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Are you trading? – When does selling a few items become a trade

We all sell the odd item from time to time.  But when does this stop being a personal transaction and start being a trade (creating the requirement to register for Self Assessment and paying taxes on any profits).

HMRC does not have clear guidelines but instead gives the vague guidance below

You’re likely to be trading if you:

  • sell regularly to make a profit
  • make items to sell for profit
  • sell online, at car boot sales or through classified adverts on a regular basis
  • earn commission from selling goods for other people
  • are paid for a service you provide
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HMRC – Reasonable excuse to appeal a penalty.

As you probably already know – Pay your taxes late get a penalty! – File a return late – get a penalty!

But are there any excuses that HMRC will accept to avoid a penalty? Well, as you would expect HMRC are not incredibly lenient, otherwise what would be the point of the penalty in the first place! “The dog ate it” is not going to get you much sympathy. However, if you genuinely were trying to submit it but had a reasonable excuse that something stopped you meeting a tax obligation that you took reasonable care to meet then an appeal may be successful.

A few examples include;

• your partner or another close relative died shortly before the tax return or payment deadline
• you had an unexpected stay in hospital that prevented you from dealing with your tax affairs
• you had a serious or life-threatening illness
• your computer or software failed just before or while you were preparing your online return
• service issues with HM Revenue and Customs (HMRC) online services
• a fire, flood or theft prevented you from completing your tax return
• postal delays that you couldn’t have predicted
• delays related to a disability you have

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Tax for the owner managed business

Own the shares in the company you work in?  All the different taxes can be tricky to keep track off.  Here’s a brief overview of the primary sources of income and the tax they attract.

The company is its own legal entity

The first thing to understand is that any income/profit made by the company is owned by the company.  As such it attracts company tax which is known as corporation tax.   Those profits are completely separate from you until they leave the company and are passed to you as the owner/employer

Corporation tax

Corporation tax is a tax on the profits of the company.  In its simplest form, it is the income less the allowable expenses of the company and is a percentage of what is left over.

Payment of this tax is made by the company as is due 9 months and 1 day after the year end of the company.

Income for the owner/manager

As an individual you draw income from the business.  This is how you get the profits in the company into your pocket (well probably your personal bank account really!).  As both an employee of the business (usually as a director) and the shareholder of the business you have 2 sources of getting at the company’s profits.

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Why I joined Leighton Buzzard Business Club (LBBC)

There are a lot more benefits in networking than just receiving introductions to potential customers or clients.
LBBC has a membership drawn from a wide number of businesses and professions, most of whom have many years experience of the trials and tribulations of running a small enterprise. I have found it an enormous benefit to be able to have an informal chat regarding an opportunity or issue with a fellow member.

Running any business on your own or with a team can be scary. It’s really helpful to be able to ask for advice or use other members as a sounding board. Other members also look for advice from one and it is through this process, and the feedback from other members, that confidence in each member develops.

People buy from, and recommend, those whom they know and trust, so it can be a slow process. But, business I have found, is a marathon not a sprint and long term associations usually bring the best long term rewards.

One of the powers of any business network is the sum of the networks of all the members. Individual members are understandably cautious and protective of their contacts, but over time will usually make referrals in appropriate cases.

We all make judgements by association so aiming for the highest professional standards in all our members is important to our club. We generally expect to receive high value contacts from high value associates, and of course the converse is true also, so care is taken on who is invited to become a member. Most new members are those who have been invited to a meeting by an existing member, but we do also welcome other visitors from local businesses to come to one of our Wednesday morning breakfast meetings at Leighton Buzzard Golf Club.

Another enormous benefit is access to the products and services of existing members and their networks of suppliers. One should never underestimate the value of a recommendation to a reliable supplier!

I joined LBBC for the above reasons and as a way to enhance the standing of my accountancy practice; Holmes and Company, based in New Road, Linslade.

We are a team of six and although we have been established there for nearly 20 years it is still important to promote our service and not rest on our laurels!

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