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Declaring tax on Lego sales / Setting up a Bricklink business

This is something of an unspoken topic perhaps and one that you might feel unable to publicly comment on but here goes. [@Admin delete if not appropriate]

Like many, as my interest in Lego expanded I began to sell Lego to reinvest in buying more sets. I started on ebay and later setup modest stores on Bricklink and Brickowl. Whilst I'm not making a significant amount on these sales I am becoming more and more concerned about declaring tax and wondered what other hobby sellers are doing? Are you declaring or not? 

At first I thought, its just a hobby and lots of people are doing it so it must be ok.

There seems to be lots of folklore around the topic i.e. Its a hobby so doesn't count, I don't make enough to hit a threshold that would interest the tax man, I reinvest everything back into Lego so its OK etc. However, research indicates "any" income from the sale of a product (aside from used and unwanted goods) must be declared. So if your buying Lego with the specific purpose of reselling some or all of it then you need to think about this.

Of course, we can assume that the tax man just isn't interested in us but is this true? I have heard that Paypal report users earning above a certain threshold to the tax man, though this threshold seems high (if true). Any thoughts?

If I understand correctly if you do declare you need to register as a sole trader in order to declare through a tax return.

Being a 40% tax payer would make any profits from selling seem not worth while for me, but my wife, who doesn't work could sell without fear of paying tax.

So seems there are multiple options.

1. Stop worrying about it and do nothing.
2. Register myself as a sole trader
3. Register my wife as a sole trader and have her make the sales in her name

Now, for anyone with in the know, I have some questions about setting up as a business that I would appreciate comments on.

1. What happens about past sales if I register as a business?
2. What impact or benefit is there in converting paypal to a business account?
3. Is there an easy way to change the owner of my ebay, bricklink and brickowl accounts? 
4. If setup as a business do you need to transact everything through a business account? Or can it be a joint account?
5. How is inventory accounted for when doing tax returns
6. Can I purchase items for the business through personal accounts?
7. Is the sales counted for tax purposes at the storefront or who receives the money. In other words if my stores invoices were paid into my wife's paypal account who is liable for the tax, me or my wife?
8. How do you cost parts for inventory in Bricklink?


Probably very obvious questions to some of you I hope.




Comments

  • akunthitaakunthita USAMember Posts: 979

    I don't know when people pay taxes in the UK, but in the US, it's in mid-April, and coming up to tax season there are always some very good and helpful discussions on tax preparation at the BrickLink Forum. Some BrickLinkers are even accountants and tax preparers as their main job and can give very knowledgeable advise.

    Therefore, I would suggest that you ask your questions at the BrickLink Forum. It's not that people can't be helpful here as well, but while Brickset is a generic forum, BrickLink is a marketplace where everyone has to deal with taxes. Make sure you specify where you are, as tax laws vary greatly by locality.

    I have never read anyone saying on BrickLink that sellers shouldn't report their income or pay taxes. Nor have I heard of myths and rumors. It's not like BrickLink sellers are a bunch of rebels and renegades. The advise is usually pretty cut and dry with helpful links to relevant tax documents, and help with interpreting them. BrickLink itself has useful reporting tools that you can use for preparing taxes.

    As I'm in the US, I can't give specific advise about your situation, but I could share some generic points. Yes, usually governments want their share of a transaction, and yes you should be reporting your sales as income, minus the expenses related to it (very specific rules apply to this too). In the US, there are helpful worksheets to assist you in keeping track of everything throughout the year, and then just transfer the numbers to the tax forms when your taxes are due.

    In the US, if you are just a hobby seller, occasionally selling stuff on eBay, BrickLink, garage sales, etc., you can report it on your individual income tax return. No need to register as a business, but the UK might be different.

    Again, I can only speak for the US, so our specific numbers won't help you, but yes, PayPal does report transactions over a certain amount. If you do get a tax form from them, it means that it was also reported to your taxing authorities, and you should definitely report the income. However, even if they don't send a tax form because your transactions were below their threshold, but you did make side income that should be reported, then report it.

    Opening a PayPal business account is easy, and you should do it if you are setting up under a business name. If you are only doing a few transactions and setting up a business is not required, you can just use your personal account. Having a personal account or business account with PayPal doesn't make a difference as far as reporting to your taxing authorities.

    I don't use BrickOwl, so I can't comment on that, but BrickLink is very strict with having only one account, although for very large sellers they sometimes allow a separate personal and a business account. If your selling activities are projected to be the same, I would just keep the account you have, as you probably already have good history and feedback. If you want to change the name of your store, that's very easy; just change it. And if you want to pay the invoices with a different PayPal account, you can easily do that as wellSince BrickLink and eBay doesn't deal with your taxes it doesn't matter under what name the account operates.

