Tax Q & A’s – Debbie’s monthly editorial for Grapevine readers

Q: I started working for myself in September 2012.  Do I have to fill in a tax return even if I’m making losses?

A: Yes you do. If you were employed before starting your business, one benefit of completing a tax return is that the trading losses could be set off against your employment income and you may be entitled to a tax refund. 

Q: Also, by what date do I need to tell HMRC that I’m self-employed?

A: The latest you should register is by 5 October after the end of the tax year for which you need a tax return. The tax year runs from 6 April one year to 5 April the next.  If, in your example, you started your self-employed business in September 2012 you will need to complete a 2012-2013 tax return and therefore you need to let HMRC know by 5 October 2013.  If you register late you may have to pay a penalty.

To register as self-employed either go online or call the HMRC helpline for the Newly Self-Employed on 0845 9 15 45 15.

Q: I have sold over £2,000 of goods on e-bay this year, toys and furniture that I no longer use.  Do I have to pay tax on the income?

A: If you are just selling some unwanted items that have been lying around in the attic, the answer is probably no. In order to pay tax on the goods you sell, you either have to be trading or make a capital gain. If you are trading you will be self-employed.

You are trading if you:

  • sell goods you have bought for resale
  • make items yourself and sell them, intending to make a profit
  • sell (or buy) goods on behalf of others for financial gain (for example on commission)
  • provide a service and receive payment (whether in cash or in kind).

But you are not trading if you:

  • sell occasional, unwanted personal items through Internet auctions or classified advertisements
  • attend a car boot sale once a year to sell unwanted household items.

Q: My rental property is currently classed as a Furnished Holiday Letting (FHL).  Now that the tax rules have changed and the losses can not be set off against my other income, is there any point in carrying on with this classification?

A: The key tax benefit that has been retained is that Capital Gain Tax relief’s are still available for a FHL, in particular Entrepreneurs’ Relief.  Using this relief, the gain on the eventual sale of the property would currently only be taxed at 10% as apposed to 28% for a higher rate tax payer.