Enterprise Nation

Many of us start out on a part time basis; holding down a full time job, until we are ready to go full time with a home business. So, if it’s just a little income on the side, when do we have to register as a ‘proper’ business, with the Inland Revenue? Alan Young has the answer.

The rules have changed

The rules have changed and we’re now required to register as soon as we’ve undertaken our first piece of self employed work.

A few years ago, we were able to notify the Inland Revenue at the end of the first year’s trading, on submission of the first year’s accounts and tax returns. Now we are obliged to advise H M Revenue & Customs, by completion of a Form CFW1, within 3 months of undertaking a first piece of self employed work. Failure to do so will lead to a fine of £100.

Once registered, you’ll be classified as self employed, and be sent a Self Assessment Tax Return to be completed annually, showing your income and expenses from your self employment as well as details of your employment. You will be subject to tax and national insurance on any profits you make, but the good news is that any losses incurred can be offset against your employed income, which could result in a tax rebate.

As your home business continues to grow, you’ll want to consider the tax advantages offered by the setting up of a small limited company.

• Alan Young, 1st Addition
• Form CFW1: Becoming Self Employed and registering for National Insurance Contributions and/or tax.
• Leaflet SE1: Are you thinking of working for yourself?