    If you are planning to remain a hobby seller, you can just keep track of income and expenses via a spreadsheet or simple accounting software and by keeping receipts. Even if you remain small, it is a good practice to keep a separate bank account and card for your business-related activities. This keeps finances nice and clear for your own records and peace of mind, and also in case you get audited. But again, if in the UK, it is required to set up as a business even as a small hobby seller, then follow the directions given by your taxing authorities. As far as making purchases on your personal account for the business, it's not a good practice as it convolutes things, but can certainly be done. Pay with your personal account if there is no other option at a given time, and have the business reimburse you.

    There are a two main ways to deal with inventory; cash or accrual accounting. If you are a small shop cash accounting usually makes more sense. It is simpler to run and wrap your brain around. Large businesses use the accrual method. With cash accounting you basically report when you buy and when you sell. You don't really worry about managing inventory in your books.

    I would assume you and your wife file taxes jointly, so it doesn't really matter who's PayPal account the money comes to. The important part is that you have good records. If you do file taxes separately, then it is best to keep everything related to the store (both buying and selling) under the account of the person running it.

    Overall, I would say, keep it legal but also keep it easy. If there is no need to set up a whole different entity just to have a handful of BrickLink sales a year, and you have no plans to grow your store into a full business, then keep things as simple as the law allows. If you do have plans to grow a full-on side or even full-time business, it can be worth setting up as a business from the beginning, and have your accounting and tax reporting skills grow as your business grows. Or, you can also convert later. The tax man doesn't care under what name you give them their share. ;)


    dutchlegofan50
  • DB361DB361 UKMember Posts: 103
    Great topic and one that I've been starting to look at myself. First port of call I would say would be https://www.gov.uk/set-up-sole-trader - I've only had a quick scan through so far but there's a hell of a lot of useful information on there, and it appears to be well worded and easy to understand. From what I can see, you must declare yourself as a sole trader in your second full tax year by 5th October or risk a fine (although everyone's opinion on risk is going to be different).  My opinion is that so long as you're paying your tax, HMRC couldn't care less how you actually run your business in terms of accounts, stock records, historical sales PayPal etc - that's entirely up to you as the person running it.
    I've no idea what the difference in tax levels is if you're employed or umemployed, but as someone who's had to take a little part time job after recently being made redundant, it's something that I would love to know myself to decide whether to keep that job or not. Safe to say that I'm not earning anything like enough to pay a 40% tax rate, though!
  • LobotLobot UKMember Posts: 741

    @All_That_Rocks -

    I worry about most things, so I registered myself as soon as I'd opened my Bricklink store to prevent any associated stress!  It was actually very straightforward although it seems a bit odd to be considered as a 'sole trader' when I'm employed full-time elsewhere.  If I recall correctly, you're supposed to register within two months of setting up a business but that could have changed.

    The tax return is very simple to do online, but I do run a spreadsheet with all my sales, stock purchases, expenses etc which makes it a lot easier.   You'll need to enter the basic details from your main income (e.g. P60), plus any additional income (e.g. Bricklink etc!).  I don't worry about trying to value my inventory, as all you need to do is to declare your income/expenses in the return.  Logically if I ever sell-up, HMRC will get their cut of tax at that point.  Mrs L used to work for HMRC and is adamant that's correct (e.g. it's only applicable if you start to get really serious with your inventory!!).

    I still use my original non-business Paypal account, which is linked to a separate bank account that I use for internet purchases.  I use that for virtually all of my stock purchases etc to keep it all tidy and separate from my personal purchases.  I quite enjoy that part of it, and in a very odd way I'm actually looking forward to being audited by HMRC...!!

  • AleyditaAleydita BelgiumMember Posts: 600
    edited December 2017
    The rules can be complicated, but in the UK, generally, if you're buying with intent to sell, you're trading and should set up a business or register as self-employed. There are no thresholds, even if you make a loss you should register - indeed, it can be beneficial in this case as you may be able to set your self-employed losses against your other income (and thus reduce the tax you pay).

    The first decision you need to make is how you register. Do you create a Ltd Company, register as self-employed, either as a sole-trader or in partnership with your wife (so you can shift all profit to her), etc. A Ltd Company may be overkill but as a higher rate taxpayer may prove efficient in terms of tax.

    If you go the self-employed route, you then need to decide whether you want to use cash basis or traditional accounting. The cash basis is usually easier for sole traders as it means less record-keeping, but there are some restrictions on who can use it. Additionally, if you expect to hold high levels of stock, HMRC will expect you to use traditional accounting and may be more inquisitive about your affairs if you don't.

    With traditional accounting, you record income when you invoice your customers and expenses when you receive a bill. You are taxed on your profit, which is worked out thus: Sales - cost of sales (opening stock + new purchases - closing stock) - expenses (including capital allowances for equipment). Essentially, HMRC doesn't care if your profit is taken as cash or re-invested in stock, you pay tax on it all the same. Losses may be offset against past and future trading years and/or (potentially) other income.

