I've made a mess...

[Skyefrog]

Hi there, I set up a website selling handmade dog collars in September. I've registered with hmrc via telephone and received a letter saying I have to do nothing till April 2017. Now, I've since been advised I should have set up a completely separate account for any sales profit to go into. I have not done this and it's just been going into my household bill account in which my husband transfers money into also and all our bills/spending money goes from. I thought I would just have to send the tax people a print out of my sales from my website as proof. I've set up a different account now but have I completely screwed up. I expect my sales to be a max of £3k a year so maybe £2k profit. I'm not employed, I'm in full time education.

Any advise greatly appreciated. I feel very silly.

[Caroleecrafts]

Have you kept accounts of your outgoings and incomings, maybe on a spreadsheet? I keep a computerised record with software and yes do have a separate business account but even without that if you have kept a record and under 10K you only need complete a short tax form with incoming and outgoing on it. A separate sheet if you have any other income say from a part time job.

Could you not transfer the funds made into it now, then you can balance your books accordingly.

[craftdancer]

I do not have a dedicated bank account for my business, my sales being cash. If I had to pay for a business account I'd be paying the bank to let me have a craft business!

If I'm buying anything for the craft side of things (home made preserves) I either get it with my weekly shopping (ingredients usually) or for online purchases use the visa card associated with my current account (these purchases are few and far between - probably no more than two a year). Craft fayre stalls I pay for with personal cheque usually.

I do, however, keep a record of each transaction and the till receipts for any purchases, doing monthly and annual summaries.

For tax purposes the most important thing is to keep accurate records. The short tax return I complete is a total of four pages - one being personal details, one being the declaration and of the remaining two, the only information relating to craft work required is annual sales total, annual expenses total and the difference between the two.

I keep all my reference paperwork in separate folders for each return (along with a copy of that return) and that's it.

I don't think it's HMRC who require the separate bank account, but your bank may do so, although unless you are making very regular and large transactions they may not be particularly bothered.

Good luck with your business - and don't feel silly: running any sort of business is a minefield in legalities and required skills, and you can't be expected to know all about it when your talents lie in making dog collars!
Linda

[bodrighy]

I have a spreadsheet where all income and outgoings are input. This gives me a total and a subtotal of earnings which is then sent off to HMRC every year. So far (last 10 years) this has been adequate. I don't have a seperate business account either. Just make sure you have a copy of all reciepts or online transactions just in case they want to see them.

Pete

[Caroleecrafts]

I negotiate with my bank manager every year and tell him if I do not get free business banking will remove our accounts. As all our money is with them he has never said NO yet. Do know him quite well as been with this bank for 40 odd years plus local branch in the next village always get good service. You do not need a business account just a normal one is okay. As Linda said who asked you about the bank account.

[MustardS]

Don't feel silly; I hope you get it sorted soon so you can stop worrying about it.

[MornieG Jewellery]

You've not messed it up at all. Don't have a business account ridiculous money for nothing. As everyone said plus keep the bank statements with the ins and outs of your business on and just highlight the relevant entries which will relate to your spreadsheet, simple.

Good luck with your enterprise.

Mo.XX

[Skyefrog]

Thank you so much for all the replies! I spoke to a lady from Business Gateway and she advised I have a completely different account and not just pop any earnings into my main bank account which I share with my husband. I know that business accounts are very expensive so I just used an old unused account which the advisor said would be absolutely fine. My husband thinks I'm getting myself too worried about it and says my extremely tiny earnings (looking further into it, I'll be lucky to break a grand, especially if I can 'write off' start up costs - sewing machines are expensive! :P) I was under the impression I would have to send them my bank statements. My website has a lovely clear record of all income - can I just send them that? For example, if I make a total of £1000 would they demand evidence of business expenditure and receipts seeing as I wouldn't be anywhere near the tax threshold anyway? I'm thoroughly enjoying my hobby and there are certain parts of business I enjoy but the tax man scares me

Again, thank you so so much for your input, I really appreciate it.

