Working for yourself, either as a sole trader or as the owner of a limited company, will require you to keep a number of financial records which will need to be submitted at your financial year end. If you are a sole trader this will mean ensuring that you file your previous year’s tax assessment after the 6th of April each year and that you make the payment by the 31st of January the following year. You’ll need to take into account all your sales and expenses, even the craft stall insurance for one day that you use when attending craft fairs, If you operate your business as a limited company your year-end will have been determined when you first set up your company. If you are VAT registered you will already be filing VAT returns on a quarterly basis, based on when you became VAT registered.
There are a number of important steps that you need to take to ensure that you are adhering to your financial year end obligations. If you don’t feel confident in submitting your own year-end accounts you can work with an accountant or a bookkeeper to have these completed for you. However, it is still important that you check the assessment before it is submitted to HMRC.
This includes all monies that you make from selling your products. These could be ones that you sell through an online platform such as Etsy, Not on the High Street or through your own website and social media channels. You also need to include all sales that you make through attending crafts sales (as a quick aside, you should make sure that you have craft stall insurance for one day when you attend events like this to keep your protected against any accidents and incidents). It is important that you correctly account for your sales, especially if you have some customers paying you in cash. In these cases it is often best, even if you are a sole trader, to have a bank account that you use solely for business purposes. This allows you to keep your financial records nice and simple and you can always refer back to your bank statements if you want to ensure that you have included all your sales and expenses.
As a sole trader you and the business are classified as one entity and therefore all the monies in your business are yours to use as you wish. When operating a limited company you and the company are separate entities and the company will either pay you a wage and perhaps dividends as the director of the business. If you use software such as Stripe for online and card payments, you will be able to pull yearly reports to help you with completing your sales figures for the year.
You need to ensure that you are keeping accurate records of all items that you pay for your business. This will include all the materials that you use to create your products and the packaging materials. These are often known as the cost of goods sold. Other expenses can include craft stall insurance for one day to make sure that you are covered for an incidents that may occur, as well as other annual insurances that you may have. If you market your business, you should keep any receipts for posters, business cards and flyers that you have created.
Other examples of expenses that you can claim include milage, parking and even a working from home allowance for the use energy that you use. There is a flat fee that you can claim for these or a more complex calculation if you have a room in your home dedicated to your workshop. Some expenses that people often neglect to include are any pension contributions that they make, donations to charity and also the fees that they might pay to an accountant to manage their end year financial returns. For a full list of expenses that you can include, there is a section on the HMRC website that details these to ensure that you are deducting expenses that are permitted.
This is the figure that you are left with once you take your sales and deduct all your expenses for the year. It is this amount that you will have to pay tax on. It is the profits that will help you to determine how viable your business is. If you are selling products as a second income or as a hobby, you may not be too concerned about the figure that you have at the end of the year. However, if you are looking to move into your craft business full time and make a good income from it, you will want to ensure that each year your profits are increasing.
Tax and National Insurance
These are two types of tax that a sole trader will need to pay and the amounts owed will depend on the taxable profits at the end of each financial year. The amounts have to be paid by 31st January each year. It is possible to pay the amounts before this date and to have money paid on account. A good accountant, bookkeeper and HMRC can help you with this if necessary. If you have a student loan from when you attended university you will also need to make a payment based on the amount of profits that you have. You can find out what the current tax, national insurance and student loan thresholds are by visiting the governments HMRC website. Once you have submitted your year end assessment, you can print or download a copy of these to keep in your accounting files, along with any invoices that you create, and all receipts that you have for your expenses.
Once you have fulfilled all your year end obligations, breathe a sigh of relief, stick the kettle on and go back to the infinitely more joyful activity of creating beautiful art and craft!