    With cash basis accounting, you record income when you get it and expenses when you pay them. Your taxable profit is worked out thus: Sales - expenses. That's it. Purchases of stock and equipment are simply treated as an expense. This means you could wipe out your taxable profit by buying a vehicle for business use, or a lot of stock for the future. You can still elect to declare capital allowances for some things (like vehicles). Losses may only be offset against future trading years.

    If you don't have a lot of time to do the necessary reading to work out your best options, it's advisable to engage an accountant to deal with the first year (maybe two), and then continue their methods yourself moving forward. If you're happy to do your own bookkeeping (noting sales, purchases, etc.), a good accountant shouldn't cost more than £300-500, which as a one-off cost could be a great investment.
    sid3windrAll_That_RocksKerre
  • mithridatemithridate HawaiiMember Posts: 28
    Just spitballing: if it’s still really just more of a hobby than a business, and if any and all proceeds are being “reinvested,” isn’t there almost always a net loss? If this is the case, isn’t the only possible money owed to a government a sales tax/GET/VAT, which would be offset by the reduced tax burden from the loss the “business” took?
    All_That_Rocks
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    akunthita said:

    I would assume you and your wife file taxes jointly, so it doesn't really matter who's PayPal account the money comes to. The important part is that you have good records. If you do file taxes separately, then it is best to keep everything related to the store (both buying and selling) under the account of the person running it.

    Overall, I would say, keep it legal but also keep it easy. If there is no need to set up a whole different entity just to have a handful of BrickLink sales a year, and you have no plans to grow your store into a full business, then keep things as simple as the law allows. If you do have plans to grow a full-on side or even full-time business, it can be worth setting up as a business from the beginning, and have your accounting and tax reporting skills grow as your business grows. Or, you can also convert later. The tax man doesn't care under what name you give them their share. ;)


    Thanks for your comments and advise. I totally take your point about raising this on Bricklink and had thought of doing so but feel much more part of this community so thought I'd start here. That looks to be proving to be a good choice based of the number of very detailed responses I've received already.

    I have no desire at present to build anything greater than a hobby. I love building Lego and also enjoy the buying and selling aspect. But I wouldn't want to become dependent on it.

    I appreciate using personal funds for the business side is messy but that is part of my whole dilemma. When I see a good deal I want to be able to purchase but may not have the funds on the business account to do so. I don't have the funds to put a large lump sum aside for business spending only.

    My wife, doesn't actually work at all and as such doesn't earn a penny and equally pays zero tax. Thats why it would be so attractive to use her taxable allowance. She(we) would never hit that limit (approx 10K) so would never have to pay tax.

    I definitely want to keep it simple :) I think maybe I am over thinking things.

    What is really tripping me up is that fact that I have been trading for a couple of years and don't know how to unravel that without paying a fine (which is obviously unattractive). 
  • AleyditaAleydita BelgiumMember Posts: 600
    akunthita said:

    I would assume you and your wife file taxes jointly, so it doesn't really matter who's PayPal account the money comes to. The important part is that you have good records. If you do file taxes separately, then it is best to keep everything related to the store (both buying and selling) under the account of the person running it.

    Overall, I would say, keep it legal but also keep it easy. If there is no need to set up a whole different entity just to have a handful of BrickLink sales a year, and you have no plans to grow your store into a full business, then keep things as simple as the law allows. If you do have plans to grow a full-on side or even full-time business, it can be worth setting up as a business from the beginning, and have your accounting and tax reporting skills grow as your business grows. Or, you can also convert later. The tax man doesn't care under what name you give them their share. ;)


    Thanks for your comments and advise. I totally take your point about raising this on Bricklink and had thought of doing so but feel much more part of this community so thought I'd start here. That looks to be proving to be a good choice based of the number of very detailed responses I've received already.

    I have no desire at present to build anything greater than a hobby. I love building Lego and also enjoy the buying and selling aspect. But I wouldn't want to become dependent on it.

    I appreciate using personal funds for the business side is messy but that is part of my whole dilemma. When I see a good deal I want to be able to purchase but may not have the funds on the business account to do so. I don't have the funds to put a large lump sum aside for business spending only.

    My wife, doesn't actually work at all and as such doesn't earn a penny and equally pays zero tax. Thats why it would be so attractive to use her taxable allowance. She(we) would never hit that limit (approx 10K) so would never have to pay tax.

    I definitely want to keep it simple :) I think maybe I am over thinking things.

    What is really tripping me up is that fact that I have been trading for a couple of years and don't know how to unravel that without paying a fine (which is obviously unattractive). 

    Be careful following advice from someone who doesn't know the UK tax system. I'm not questioning the advice per se, but statements like "I would assume you and your wife file taxes jointly, so it doesn't really matter who's PayPal account the money comes to" are a little worrying.

