How To Begin Selling?

[ejralph]

I must admit, it has always been my understanding too that you have to declare ANY earnings from items you make to sell or buy in to sell.

This is why ebay have gone bananas about having people define themselves as business sellers these days - because the tax peeps were breathing down their neck about it all.

On this link, it covers this issue a bit
https://www.gov.uk/working-for-yourself/what-counts-as-self-employed

It does seem to infer hobbyists that "don't intend to make a profit" can sell from time to time. But set yourself up a ebay /etsy store or sell at craft fairs and they'd have a hard time believing you don't intend to make a profit I expect -  even when we all know we very often cant make one if we try!

Selling the odd bit to friends and family is one thing. Selling to strangers and you are in a whole other ball game. Whether you intend to make a profit or not - you're still obliged to adhere to the various trading laws and would still be liable in that regard.

So I think really it is always a bit risky to rely too heavily on the "hobbyist" defence if one starts to sell. Better to legal-up, know the ins and outs and do it all by the book. That way you are also not emotionally fearful OF making a profit and growing your business should the universe see its way to allowing that.

Emma

[MilleD]

Now on Tax, I've found out that you don't need to pay VAT unless and until you are earning £81,000 per year, I got that from here: https://www.gov.uk/vat-registration and on Income Tax: https://www.gov.uk/income-tax-rates I understand from there that most people's allowance is £10,000 per year, but note that this says 'Most People' not ALL People, you'd probably have to search further to find out who the others are...
It seems that some state benefits are taxable too.
I know that my husband's Army pension is taxable, but that's just because he's still working, once he retires that Army pension will no longer be taxable.  So it's ruddy hard to work all this out.

To be on the safe side with tax, just add up any income you receive in the year (don't forget taxable interest on savings) and that's your starting point.

VAT is an interesting one - some people register for VAT even if they are below the threshold as it can be beneficial - but the sheer amount of work involved would put me right off if I didn't need to do it. - BTW the amount you quote is turnover, not profit.  Big distinction.

Edited  - forgot to actually write something 

[MilleD]

It does seem to infer hobbyists that "don't intend to make a profit" can sell from time to time. But set yourself up a ebay /etsy store or sell at craft fairs and they'd have a hard time believing you don't intend to make a profit I expect -  even when we all know we very often cant make one if we try!

Selling the odd bit to friends and family is one thing. Selling to strangers and you are in a whole other ball game. Whether you intend to make a profit or not - you're still obliged to adhere to the various trading laws and would still be liable in that regard.

Exactly.  Even when selling to freinds and family they are expecting you to only cover your costs.  Setting up a website to sell anything is a massive siren with an orange flashing light stating that you are trading.

[JonB]

So how about claiming stuff against tax?
My accountant said that you can only claim for supplies when you sell something, then you can claim a percentage that appertains to what you sold. Until that point they are not claimable. I think that was the gist anyway. I guess you have to have a worked out percentage that you can say is materials or consumables, and the revenue have to ok that percentage. Tools and machines etc I think you can claim for.
I was registered for vat for a while in order to get vat back off computer stuff. it was a pain.

[FranOnTheEdge]

Well I did make sure to use one single method of payment when buying tools and supplies, so I at least know the outgoings from that perspective.  So otherwise it's best to sign up for tax etc even if you know you'll probably never earn enough to pay it... okay.

[MilleD]

Well I did make sure to use one single method of payment when buying tools and supplies, so I at least know the outgoings from that perspective.  So otherwise it's best to sign up for tax etc even if you know you'll probably never earn enough to pay it... okay.

And you can carry losses forward to when you are making loads of profit :-)

[MilleD]

So how about claiming stuff against tax?
My accountant said that you can only claim for supplies when you sell something, then you can claim a percentage that appertains to what you sold. Until that point they are not claimable. I think that was the gist anyway. I guess you have to have a worked out percentage that you can say is materials or consumables, and the revenue have to ok that percentage. Tools and machines etc I think you can claim for.
I was registered for vat for a while in order to get vat back off computer stuff. it was a pain.

As far as I know it's your choice when you claim expenses.

If you look up detail on cash accounting versus accruals accounting you'll see what I mean.

Your accountant looks to be talking about accruals accounting.  That's where you only recognise an expense when the corresponding sale has been made that 'used' the item that you bought.

Cash accounting is far simpler and for someone selling beads or jewellery is probably what I'd do.   This is where you simply recognise incoming and outgoings at the time they occur.  Large businesses are not allowed to do this due to Generally Accepted Accounting Principles (GAAP) not liking it.

Caveat - I am NOT a tax accountant 

Edited - pressed the 'Post' button too soon again 

[MelMcG]

All I can say is... thank God my husband's an accountant!!

Mel 

[Peter]

I use cash accounting. It is a great deal easier. Be aware of "Cost of Sales" though which is how you account for the "costs" to the business directly involved with the sold product:

The cost of sales is calculated as beginning inventory + purchases - ending inventory.

Basically you have your starting inventory (pieces valued at cost price as well as findings, boxes etc))...add the cost of any items you purchase throughout the year to produce items (clay, tools, polish, findings, boxes  etc.) and then deduct your inventory (at cost price) at the end of year. This gives you your cost of sale.

This is then deducted from your annual sales figure (along with other costs such as transport, heating, phone, internet etc.) to give you your taxable profit (or loss).

That is how my accountant explained it to me anyway. I would suggest speaking to an accountant though as they know far more about it than me!!

 

[MilleD]

Peter, that sounds more like accruals accounting to me.

When you do cash accounting, you account for the expense when you pay for it.

I suppose it's a useful thing to know that a certain amount of cost produced a certain amount of sales, but it isn't required for tax purposes AFAIK.

[Peter]

You are of course correct Millie.....my bad!!

 

[FranOnTheEdge]

So... basically you list outgoings; cost of tools, clay, mica etc, and sales (if any) and when the year ends and a new one begins you begin with a huge loss (cost of all those tools etc)... especially if you open for business in... december, when you'd expect most sales to occur, then the next year will probably have less outgoings, or at least you won't need another roller or extruder...

[Peter]

Pretty much, but I really would advise you to speak to an accountant first. They quite often do a free consultation (at least mine did) and will make sure that you are going along the right track......

 

[MilleD]

So... basically you list outgoings; cost of tools, clay, mica etc, and sales (if any) and when the year ends and a new one begins you begin with a huge loss (cost of all those tools etc)... especially if you open for business in... december, when you'd expect most sales to occur, then the next year will probably have less outgoings, or at least you won't need another roller or extruder...

Don't forget that if you claim an expense against tax - it normally has to be 'wholly and exclusively' for the use of the 'business'.  So if you also use the tools for 'fun', you may not be able to claim 100%.

That's the theory anyway, how on earth they would ever prove what was business and what was fun is another matter.

[AfroByte]

Oh Boy, I better keep a separate folder for my art stuff. Just in case I make a profit.