NFU Mutual Smallholding Insurance

Author Topic: Tax - register or not?  (Read 580 times)

Soozy Lai

  • Joined Oct 2018
Tax - register or not?
« on: October 29, 2018, 02:08:46 pm »
Have newly submitted application to HMRC to register as self-employed, for the purposes of being above board with croft sales.  Having read in a post that HMRC acknowledges such a thing as "hobby farming" I'm now wondering whether or not I should be registering at all.  And if yes, I'm not sure what I should be putting through...

Our first tax return will be for less than £500, for the sale of hay.  Depending on sales this year plus field rental for a small number of this sheep, next year's figure MAY double at most, or possibly stay pretty much the same.  So in the grand scheme of profiteering, we're talking negligible for the near future.

In terms of what we've put in, I'm not sure what should be put through - the purchase of the land, which includes our family home?  Tractor and attachments?  Fencing, hedging trees?  What about things like our sheep, chickens & their food/vaccinations, even though they are just grass cutters & personal egg suppliers?!  Home insurance as the land is also our home?!?! 

What I thought was something simple now feels very complicated!  :-\  :chook: :sheep:
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Dan

  • The Accidental Smallholder
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  • Joined Oct 2007
  • Carnoustie, Angus
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Re: Tax - register or not?
« Reply #1 on: October 30, 2018, 11:22:53 am »
I don't think HMRC have any official view on 'hobby farming' - if you're earning income, from whatever source, it needs to be declared and taxed appropriately.

In terms of expenses you can offset against income, they have to be directly related to the business you're operating and the products and services you're selling. So chickens that lay eggs for personal consumption only - no. A tractor and attachments you use for making hay - these are capital assets (as opposed to day-to-day expenses) and will go on your business balance sheet. Every year they will depreciate, and you can offset that depreciation against income.

VAT registration can save you a lot of money when setting up and if you're selling largely zero-rated products, because you become a net reclaimer. But, HRMC will take a dim view if you are not likely to ever make a profit. This is an excellent summary:

https://www.saffery.com/news-and-events/press-releases/2017/26-april-fine-line-between-business-and-hobby-farming

If you're planning to grow your business you should consider getting advice from an accountant. An unexpected tax bill 5 years down the road is never a good thing!

honeyend

  • Joined Oct 2011
Re: Tax - register or not?
« Reply #2 on: October 30, 2018, 11:34:07 am »
Your local tax office may provide small business study days which I found really useful. These are free.
 I did outside catering so I claimed a % of my tow car, but it was easier because I had set events.
 I am keeping all my feed bills, vets bills etc and I have a basic spreadsheet so if I ever do make any sales I can work out if the is any net profit.
  So was there any profit on your hay?  Have you included fertiliser, sprays, baling costs, fuel? Its really good to sit down and work out costs because it makes you decide if some things are worth doing if you do not enjoy it.
  Here is a link for child minders which I think is a really practical explanation of tax.
https://www.nurseryresources.org/articles/childminding/hmrc-tax-guidance-childminders/?post=HMRC-Tax-Guidance-for-Childminders-Income-and-Expenses

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: Tax - register or not?
« Reply #3 on: October 30, 2018, 12:00:43 pm »

Hi @Dan , that's a useful article, but can I be honest, also really confusing!  ???


It says that VAT registration may be queried "Where VAT registration occurs and VAT is claimed on costs/outgoings but there is little or no evidence of sales being generated". That seems fair enough, but what about a smallholding that generates significant sales (usually zero rated of course), but has very little hope of turning a significant profit any time soon?  The rules about the losses themselves seem pretty straightforward (i.e. you can't offset any more than five years of losses against other taxable income), but what about the VAT position I wonder? 

Is it ok for a smallholding with a decent turnover, but still loss-making to continue to be VAT registered?  If the answer is no, then that would of course increase the losses yet further!
Experience is what you get just after you needed it.

chrismahon

  • Joined Dec 2011
  • Gascony, France
Re: Tax - register or not?
« Reply #4 on: October 30, 2018, 12:12:30 pm »
My advice is to keep it very simple indeed or it will become a real pain. Simply declare income from sales and deduct expenses for only those things clearly used exclusively for the business, like feed and fuel, saving the receipts. Avoid involving your property as I believe that renders you liable for tax should you sell. VAT registration makes things very complicated and will be largely unnecessary.

Dan

  • The Accidental Smallholder
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  • Joined Oct 2007
  • Carnoustie, Angus
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Re: Tax - register or not?
« Reply #5 on: October 30, 2018, 12:51:27 pm »
That seems fair enough, but what about a smallholding that generates significant sales (usually zero rated of course), but has very little hope of turning a significant profit any time soon?