    UK law doesn't treat income earned from a hobby as different from any other type of earned income, except in one important respect - if you make a loss, you cannot offset that loss against any other income.

    If you're a sole-trader (or partnership) it doesn't matter where the funds come from or go, because the law treats it all as yours. It's record-keeping that matters, what you spent, what you earned, etc.

    You'd likely get away with channelling your trading income via your wife. However, in terms of tax, it's the facts that matter so if HMRC believe that the income should be attributable to you, they will re-visit your declarations, re-assess and levy penalties and interest. However, you can get around this by setting up a partnership which is essentially the same as a sole-trader, except it involves more than one person and you get to declare who gets what share of the profit. There's also an additional form to fill in every year. So, it's perfectly legitimate to submit that Partner 1 receives 0% of the profit, and Partner 2 receives 100%.

    Registering and then trading as a sole-trader or a partnership is very straight forward. You just need to choose an accounting method and keep the appropriate records (there's a near-mythical £5,000 fine for not keeping adequate records, though in all my years working at HMRC, I rarely heard it mentioned).

    You have four options regarding early trading:
    (1) Pretend it never happened, or that it involved selling your own stuff only.
    (2) Get creative with your accounting years. An accountant will definitely help here.
    (3) Send a letter to HMRC telling them that you (you being your wife if you like) earned £x in y tax year, and £x in z tax year, and that you're prepared to pay any tax owed. Word it in such a way that the amounts represented isolated sales rather than an ongoing trade. If you're lucky, HMRC will raise what are known as 'informal assessments' which won't involve any penalties or interest. If you're unlucky, they'll send you Self Assessment forms to complete for the years in question, which will result in penalties. They may also levy a penalty for not registering in time. Then register as self-employed going forward.
    (4) Be honest with HMRC and register as self-employed, giving the date you actually started. This may result in penalties but stress wise, will be the easiest to deal with. You have until midnight on 31 December to file a tax return for the year 6 April 2016 to 5 April 2017, though you'll need to get moving now to have any chance of meeting that.
    Kerre
  • AleyditaAleydita BelgiumMember Posts: 600
    Just spitballing: if it’s still really just more of a hobby than a business, and if any and all proceeds are being “reinvested,” isn’t there almost always a net loss? If this is the case, isn’t the only possible money owed to a government a sales tax/GET/VAT, which would be offset by the reduced tax burden from the loss the “business” took?
    Not really. VAT is treated entirely separately and a trading loss cannot be offset against any VAT owed. In any case, a business doesn't necessarily have to collect VAT in the UK if the turnover is below a pretty high threshold.

    Kerre
  • AleyditaAleydita BelgiumMember Posts: 600
    edited December 2017
    Aleydita said:
    You have until midnight on 31 December to file a tax return for the year 6 April 2016 to 5 April 2017, though you'll need to get moving now to have any chance of meeting that.
    *midnight 31 January 2018.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    DB361 said:
    Great topic and one that I've been starting to look at myself. First port of call I would say would be https://www.gov.uk/set-up-sole-trader - I've only had a quick scan through so far but there's a hell of a lot of useful information on there, and it appears to be well worded and easy to understand. From what I can see, you must declare yourself as a sole trader in your second full tax year by 5th October or risk a fine (although everyone's opinion on risk is going to be different).  My opinion is that so long as you're paying your tax, HMRC couldn't care less how you actually run your business in terms of accounts, stock records, historical sales PayPal etc - that's entirely up to you as the person running it.
    I've no idea what the difference in tax levels is if you're employed or umemployed, but as someone who's had to take a little part time job after recently being made redundant, it's something that I would love to know myself to decide whether to keep that job or not. Safe to say that I'm not earning anything like enough to pay a 40% tax rate, though!
    Thanks for the response. I have looked over gov.uk previously but still have questions, hence the post. Hopefully others will find the thread useful. There is some great comments being provided. I'm just a little afraid of taking the plunge.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    Lobot said:

    @All_That_Rocks -

    I worry about most things, so I registered myself as soon as I'd opened my Bricklink store to prevent any associated stress!  It was actually very straightforward although it seems a bit odd to be considered as a 'sole trader' when I'm employed full-time elsewhere.  If I recall correctly, you're supposed to register within two months of setting up a business but that could have changed.

    The tax return is very simple to do online, but I do run a spreadsheet with all my sales, stock purchases, expenses etc which makes it a lot easier.   You'll need to enter the basic details from your main income (e.g. P60), plus any additional income (e.g. Bricklink etc!).  I don't worry about trying to value my inventory, as all you need to do is to declare your income/expenses in the return.  Logically if I ever sell-up, HMRC will get their cut of tax at that point.  Mrs L used to work for HMRC and is adamant that's correct (e.g. it's only applicable if you start to get really serious with your inventory!!).