[Caroleecrafts]

You don't send them anything just the tax return with income and expenditure. You must keep separate records of this along with copies of the receipts though in case the audit you, spreadsheets are fine. Hence why a separate bank account in some form is valuable. If paid into your own account you will have to account for every item paid in if they do an audit. This can be hard and providing proof could be even harder, particularly if you get a cheque for a Birthday gift etc.

You have not done anything wrong and you have corrected the errors to begin with. I worked for a firm of solicitors for 13+ years and we often got involved in this sort of case proving funds paid into a normal bank account etc. You can always transfer the funds to your main account just enter on your spreadsheet. You may however wish to keep some funds in your account for working capital etc. Sewing machines have to be spread over 5 years, so do a drill down spreadsheet of the initial price and on your first years accounts reduce by 1/5th then add to your cash book spreadsheet. The reason for this is the life span of the equipment, plus if you did go into paying tax will save you some money.

Don't forget to allow for heating and lights, if you use 1 room for your business and you have 5 rooms divide the bills by 4, attaching a copy to your accounts.

PS Have worked in accounts, all areas for 40 years not just my own business.

[Skyefrog]

Thank you Caroline, I feel so relieved. I thought I had to send an audit level response every year and that's just what self assessment was. I couldn't help think 'wow, those HMRC accountants have a lot of work to do if they have to go through everyone's bank statements'. I have set up a spreadsheet for everything going in and out with totals etc which makes everyones life so much easier. The bank accounts have been split now so fingers crossed they don't ask for an audit for my first year! How often do people get audited? Is it quite a regular thing?

I've already set up an HMRC account and waiting for an activation code to arrive and I think that's all I need to do? Also, because I started in late 2016, is it correct my self assessment has to be completed, returned and anything due paid in full by 31st January 2018? That seems really far away so I want to make sure I'm understanding these tax years correctly.

Thank you for the sewing machine info - I didn't realise it had to be spread out and useful to know what additional costs can be added if I ever do go over the threshold.

[Caroleecrafts]

My latest business started in 2003 and not been audited during that time. I submit my return online and never had a problem, tbh think I am too small for them to bother but better safe than sorry. I run with the tax year but with your dates yes you should file your tax return by Jan 2018 but you will get a reminder when due.

You can choose your year end date it does not have to be a year since you registered, so if you select 5th April, you make your accounts up to that date and submit those figures on your tax return. I normally file by end of April which then means I have until end of Jan to pay any tax due. Different timescales depend if you file manually or online, so worth considering that fact

[Nobby]

I recently submitted my first tax return online and was amazed by how simple it was to complete. As others have said, it's important to keep all records - P60, bank statements, annual bank statements of interest earned, statements from personal pension contributions, receipts etc. When I initially phoned HMRC, they were very helpful too.

What surprised me - and amused me - the most on the Self-Assessment form was one of the first questions which asked if I was involved in any tax-avoidance scheme...

[Skyefrog]

That's a relief to learn, Nobby. All my banking is online and I don't get paper statements anymore but I'm sure I could request these if required. Are we meant to keep these important documents in the event of being audited? I'm certain I either have or can access these if needed but would like to have them looked out in advance, just in case. Better buy another folder and name it 'Important Stuff'.

Thank you so much to everyone! I just got a huge order today so I'm feeling really positive and the info from you all on the stressful side of it makes me feel much better. I had convinced myself I was going to jail for tax evasion/seriously bad book-keeping...

[Caroleecrafts]

You have to keep all records pertaining to your business for 6 years plus the current year. These can be in a paper format or stored digitally but you must be able to download to a stick if any items are requested by the HMRC. My banking is electronic but my business account still sends out statements each month. You can always print off the statements and keep if you want but I can access info online going back years.

[MikEye]

Hi...

I cant see on this thread what your legal status is. The requirements for a sole trader are very different from for example those of a ltd company. It is not mandatory however, to have a business bank account (or even a separate bank account) for either. That said I would plan for success, because as your business grows you will find it increasing difficult to separate the monies properly and do your book-keeping well enough to keep both yourself and the tax man happy.