I think that's covered by the 'sustained' part of "Does your farming activity run at a sustained, significant loss?".

HRMC will look at it pragmatically (hopefully!), and if there's evidence that income is increasing and/or losses are falling and there's a realistic prospect of becoming profitable it will be deemed to be a valid VAT registration.

We ran at a loss for a number of years and only recently started to turn a small profit, but we could describe the plan behind that at any stage.

If you don't have a plan, and can't see a way to a profit in a reasonable time frame, probably best not to register for VAT.

honeyend

  • Joined Oct 2011
Re: Tax - register or not?
« Reply #6 on: October 30, 2018, 01:32:29 pm »
To claim VAT, unless its changed, you have to do proper accounts every year and there are time limits.
Unless a large amount of your goods has VAT, or your turnover is huge its not worth the hassle.
  As I sold food most of my ingredients were VAT free only things like packaging had VAT added or any services I paid for.
   That's why keeping accounts is so important, even if you do it for fun, it makes you think about how you are spending.
  I liked to do my tax returns when I was bored, on Boxing Day.
 

Soozy Lai

  • Joined Oct 2018
Re: Tax - register or not? ...wrong question!!!
« Reply #7 on: October 30, 2018, 02:11:28 pm »
Oh my days I really am not getting to grips at all :-\ Thank you all so much for you're replies.  I now realise I am so clueless I didn't even ask the right question :-[  I'm not actually thinking about registering for VAT (we are currently a world away from this).  At this stage I am actually just trying to figure out if I need to register as self-employed so as to put through tax returns, or if this is unnecessary at this stage...

I know many do, but personally I'm not finding raising tiny children and being business minded at all compatible!  But also do not want to get into a pickle further down the line with not having done things by the book... I think we are already off to a bad start in this regards by the fact we can't find receipts for big purchases such as a tractor and I'm guessing I can't even claim for this without paperwork..(??).(Embarrassingly I have been on 3 business gateway courses, but unfortunately, despite best efforts, didn't manage to put it all into practice whilst the information was still fresh in mind.)  I'm guessing I need to get this all sorted before I put through my first tax return (if indeed I do need to put through a tax return for £500?!)

An aside salute to all those multitasking folks managing to be first time parents whilst simultaneously taking on a smallholding in new area in addition to working another jobs!  :thumbsup:  (If anyone can recommend any free business advisers for dummies with complimentary babysitting services, please let me know  :roflanim:)

Maysie

  • Joined Jan 2018
  • Herefordshire/Shropshire Border
Re: Tax - register or not?
« Reply #8 on: October 30, 2018, 02:15:49 pm »
I see the VAT situation differently. 

We need to buy a LOT of fencing materials, quad, tools, tractor, implements etc, all of which attract VAT in order to produce food which is sold zero rated, so the VAT situation is accepted by HMRC as a 'one way street', but being VAT registered can substantially reduces your annual costs. 

I agree that you do need to keep receipts and produce a basic set of accounts, but if you trade as a Sole Trader, then these are pretty basic for the return on VAT expenditure when you have a lot of purchasing to do. 

Obviously the situation will be different if you are selling items without needing to actually buy much to produce the item, but each situation is different.  Speak to a decent accountant and see what they have to say for your own specific situation. 

Maysie

  • Joined Jan 2018
  • Herefordshire/Shropshire Border
Re: Tax - register or not?
« Reply #9 on: October 30, 2018, 02:21:54 pm »
Having just read your updated post, what you seem to be asking is 'do you need to register anything to be a sole trader'. 
The simple answer for your situation seems to be YES, as your income sounds like you are trading as a business.  Additional income is taxable, so any extra income(which is profitable)  which has not been declared to HMRC already needs to be reported on your annual tax return - which is quite simple when you know what you are doing. 

Dont worry if not, as an accountant will sort it for you, BUT YOU DO NEED TO KEEP A GOOD SET OF FIGURES FROM HIM TO WORK OFF!   ;D

Dont worry if it all sounds very confusing.  It isn't so bad when you get the hang of it and you may even wonder why you worried about it all in the first place. 

It sounds like the bigger question may be 'do you actually have time to run a business anyway?' !  :farmer:
« Last Edit: November 01, 2018, 11:49:05 am by Maysie »

honeyend

  • Joined Oct 2011
Re: Tax - register or not?
« Reply #10 on: October 30, 2018, 04:23:11 pm »
Before you start worrying, did you make a net  profit taking out all your expenses? That's what you would be taxed on.
 Most hay is bought and sold for cash, only the big traders will take cards or bank transfer. I wouldn't worry too much about £500.
  I have a draw that I put all my bills and information in, once every six months I go through it and sort it. You just need a draw or a filing box. Somewhere on the internet there will be a basic costs Xcel spreadsheet than you just fill in the amounts. I bought Quick books but its far to complicated 

alang

  • Joined Nov 2017
  • Morayshire
Re: Tax - register or not?
« Reply #11 on: October 30, 2018, 08:30:22 pm »
Can i just throw something in to for you Soozy Lai to consider.www.bgateway.com run free courses on all aspect  of business start-up including very simple accounts courses. Maybe have a look at the local office to see what courses/lectures they have coming up. I've found them to be very helpful in the past
I'm not scared to be seen, I make no apologies. This is me!

