In these days of pandemic and lock down many people are struggling with finances. Although government has been really supportive during these tough times .Many grants were issued to the employed as well as to sole traders. While many people who were made redundant used loans to start their businesses online many of the high street sellers also started selling their products online. Because of the convenience of packaging and delivery that amazon provides selling products through amazon is becoming quite popular.
In one of our blogs previously we discussed the taxes if you are selling on amazon through a limited company. Check out our blog by clicking here.
If you do not own a company and you are selling products online just to make some extra money or you have just started a small business online because you don't have a job right now you will need to register yourself for self- assessment with HMRC. Please note that you need to register yourself with HMRC as self-employed if you have income it does not matter if you are making a profit or not you have to register yourself any way.
If in the last tax year 6 April 2019 to 5 April 2020 you were self-employed and you earned more than £1000 you need to register yourself for self- assessment by 5 Oct 2020 and file paper tax returns by 30 Oct 2020 and file and pay online tax returns by 31 Jan 2020. If you fail to submit your tax returns on time you might have to face penalties.
Income tax rate: If you are self-employed you will pay income tax on the profits earned. If you are a basic tax rate payer you will be paying tax at 20 %, higher rate tax payer will pay 40 %, and additional rate tax payer will pay at 45 %. Income tax rates and thresholds are explained here
National Insurance: If you are self- employed you will pay 2 types of NI. Class 2 NI which is £3.05 a week if your profits are £6475 or more per annum and Class 4 NI(4 %) on profits between £9501 and £50 000 and 2% on profits above £ 50 000.
Allowances: each year an annual allowance of £12 500 is given. This means income earned up to this amount is not taxed. You might also be eligible for the trading allowance of £1000.You will also get a `use of home` allowance which is £4 per week.
Allowable expenses: Don't forget to claim allowable expenses. These are the expenses which are allowed for tax purposes. This means you can deduct these expenses from the income when calculating the profit figure. These expenses reduce the taxable profit thereby reducing the tax liability. Allowable expense include any printing and stationery, use of home, proportion of telephone bill which is used to take business related calls, advertisement costs, accountancy fees. If you want further advice on what expense you can claim you can call our accountant at Taxaccolega and we will help you with that
Capital Allowances: It is very important that you keep record of any machinery that you bought to be used in your business for example, if you bought a computer, laptop, mobile phone etc. According to HMRC you can claim capital allowance if you use traditional accounting, however if you are claiming trading allowance you cannot claim capital allowances. If you use cash basis and you buy a computer you can claim this as capital allowance.
If you need help in registering, filling your self- assessment tax return, or you failed to fill in self-assessment tax return in the previous years and you want to do it now we at Taxaccolega can help you with this. We are accountants based in Croydon and South hall, you can visit us, call us at 020 8127 0728 or drop us a message here and we will be happy to help you.