It uses a mathematical technique to search previously unrelated information and detect otherwise invisible ‘relationship’ networks. Using Connect, HMRC sifts through information on property transactions at the Land Registry, company ownerships, loans, bank accounts, employment history, voting and local authority rates registers and compares with self-assessment records to spot taxpayers who might be under-declaring or not declaring income.
Connect has made links between tax records and third party data from hospitals, pharmaceutical companies, insurers and even gas SAFE registrations. DVLA records and the shipping and Civil Aviation Authority registers help identify owners of cars and planes who declare income that the computer suggests cannot support such purchases.
During August 2016 (Consultations end in October 2016) they issued 3 new consultations:
The criteria used to assess if an activity is a hobby or a business are:
The size and commerciality of the activity.
The frequency of the activity and transactions
The application of business principles.
Whether there is a genuine profit motive.
The amount of time devoted to the activities.
The existence of arm’s-length customers (as opposed to just selling your wares to family and friends).
HMRC have some great examples to help you decided, for example
Gail is a full-time employee working for a stationery company. She pays her PAYE tax on this employment every month.
In her free time Gail makes cushions and uses most of them in her home. Occasionally she sells them to friends and work colleagues for an amount that just covers the cost of materials of £15. Sometimes she makes a loss. Any money she does make goes towards her holiday fund.
She decides to make extra cash by selling cushions on an Internet auction site and starts auctioning three or four to see how they go. They all sell for more than £50, a profit of at least £35 each.
She uses this money to buy more materials and within a month she is selling around ten cushions a week, always at a profit, and is considering setting up her own website.
Gail’s initial sales of cushions to friends are not classed as trading. It lacks commerciality and she does not set out to make a profit. The occasional sales are a by-product of her hobby. Once she begins to auction her cushions, she has moved into the realms of commerciality.
She is systematically selling her goods to make a profit. She will need to inform HMRC about her trade, and keep records of all her transactions. On the level of sales shown in the example the potential turnover of around £26,000 is well below the VAT annual threshold so Gail does not need to register for VAT.
Don’t wait for HMRC to track you down, register now and declare the tax you owe!
Recent surveys suggest that nearly have of start ups didn’t require any funding to get started, so how is that possible?
Here are some business models where it could work.
Subscriber based businesses
This can apply to many situations ranging from Networking and Memberships to Sky TV or Microsoft Office 365, get your clients hooked on paying a monthly or periodic payments and it should work wonders for your cash flow.
High Demand Products
Any product in short supply creates a situation where clients are prepared to pay now in order not to miss out.
Pay In Advance
Often used in the home improvement market for example conservatories, kitchens, bathrooms, getting customers to pay a deposit or in some cases all the money upfront (or on finance) puts you in the best possible position especially if you can set up accounts to pay your suppliers on 30 or 60 days.
Getting paid to bring people together is a great business model think of ebay, dating sites, or any on line market place where the owner gets paid when a deal is done.
Get a lodger – Under rent-a-room a taxpayer can be exempt from Income Tax on profits from furnished accommodation in their only or main home if the gross receipts they get (that is, before expenses) are £4,250 or less
Ironing and Laundry Services – Always popular and you can start with friends and family
E Bay Trading – as E Bay say… The first task is to sort through those bulging drawers and messy cupboards, finding stuff to flog. Get a big eBay box to stash your wares in, and systematically clear out wardrobes, DVD and CD piles, the loft and garage. Use the easy 12-month rule of thumb to help you decide what to offload: Haven’t used it for a year? Flog it.
Blogging – Blogging has taken off and many businesses are looking for people to write blogs for them
Candle Making – You can sell the candles on line and its easy to buy the wax and things you need to make the candles
Car Boot Sale – As with E Bay but without going on line
Cake Making – Make sure everything is labelled correctly and you comply with Health & Safety issues
Data Entry – The internet makes it easy to enter data from where ever you are
Social Media – Similar to blogging, businesses need help to manage Twitter, Facebook and Linked In
Website Design – If you have the expertise, go for it
Sales Parties – Cosmetics to Ann Summers, there is a long list of opportunities
Sewing and Clothes Alterations – Perfect before and after Christmas
Jewellery – Making and selling jewellery is always popular and great for Christmas presents
Car Repairs – Assuming you have the skills needed and comply with legal requirements
Pet Care – Walking dogs or grooming is popular
Virtual Assistant – Also personal organiser or personal shopper
Wedding Planner – You could start by creating a blog about your expertise
Direct Sales – For example Utility Warehouse
Computer Repair – Great provided you have the skills
Marketing – Telesales to leaflet design and freelance writing
Let’s face it, tax is complicated, accounting is generally seen as boring but essential and most business owners are focused on their business and don’t focus on the numbers, that’s why they need accountants to keep them on track with:
Budgeting and Forecasting
Cash Flow Management
Buy or Rent decisions
Capital Investment Appraisal
Accounting Procedures and Systems
Busines Funding and Investment
Let’s work together to help you understand and feel in control.
We aren’t all boring!
In fact its actually exciting to help business achieve their goals.
SMEs were shown to traditionally rely on accountants as a main source of business advice. One study identified an 8.1% average increase in sales growth and a 29% decrease in likelihood of failure for businesses using an external accountant.