Womble

  • Joined Mar 2009
  • Stirlingshire, Central Scotland
Re: Tax - register or not?
« Reply #12 on: October 30, 2018, 08:56:27 pm »

Soozy, I'm sorry if I hijacked your thread by asking about VAT - it's just where my head is at the moment, that's all. I'll have a bit more of a think and will maybe start another thread in due course.


As Honeyend says, it's your profit you would be taxed on, so provided you can prove that you had costs of at least £500 that you incurred in making the hay (e.g. for fencing, tractor etc), no tax is due.


The question about whether you need to register as self employed really hinges on your intention. To illustrate, let's say we each take a pitch a car boot sale. You bring along a carful of stuff you had lying around in your garage, like old tools, books you've already read, clothes your kids have grown out of, etc etc. I bring along a car full of stuff I've bought elsewhere cheaply in order to sell at a profit, plus some jars of jam I've made specifically to sell.


The upshot of that one is that your income from the car boot is 'incidental', and doesn't have to be declared, whereas my income has been incurred in the course of running a business activity (i.e. it was not incidental), thus I need to declare it, and pay tax on my profit (i.e. selling price minus buying price and costs). Exactly the same rules apply for selling on Ebay BTW.


To put that into the context of a smallholding, selling surplus eggs and courgettes at your gate would be considered incidental income. However, keeping extra hens or a polytunnel  in order to produce food for sale at hopefully a profit would be considered a business.

Does that help?
Experience is what you get just after you needed it.

Black Sheep

  • Joined Sep 2015
  • Briercliffe
    • Monk Hall Farm
Re: Tax - register or not?
« Reply #13 on: November 01, 2018, 07:21:20 am »
Having just read your updated post, what you seem to be asking is 'do you need to register anything to be a sole trader'. 
The simple answer for your situation seems to be no

You do need to register as self employed (if not already) if you are earning via this route as you become liable to pay different types of National Insurance contributions - some of which are regardless of income/profit.

Looking at the information provided Soozy is undertaking activities with an intention to sell stuff, so should register with HMRC. Turnover is likely to be low so a short tax return will probably be sufficient and these can be done yourself very easily.

Completely support what others have said about keeping simple records - we have a spreadsheet and a couple of manilla document wallets. Everything gets put in one of them as it arrives - receipts, scribbled notes etc - and then one a month or so, when the bank statement arrives, it gets added to the spreadsheet and filed properly. Hand all of that to the accountant at year end (or do it yourself if submitting a simple self assessment return).

Maysie

  • Joined Jan 2018
  • Herefordshire/Shropshire Border
Re: Tax - register or not?
« Reply #14 on: November 01, 2018, 11:36:43 am »
Having just read your updated post, what you seem to be asking is 'do you need to register anything to be a sole trader'. 
The simple answer for your situation seems to be no (EDIT - THIS IS WRONG and should be a YES!)

You do need to register as self employed (if not already) if you are earning via this route as you become liable to pay different types of National Insurance contributions - some of which are regardless of income/profit.

Looking at the information provided Soozy is undertaking activities with an intention to sell stuff, so should register with HMRC. Turnover is likely to be low so a short tax return will probably be sufficient and these can be done yourself very easily.

Completely support what others have said about keeping simple records - we have a spreadsheet and a couple of manilla document wallets. Everything gets put in one of them as it arrives - receipts, scribbled notes etc - and then one a month or so, when the bank statement arrives, it gets added to the spreadsheet and filed properly. Hand all of that to the accountant at year end (or do it yourself if submitting a simple self assessment return).
My apologies if the info in my original post was misleading, it certainly was not intentional.  Maybe I should have said 'no need to register at the moment'.

I was under the impression from the GOV.UK website that NI contributions for the self employed did not need to be paid until profit was more that £6205 per year. 

£500 income would easily be written off against annual depreciation on farm assets and/or other costs so there is no profit to declare. 

Have I missed something else?

EDIT:
I think I May have answered my own question. 
If your income is considered as a 'business' then you will need to register as self employed, regardless of profits being made. 
« Last Edit: November 01, 2018, 11:50:15 am by Maysie »

 

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