    I still use my original non-business Paypal account, which is linked to a separate bank account that I use for internet purchases.  I use that for virtually all of my stock purchases etc to keep it all tidy and separate from my personal purchases.  I quite enjoy that part of it, and in a very odd way I'm actually looking forward to being audited by HMRC...!!

    I think I read that you have to register by October in your second year of trading, which for me has passed :(

    I have done tax returns previously but was told some time ago they were no longer necessary as my tax was uncomplicated. Seems thats about to change.

    As I understand it its rare to be audited by HMRC as a sole trader unless they suspect something is amiss.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529


    Aleydita said:
    The rules can be complicated, but in the UK, generally, if you're buying with intent to sell, you're trading and should set up a business or register as self-employed. There are no thresholds, even if you make a loss you should register - indeed, it can be beneficial in this case as you may be able to set your self-employed losses against your other income (and thus reduce the tax you pay).

    The first decision you need to make is how you register. Do you create a Ltd Company, register as self-employed, either as a sole-trader or in partnership with your wife (so you can shift all profit to her), etc. A Ltd Company may be overkill but as a higher rate taxpayer may prove efficient in terms of tax.
    The point you make about partnerships is an interesting one and one I had not considered. I really need to look into this if it would allow me to keep operating as I am and shift all profits to my wife. How does that work exactly?

    My wife is not overly keen on having anything in her name, but we woudln't be doing anything incorrect this way.

    Aleydita said:
    If you go the self-employed route, you then need to decide whether you want to use cash basis or traditional accounting. The cash basis is usually easier for sole traders as it means less record-keeping, but there are some restrictions on who can use it. Additionally, if you expect to hold high levels of stock, HMRC will expect you to use traditional accounting and may be more inquisitive about your affairs if you don't.

    The cash basis approach is defintely more appealing and sounds much easier. Having a Bricklink store means holding stock clearly. I have no idea how you would value that stock. How do you establish a price per part from sets that you part out. 

    I have thought about approaching an accountant but seems overkill for the relatively small amount I am earning. Though as you say may be well worth it.

    What surprises me a little is given the apparent legal requirements how many bricklink sellers flaunt with the danger of not declaring.
  • AleyditaAleydita BelgiumMember Posts: 600
    Here's the deal with partnerships.

    Partners share the risk. And you must file three sets of Self Assessment forms, one for the partnership and one for each partner. The partnership forms declare income, expenses, etc., and the partners file returns to show their income from all sources, including the partnership. That's about it. A partnership must nominate a partner to be responsible for filing the partnership return.

    If you began trading on or before 5 April 2016, you're already more than a year late. If you began trading after 5 April 2016, while still late, there's a small chance you may be able to avoid a penalty if you act now. You would normally notify HMRC about a new partnership by telephone, but it's still possible to send forms by post. You could call HMRC and say you still haven't received your Self Assessment forms and that you're aware the online deadline in January is rapidly approaching. HMRC will tell you they don't have any record of a partnership, which you can counter by claiming that the relevant forms (SA400 for the partnership and SA401 for each partner) were sent together by post during, say, September. They will invite you to register by telephone and to submit an appeal against any late registration penalties in writing. If they don't, do so anyway. I offer no guarantees that such an appeal would be successful, and if it isn't, you're looking at three sets of fines (one for the partnership and one for each partner) rather than just one if you registered as a sole-trader. Now you're late, it's all about risk unfortunately.

    You don't need to value your stock unless you're considering claiming an expense for depreciation. This brings a lot of extra record keeping with it. Say, for example, you claim depreciation on your stock because BL values have tumbled. But then, if the values increase in the period between that claim and the ultimate sale, you need to adjust accordingly.
    All_That_Rocks
  • stevemackstevemack 1567km Drive From BillundMember Posts: 835
    There’s some very good and equally some dangerous advice being written in here.

    I was in your position for a few months but for the last few years I’ve been a limited company so I’m not judging in any way with these points below I can think of, it’s just from my experience.

    1, Firstly, channelling the income through your wife is tax evasion so I’d stop that discussion, I’m in the same boat as yourself as a 40% payer however for lego I’m a limited company split between my wife and myself (on advice of an accountant), my wife does help with the business though as I work away a lot, as long as she is involved it’s fine.

    2, Hobby selling, no such thing put simply, if you buy to re-sell you are trading.

    3, everything you sell is reinvested, you’re still trading whether you make a profit or loss, companies declare profit and loss remember so don’t fall foul of this rumour

    4, get an accountant, don’t take advice on tax matters off a forum

    5, ebay will contact you and warn you when your sales hit a threshold, I’ve seen the emails, the threshold is high though, somewhere above 20k, paypal won’t say anything as far as I know

    6, you’ll become very annoyed when you register because you’ll still know loads of others aren’t paying tax.  Well, at least you know HMRC won’t come knocking and issue penalties of up to 100% of money owed plus fines on top

    7, If you’ve been trading for a while (beyond the current/previous tax year) you’re in a sticky situation, you should technically tell HMRC this and pay any tax due and oenalties for late filing from previous years (or declare losses).  I can’t advise on this bit though as I’m not sure on the full rules about what to do (again, advice from accountant).

