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Failed to declare as self employed

Firstly, I have tried to discuss my situation with an expert at justanswer.com. If the below text is unclear, it may help to look at the conversation here: http://www.justanswer.com/uk-tax/7p4ma-failed-declare-self-employment-status-late.html My situation is as follows. I’m German by passport, but have studied in the UK for a long while. I graduated from University in August last year (2012), and started working in a fulltime 20k job. This month I started a different job at a 25k salary, and I’m still living in the UK. In August 2011 I finished a hobby project that I decided to put online for sale, not expecting much response. It is essentially software, sold online, with payments received through PayPal. My estimated earnings from this project for 2011, 2012, and 2013-to-date are as follows: 2011: £1554.80 2012: £4301 2013: £1265 Due to occasional refunds, actual numbers may be slightly lower, but this can be calculated exactly available data. The person I spoke to said something along the lines of: since I was earning below the personal allowance, while at university, it should be okay. But I could be liable for penalties for not reporting it annually. As I have been earning a fulltime salary since August 2012, the income from my project on top of this should also have been reported, meaning potential further penalties. I’m now extremely concerned I could face cumulative penalties from £2,000 upwards for being late and not reporting this additional income. As I have only just graduated, this kind of penalty or fine is extremely worrying and I was hoping you could give me an insight into clearer numbers on what I could be facing, what the maximum fine could be, what the definite minimum fine probably will be, what the options there are, what can be done, and so on. Am I correct in assuming reporting the total earnings to date, plus any further earnings this year as they happen, is not an option? (instead of reporting these as separate years). In terms of payment of any penalties etc, are there options to pay over several months if necessary? I hope to hear from you soon!

Comments (1)

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    Thank you for your patience.

    I understand the Just Answer expert’s views who had advised you. As a general rule once you have established that you are trading, HMRC requires that you to register as self-employed as soon as possible and or at least within 6 months of the end of your first tax year. It’s also difficult to argue that this was a hobby if you were earning £1,000 or so, and you had to obviously market and collect payments etc. typical of any business. There are penalties of lack of notification, failure to complete a tax return and interest etc. and if all these are taken together minimum penalty is at least £1,000.

    However the good news is that there is often some confusion about whether to contact HMRC to register as self-employed if you do not have tax to pay. HMRC has an exception to the rule in my first paragraph and therefore they allow taxpayers not to notify HMRC if they are earning not enough to result in tax liability to HMRC e.g. total earnings are below personal allowances; this also need to be taken together with all other rules. As you may know everyone is entitled to earn up to a certain amount each year tax free, known as your personal tax allowance. Therefore I can confirm that in your case there was NO need to notify HMRC since your income was below the personal allowances. However from August 2012, when you started working full time, your software business earnings will surely now matter and should now be reported. Therefore you should notify HMRC of the software income within 6 months following 12/13 tax year – by 5 October 2013. You can simply phone them up or use the forms on HMRC website. I would suggest the earlier the better. As a tax professional I always tell people to be honest with HMRC (you can choose not to), but its best to tell them what you do, when you started the business, why you didn’t notify (quoting the exception above), and be honest with your income you earn. Once you are registered for self-assessment, it is a requirement to keep accurate records of the income and you should also perhaps add personal expenses of running the business – computer costs, part of home bills – electricity, rent, stationary, broadband, etc.

    I hope this addresses your worry and there is nothing to worry about. Let me know if you have any questions.


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