Sole trader question

A question about : Sole trader question

Hi,

The wife of a friend has been making arts and crafts stuff and started selling her wares to friends and family as a means of bringing in an additional income while looking after her two kids.

Through family connections she then started supplying to a local shop and a few more after that. It's now got to the point when even my friend (her husband) no longer thinks the whole thing is a bit of a pub joke.

Not sure about exact figures but I think this little business is now generating something like 300-400 quid a month in net profit. So far so good. Now, as the whole thing did start as a bit of a joke and no one ever envisaged it to carry on for so long (3-4 years I think) they never registered either as a sole trader or as a limited company. This is now seen essential as they prepare to take it a step further and in fact they are thinking about producing a catalogue. This will enable them to approach other shops in nearby villages and hopefully sell more stuff.

The question therefore is what do they do next? They asked a few of us down the pub and I said I'd post something on this forum. What they are looking for really is some guidance.

Thanks in advance
Thom

Best answers:

• The important things are:
  - register with HMRC as self-employed for tax purposes. This is now urgent as failure to declare untaxed income can land you(her) in jail.
  - if this is being done from home, advise home and car insurers and get business cover. If she's caught using the car for business purposes and not having business car insurance, it's seizure of the car / fine / points.
  - product and public liability insurance. It may only be handmade greeting cards (you don't say exactly what is being made) but if an embellishment falls off and a baby picks it up and chokes on it, that's a potentially expensive lawsuit.
• No, it's not us - as I said I'm asking on behalf of a friend.
  I know it's mostly village scenes paintings, some of which are transferred on greeting cards. No choke hazards there.
  Also, can you register as a sole trader retrospectively, and say you have been doing it for 3-4 years or do you put down the date you fill out the application? How does it work? We are not talking about huge sums here, and they said one of the reasons they never really looked into it was because they wouldn't have to pay tax - is that right?
  In answer to your other questions they rent and don't own a car.
• They will still need product liability / public liability insurance.
  If they rent a home, they need to inform the landlord as most landlords ban businesses being run from rented properties as this is against their mortgage conditions.
  Why do they think they wouldn't have to pay tax? It May be that the profit madewas below their income tax threshold, but that is not a reason not to register for self employed tax. The issuehereis that you need to prove to HMRC that your income was low enoigh not to pay tax, not just to act as judge and jury in the matter.
• Paying tax and needing to register as self employed are two entirely different things.
  Everyone running a business, however small needs to register, failure to do so is an offence. Then each year accounts are prepared, if the income is small then short accounts are submitted as part of the self assessment process. The total taxable income from all sources is then added up, personal allowances taken off and tax paid only on that balance.
  National Insurance is slightly different and would need to be paid unless the person pays another form of NIC from a different income source.
  Personally in this situation I would approach an accountant, get them to make the declaration to HMRC as they can do it in such a way to mitigate the late notification and perhaps avoid the worst of the penalties. Accounts can then be prepared for all the years, tax (if payable ) noted and paid and NI caught up with. A good accountant should be able ot get the person away merely with a few fines and late penalty charges (if appropriate)
  However leaving this or burying your head under the sand may well result in serious repercussions later on when you get caught by HMRC.
• And after they have done all the above the 300 - 400 quid nett profit per month suddenly becomes an awful lot less !!!
• Thanks for all your replies - as mentioned any sort of guidance of this matter is greatly appreciated. Help not judgement is what I was looking for.
  Could someone also possibly point out what forms would need to be filled in. For example, I have had a quick look at the HMRC website and find it all very confusing. Anyhow, I think this is probably the one that needs filling out:
  https://online.hmrc.gov.uk/shortform...ww.hmrc.gov.uk
• Hello, I don't have much to add except that if your friend's wife requires insurance (which is really a must if you are trading, as anything could cause injury! And some people are very litigious in nature) then the Artists' Network do good cover on both public and product liability for Ј36 per year. This covers for accidents caused by the product itself, and accidents caused by perhaps, someone tripping over the leg of your craft market stall, as an example. I think the public liability part of it covers you for up to five million pounds.
  There are also other specialist insurers for artists/craftspeople, who offer affordable services.
  I make pewter jewellery, dragon pendants and the like, and also paint pictures, and I make around the same amount a month (trying to improve on that figure) that your friend's wife does, and I've informed HMRC, managed to get an exemption form for NI, and don't pay any income tax yet, so it's definitely worth registering.
  I also don't use an accountant as my books are very simple, but I registered immediately I decided to start trading, so didn't have the worry of fines for late registration, so it would be worth finding a good accountant just to sort that out and, as a previous poster said, mitigate any impact.
• Thank you Sue. This is something I did ask actually. Sales records have all been kept, as most receipts relating to the purchase of material. Some, as it seems, have been lost including some relating to bus / train fares.
  Point of the matter is they thought this whole thing wouldn't last this long and in any case it's not been constant due to personal / family issues.
  In any case, having a chat with an experienced accountant is not going to do any harm. I wonder how many start up started life in exactly the same way.
  Thom
• I do believe if you contact them and confess they do infact reduce or waive many of the fines.
  If you want until they catch up with you they will hit you with everything you have.