    8, Being limited is great, I claim all my mileage back, expenses, dinner while I’m out all day buying lego, £125 a year tax free each on a christmas night out paid for from the company.  Yes you pay a lot in corp tax and dividend tax but hey that’s life, you either want to be trading legally or illegally.
  • AleyditaAleydita BelgiumMember Posts: 600
    Actually, thinking about it, there are special profit-sharing rules for partners who are also spouses. It's not something I've ever dealt with personally, but I suspect it'll be to ensure there's no shifting of income as you hope.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    Aleydita said:

    Registering and then trading as a sole-trader or a partnership is very straight forward. You just need to choose an accounting method and keep the appropriate records (there's a near-mythical £5,000 fine for not keeping adequate records, though in all my years working at HMRC, I rarely heard it mentioned).

    You have four options regarding early trading:
    (1) Pretend it never happened, or that it involved selling your own stuff only.
    (2) Get creative with your accounting years. An accountant will definitely help here.
    (3) Send a letter to HMRC telling them that you (you being your wife if you like) earned £x in y tax year, and £x in z tax year, and that you're prepared to pay any tax owed. Word it in such a way that the amounts represented isolated sales rather than an ongoing trade. If you're lucky, HMRC will raise what are known as 'informal assessments' which won't involve any penalties or interest. If you're unlucky, they'll send you Self Assessment forms to complete for the years in question, which will result in penalties. They may also levy a penalty for not registering in time. Then register as self-employed going forward.
    (4) Be honest with HMRC and register as self-employed, giving the date you actually started. This may result in penalties but stress wise, will be the easiest to deal with. You have until midnight on 31 December to file a tax return for the year 6 April 2016 to 5 April 2017, though you'll need to get moving now to have any chance of meeting that.
    Option 1 sounds the most appealing to be honest but of course leaves me still worrying if the previous years will catch up with me.

    Option 4 scares me regarding penalties. It would help to know what they might be. 

    Its easy to see now why many sellers don;t declare.

    I seem to recall some talk of a hobby seller amnesty not so long ago to the sum of £1000. Any idea if this has expired?


  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    Aleydita said:
    Actually, thinking about it, there are special profit-sharing rules for partners who are also spouses. It's not something I've ever dealt with personally, but I suspect it'll be to ensure there's no shifting of income as you hope.
    Ah thats a blow.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    stevemack said:
    There’s some very good and equally some dangerous advice being written in here.

    I was in your position for a few months but for the last few years I’ve been a limited company so I’m not judging in any way with these points below I can think of, it’s just from my experience.

    1, Firstly, channelling the income through your wife is tax evasion so I’d stop that discussion, I’m in the same boat as yourself as a 40% payer however for lego I’m a limited company split between my wife and myself (on advice of an accountant), my wife does help with the business though as I work away a lot, as long as she is involved it’s fine.

    2, Hobby selling, no such thing put simply, if you buy to re-sell you are trading.

    3, everything you sell is reinvested, you’re still trading whether you make a profit or loss, companies declare profit and loss remember so don’t fall foul of this rumour

    4, get an accountant, don’t take advice on tax matters off a forum

    5, ebay will contact you and warn you when your sales hit a threshold, I’ve seen the emails, the threshold is high though, somewhere above 20k, paypal won’t say anything as far as I know

    6, you’ll become very annoyed when you register because you’ll still know loads of others aren’t paying tax.  Well, at least you know HMRC won’t come knocking and issue penalties of up to 100% of money owed plus fines on top

    7, If you’ve been trading for a while (beyond the current/previous tax year) you’re in a sticky situation, you should technically tell HMRC this and pay any tax due and oenalties for late filing from previous years (or declare losses).  I can’t advise on this bit though as I’m not sure on the full rules about what to do (again, advice from accountant).

    8, Being limited is great, I claim all my mileage back, expenses, dinner while I’m out all day buying lego, £125 a year tax free each on a christmas night out paid for from the company.  Yes you pay a lot in corp tax and dividend tax but hey that’s life, you either want to be trading legally or illegally.
    1. She does or can help out with sorting bricks and posting so maybe I can also go the Limited route. How does that help in reducing "your" tax burden or being able to better utilise your spouses allowance?

    2. Got it

    4. Sound advise

    5. Sounds good and I'm nowhere near that kind of sales.

    6. I know

    7. I imagine I could easily declare loses if they are not taking account of stock as most of the money made from sales were spent on building stock. Are you saying if there is a loss and therefore no tax to be paid there would be no penalty? I'm afraid that the sticky situation could get worse as years roll on without doing something especially if sales increase.

