One of the things about setting up a new business that often causes anxiety is having to be responsible for your own Income Tax and National Insurance contributions.
Please don't worry, it's super easy and everything is now done online through the HMRC Government Gateway portal. As a business owner you will need to register as a sole trader with HMRC and complete Self Assesment tax returns.
You have to register as a sole trader by 5th October after the end of the tax year in which you start trading, the tax year in the UK runs from 6 April - 5 April ( so if you start trading in Feb 2022 you will need to register by 5 October 2022 at the latest)
Hopefully this guide will put your mind at ease if you are worried about it:
Registering for tax
Register for Sole Trader status with HMRC as soon as you can, probably best to do it before your days are filled with the wonderful young people that will be in your care and its one more thing off your to do list ✅
HMRC will send you, by post, your UTR ( Unique Tax Reference) - make sure you keep this and any other HMRC log ins and passwords in a safe place so you can refer back to them.
Once you have received your UTR you can set up your account with the Government Gateway which is the go to place for all of your tax accounting details. 🗃
Paying your tax
Every year you will need to submit a tax return to HMRC 📧 - the deadline for submission is January 31st following the tax year you are submitting for (so for the tax year 6 April 2022 - 5 April 2023, you will need to submit your return by 31 January 2024) - if you do not meet the deadline you may face a fine, HMRC have obviously made it really easy to get taxes in, so this can now be done really simply by using your Government Gateway login.
Your Self Assessment should include all of your income and business expenses and the tiney app will show you really easily your income for the period you are submitting for.
You will pay tax on your annual profit but will retain your personal tax free allowance for the year ( the standard code for 2022-23 is £12,570 per year 💷 so you will only pay tax on profit above that).
Any profit above your tax free allowance will be charged at either the basic rate (20%) or higher rate (40% - for any profit above £50k pa).
You will also have to pay some National Insurance contributions (NICs) which are calculated dependent on income - most self employed people pay Class 2 (£3 per wk) or Class 4 (9% of profit)
Your business expenses
The good news 🎉 - is that you can offset all of your business expenses against your income so they will not count towards your profit. Have a good think🤔 about all the things you have bought or need to continue to buy to run your tiney home - here's a few examples: printers, phones, cleaning products, resources for the setting, food and drink you supply, business subscriptions, mileage and travel costs. Also think about what you may have needed to get your tiney home set up: stair gates, fire blankets, high chairs, carseats, cots etc)
💡A good tip is to record your expenses ( and receipts) as you spend them, don't forget you can now use the tiney expenses tracker in your app, and are able to upload photos of your receipts.
Your tiney membership fee can also be counted as an expense required to running your business - we can provide records of all your payments, fees and earnings in the relevant tax year to help with this.
More good news 🎉- Childminders have a special dispensation with HMRC and you will not have to retain receipts for expenses less then £10 but can still claim them back in your return, so if you buy the children in your care refreshments on a day out you can still claim this back without having to provide a receipt, just make sure you log it in your return.
As a business running from your home you can also claim as part of your expenses a proportion of your household expenditure based on the hours you work per week (table below) plus 10% of your total annual income can be claimed for household wear and tear.
Table of utilities that can be claimed back:
Please click here to read the full HMRC guidance for childminders
What should I do next?
Register as a sole trader with HMRC.
Set up a separate bank account for your business, you can open a business account but they do cost more in fees than a personal account.
Always put aside a % of your earnings each month for tax so you do not face a huge bill when it comes to your tax return - 20-25% of your income should cover it, but if you can afford to put more away do, it's great way to save up for a January sales splurge 🛒
Start recording your business expenses in the tiney app 📈
Other common questions about tax
How much tax will I need to pay?
This depends completely on how much you earn! The more you earn, the more tax you pay.
Currently, the tax-free Personal Allowance is £12,570. That means if you earn less than this, you do not have to pay any tax. Anything above that, you will pay 20% of tax on.
So if you earn £13,000 during the tax year, you don't have to pay tax on the first £12,570. You would then only pay 20% tax on the £430 above the tax limit, which means you would owe £86 in total.
You will still have to fill out a tax return if you don't owe any tax, however, as you will owe National Insurance (this is much less).
What if I had other earnings outside of tiney in the tax year?
If you had other sources of income in the same tax year, whether from another salaried job or from another self-employed venture, you will need to include this in your return as well.
For any earnings paid as a salary through PAYE, tax will have already been deducted - you can include information from your P60 (earnings for the whole tax year) or P45 (earnings until your employment ended) under the Employment section. You can also add multiple Self-employment sections to declare earnings from other sources.
All these earnings count towards your Personal Allowance - so for example if you earned £15,000 from a salaried job, you will have paid tax on £2,500 of this (the earnings over your Personal Allowance of £12,570). This means that you will need to pay tax on everything you've earned through tiney.
My earnings don't go over £12,570, do I still need to complete my tax return?
Yes, even if you don't need to pay any tax on your earnings (if they don't exceed your Personal Allowance), you still need to complete and submit your tax return. You will still need to make National Insurance contributions, which is often much less than the tax amount.
What is ‘Payment on account’?
The Payment on account is a tricky little thing that can increase the amount you need to pay quite a bit - however it only matters if you have to pay more than £1000 in tax.
This is an advance payment towards your tax bill for the following tax year. When submitting your return for 2022/23, if the total bill exceeds £1000, you will have to pay an additional amount for your 2023/24 tax bill by the 31st January deadline. You will then need to make an additional payment in July 2024, and then the remainder of your tax bill for 2023/24 by the end of January 2025.
This does spread out the cost for your 2023/24 bill, but it can mean that you pay more than you might have expected in your 2022/23 bill. This is why it’s important to put aside money throughout the year for your tax return, so you’re not hit with a nasty surprise!
See here for more information.
Final point - if you get stuck reach out to the tiney team or HMRC themselves 📞 - they are very helpful.