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 2020 you will need to register by 5 October 2020 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 2020 - 5 April 2021, you will need to submit your return by 31 January 2022) - 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 2020-21 is £12,500 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 , either in an excel sheet or through an easy service like receiptbank.
- 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 (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:
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 📈
Final point - if you get stuck reach out to the tiney team or HMRC themselves 📞 - they are very helpful.