    8. I read somewhere that you have to submit formal accounts if trading as a limited company. Is that true? 


    From what I'm hearing it sounds like i'm damned if I do and I'm damned if I don't now. If I register and declare I will have to pay tax for prior years and possibly a fine.

    If I do nothing and continue, I risk heavier fines in future.

    I can't help but feel the stress and potential impact of registering are not worth the profits -40%.







  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    Found this statement on the Gov.uk site regarding the 2016 Budget. 

    "The rapid growth of the digital and sharing economy means it is becoming easier for more and more people to become ‘micro-entrepreneurs’. However, for those making only small amounts of income from trading or property, the current tax rules can seem daunting or complex. To help make the tax position more certain and simple for these individuals, from April 2017 the Budget introduces two new £1,000 allowances for property and trading income. Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income. Those with relevant incomes above £1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses."

    Am I to interpret that if my profits were not more than £1000 I do not need to declare it? 

  • AleyditaAleydita BelgiumMember Posts: 600
    First I've heard but the way I read that is if your trading income (not profits) is less than £1k you don't need to declare, because there's a new flat-rate allowance of £1k that covers it. If your income is above £1k, you can simply claim £1k as an expense rather than working out your actual expenses.
  • Addicted2OxygenAddicted2Oxygen Walking the plankMember Posts: 160
    Bluntly: speak to an accountant. Do not take financial or legal advice from the Internet no matter how good it sounds (no offence to the detailed advice given)

    Find a small local one - a one or two person outfit - as they will be cheapest. £100-£200 for advice and answering questions from a qualified professional is cheap compared to a fine and your time trying to figure it all out. Depending on what you are earning it may even make sense to pay them to sort out your tax return and not waste your time trying to figure it all out. 

    Ideally speak to 3-4 accountants locally and have a free intro chat with them. You will soon get a feel for prices and who is the best match. 

    PM me if you want me to put you in touch with my accountant I use for my non Lego business. 

    gifinim
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    @Addicted2Oxygen thanks for your input. I do intend to speak to an accountant but thought it beneficial to hear what others in a similar "business" are doing.

    I think a local one that I can meet face 3 face would be best but if I do struggle I may well get in touch.

    Cheers
    Addicted2Oxygen
  • willobee498willobee498 CanadalandMember Posts: 300
    I think a local one that I can meet face 3 face would be best but if I do struggle I may well get in touch.
    Harvey Dent is not a good accountant!
  • stevemackstevemack 1567km Drive From BillundMember Posts: 835
    Found this statement on the Gov.uk site regarding the 2016 Budget. 

    "The rapid growth of the digital and sharing economy means it is becoming easier for more and more people to become ‘micro-entrepreneurs’. However, for those making only small amounts of income from trading or property, the current tax rules can seem daunting or complex. To help make the tax position more certain and simple for these individuals, from April 2017 the Budget introduces two new £1,000 allowances for property and trading income. Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income. Those with relevant incomes above £1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses."

    Am I to interpret that if my profits were not more than £1000 I do not need to declare it? 


    Just be careful of something that is due to come into force, they quite often change before they become part of the law/rules or increase/decrease it.  I assumed MOT's had become 4 years because I heard it the other year, little did I realised it was only being discussed and wouldn't come in for a couple/several years.
  • stevemackstevemack 1567km Drive From BillundMember Posts: 835
    edited December 2017
    stevemack said:
    There’s some very good and equally some dangerous advice being written in here.

    I was in your position for a few months but for the last few years I’ve been a limited company so I’m not judging in any way with these points below I can think of, it’s just from my experience.

    1, Firstly, channelling the income through your wife is tax evasion so I’d stop that discussion, I’m in the same boat as yourself as a 40% payer however for lego I’m a limited company split between my wife and myself (on advice of an accountant), my wife does help with the business though as I work away a lot, as long as she is involved it’s fine.

    2, Hobby selling, no such thing put simply, if you buy to re-sell you are trading.

    3, everything you sell is reinvested, you’re still trading whether you make a profit or loss, companies declare profit and loss remember so don’t fall foul of this rumour

    4, get an accountant, don’t take advice on tax matters off a forum

    5, ebay will contact you and warn you when your sales hit a threshold, I’ve seen the emails, the threshold is high though, somewhere above 20k, paypal won’t say anything as far as I know

    6, you’ll become very annoyed when you register because you’ll still know loads of others aren’t paying tax.  Well, at least you know HMRC won’t come knocking and issue penalties of up to 100% of money owed plus fines on top

    7, If you’ve been trading for a while (beyond the current/previous tax year) you’re in a sticky situation, you should technically tell HMRC this and pay any tax due and oenalties for late filing from previous years (or declare losses).  I can’t advise on this bit though as I’m not sure on the full rules about what to do (again, advice from accountant).

