online.

 

You can register your new business, and sign up for the online service, using the Inland Revenue website on the following link:- http://www.hmrc.gov.uk/sa/ and use the 'register new business online' link from the right hand side

 

Unfortunately, if your income from your day job, takes you over the personal allowance (currently £8105 for 2012/13) where tax becomes payable, then you will pay tax on every single penny that you earn as profit from the DJ'ing, even if its only £1 profit a year!. You don't get a second personal allowance to use for your self employment.

 

If the combined income from your day job and the Disco goes over £34,370 per year, then you will become a higher rate tax payer at 40%, however if your combined income is less than that figure then you will pay a tax rate of 20%, so technically for every £100 profit that you earn, £20 should be put aside for your tax liabilities at the end of the year. Don't be like a lot of self employed people and spend money along the way like Elton John, only to get a big shock at the end of the year when the tax demand is due!, and the account has been drained. Better to budget the 20% as you go along, putting it aside from every gig (after expenses obviously).

 

You pay tax at the end of each year, generally on Jan 31st when the Self Assessment form is due to be in, if you have registered to submit your self assessment form online, then you can also opt to pay any tax due online also, by using a debit or credit card. If your tax liability is a large amount they may contact you six month later asking you to pay a further lump sum on 'account' for the following year, however if this does happen, then you can appeal this if you feel that the business isn't doing well, or your tax liability is likely to be less than the previous year. At the moment, you won't be paying anything on a new business, until you submit the self assessment form at the end of the year, but you should begin to keep accurate records (accounts) of everything you buy and every payment you take in relation to running / starting the business.

 

Because tax payments are made in lump payments every year (which can be large if your business does well), this is why its a good idea to budget as you go along, putting money aside every month for the tax payments before they become due. A lot of self employed people see £100 left in their hand after their expenses are paid, as being £100 to spend how they like, but it isn't because £20 of that already belongs to the tax man!.

 

Being self employed also means that you are likely to pay additional Class 2 National Insurance contributions @ £2.65 per week. Normally this is taken by direct debit every month

 

For self assessment, you'll need to keep accurate records of all business related profit and income, and its a good idea to have a separate bank account set up for all of your business finances, so there is no confusion about what is personal income (and paid from the day job) and what is business related. Business accounts are generally chargeable by Banks, but for a small business such as ours, you can probably get away with using a second personal account for such limited activities, as you will be a sole trader operating from your own address, and provided you are not depositing £1000's every month, or making endless transactions, the bank probably will not know or complain. The only drawback with this is that clients will have to make cheques payable in your personal name, rather than the name of the business, but unless you work for corporate clients on a regular basis, this will probably not become an issue.

 

Keep receipts for everything that you buy in relation to the business, and claim for all legitimate expenses, including fuel, professional memberships, public liability insurance, website hosting, stage clothing as well as any outlay on equipment, business marketing, advertising, stationary etc. Chances are, that with all of the initial investment in equipment etc, then you will probably file a loss for at least the first year, but you will still need to keep records, and file a self assessment even if your business does not make any profit or declares a loss.

 

As you are working from a home 'office' you may also be able to declare a percentage of your household bills as business expenses, in order to go towards the telephone, heating, lighting, internet etc in relation to the one room you use for an office. I say 'may' because there are no set rules relating to this with the Inland Revenue, nor any real figure given on realistically what percentage you can claim back, generally its a good idea to get some professional advice from an accountant, or the CAB on this aspect, and how much you can claim for working from a home office. If you offset too much in this respect the Revenue will only ask for it back in extra tax, with back tax if it has been over declared for any period!, so better to start low, and get advice.

 

A mobile phone for dedicated business use is also a good idea, this way you can keep business and personal calls separate, and you can also claim line rental, and calls from one invoice rather than picking through an itemised bill every month if you mix business and pleasure calls from one phone!

 

If you use one family vehicle for business and social then keep mileage records of journeys which were relating to business (including meeting with clients, collecting new equipment, going to buy CD's etc), again seek professional advice on what you can claim in relation to a vehicle being used as a social / business split. Don't forget to also get business insurance for being a DJ, on your vehicle. Expect this to increase your premiums by around 2 - 4 times the current amount as insurance companies don't like anything to do with the Entertainment Industry. However, the police often actively check this, especially if your vehicle is pulled late at night, and is full of expensive looking professional PA equipment and its glaringly obvious you are running a business. If you don't have the correct insurance then you risk losing your vehicle there and then, and being prosecuted for having no insurance, as your existing company will probably void your policy when the police check your level of cover and tell them you are working as a DJ, using your vehicle for transport and ask if they are covering you for this. So its better to declare your usage and pay up from the start.

 

If you do work directly with venues, or pubs and clubs then make sure you submit an invoice, or get them to sign for each payment they give you. This may sound strange but some employees and management can be dishonest, for example, paying you your fee of £200, then declaring £250 through their books, and pocketing a cool £50 for themselves. So better to wrap yourself in paperwork, just in case there is a tax investigation of either you, or the other party as the books won't balance!.

Edited August 19, 2012 by McCardle