    8, Being limited is great, I claim all my mileage back, expenses, dinner while I’m out all day buying lego, £125 a year tax free each on a christmas night out paid for from the company.  Yes you pay a lot in corp tax and dividend tax but hey that’s life, you either want to be trading legally or illegally.
    1. She does or can help out with sorting bricks and posting so maybe I can also go the Limited route. How does that help in reducing "your" tax burden or being able to better utilise your spouses allowance?

    2. Got it

    4. Sound advise

    5. Sounds good and I'm nowhere near that kind of sales.

    6. I know

    7. I imagine I could easily declare loses if they are not taking account of stock as most of the money made from sales were spent on building stock. Are you saying if there is a loss and therefore no tax to be paid there would be no penalty? I'm afraid that the sticky situation could get worse as years roll on without doing something especially if sales increase.

    8. I read somewhere that you have to submit formal accounts if trading as a limited company. Is that true? 


    From what I'm hearing it sounds like i'm damned if I do and I'm damned if I don't now. If I register and declare I will have to pay tax for prior years and possibly a fine.

    If I do nothing and continue, I risk heavier fines in future.

    I can't help but feel the stress and potential impact of registering are not worth the profits -40%.







    1, It helps because you get £2000 dividend allowance each (it was £5000 last year) which is tax free to start with and the rest of the dividend is taxed at a lower rate than income tax with no NI due.  It sounds like you wouldn't benefit from being limited though if your volume is that small.  Problem with being limited is you need to factor in corporation tax too.

    7, You were still trading technically whether or not there was any profit, also if the business gets set up in you and your partners name then you were trading as a partnership before this (technically, unless you can prove she has just started helping) and would need to do all the tax stuff/pay fines for both of you..

    8, Correct my accountant does mine (that doesn't mean you can't do them yourself, oddly even if the accountant messes them up I'm still liable as I sign them off), but even as a sole trader you need correct accounting.

    Bank accounts, also just a warning, I assume you're just using your own bank account at present for any money coming in and out, this is a big no-no, if you ever were investigated this brings your entire personal account into the investigation I've been told.  Setup another free simple account to use for the 'trading' to keep day to day things seperate from your personal life.

    Last bit I'll say, you say it's small now, every business scales up somehow eventually, this makes it worse and worse as the years go by.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    stevemack said:

    Bank accounts, also just a warning, I assume you're just using your own bank account at present for any money coming in and out, this is a big no-no, if you ever were investigated this brings your entire personal account into the investigation I've been told.  Setup another free simple account to use for the 'trading' to keep day to day things seperate from your personal life.

    Last bit I'll say, you say it's small now, every business scales up somehow eventually, this makes it worse and worse as the years go by.
    This is one of the biggest issues I find. I do have a separate account for Lego but my sales don't fully support themselves. Earnings one month might end up getting spent on personal Lego (which is why I do this in the first place), then I'll see a good deal somewhere and not having "trading funds" I use my own money (from another account) to purchase. Totally separating the two would be difficult if not impossible. I suspect this is why so many end up never declaring.


  • AleyditaAleydita BelgiumMember Posts: 600
    You don't need a separate bank account as a sole-trader. You are the business, ergo the money and all assets are yours to do with what you want. It's true that if you were to be investigated by HMRC (incredibly rare), they may ask you to show that certain transactions were nothing to do with your trading, but they don't pry into your personal lives. They won't care that you pay for an annual subscription to Grannies in Handcuffs or anything like that. :D

    PayPal/Ebay etc. may require you open a business account with them but that's not a legally mandated thing, just something in their Terms & Conditions.

    A partnership or Limited Company would require its own bank account.
    All_That_Rocks
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
    @Aleydita Thanks that is useful. Slightly worried about how you knew about my subscription though :)
    FizyxAleyditabandit778Kerre
  • 77ncaachamps77ncaachamps Aspiring Time Traveler Stuck in the WestMember Posts: 2,051
    Probably be best to split this into country specific threads.
    Even if there was a USA only thread, state info would differ.
  • ScatterbugScatterbug WalesMember Posts: 87
    Regarding the £1000 tax-free limit mentioned in the 2016 budget - it has been dropped as a policy.
  • ryjayryjay Member Posts: 882
    I had always reported it.    Personally, being in California, I believed the sales tax was the greater issue, the CA BOE always wants their money no matter how little.
  • All_That_RocksAll_That_Rocks UKMember Posts: 529
  • ryjayryjay Member Posts: 882



    This is one of the biggest issues I find. I do have a separate account for Lego but my sales don't fully support themselves. Earnings one month might end up getting spent on personal Lego (which is why I do this in the first place), then I'll see a good deal somewhere and not having "trading funds" I use my own money (from another account) to purchase. Totally separating the two would be difficult if not impossible. I suspect this is why so many end up never declaring.


    In the US 1040, there is a line to declare what is then spent on personal use.  I think it says something to the effect after you state product cost, "how much of that total was for personally use".  Even inventory carry over can be an issue in some states
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