Starting your own business is an exciting time and often the last thing on your mind is tax.  However, this can be a very costly mistake if you put it off or forget to notify the Revenue you are in business, as you are required to register for income tax and national insurance within 3 months from the end of the calendar month in which you start self-employment.  If you have employees or are a builder and have subcontractors, effectively you must register right from the beginning, as you have to operate PAYE or the subcontractor scheme on any payments you make to them.
You must also register for VAT within 30 days of the end of any month when the taxable supplies made in the past 12 months or less exceeded £68,000*, or at any time there are reasonable grounds for believing that the value of the taxable supplies to be made in the next 30 days alone, will exceed £68,000*.
Failure to register for the above can lead to considerable amounts of extra tax, penalties and interest charges – not a good way to start off. As a builder, you also need to register under the subcontractor scheme if you work for a contractor.  Failure to do so, means the contractor cannot legally pay you.
Are you trading unknowingly, or is it a hobby?  If for example you are regularly buying and selling houses or cars or any items at car boot sales or on E-Bay at a profit, you will probably be regarded as trading.  If in doubt, ask. 
Records should be kept from the beginning, so you can substantiate the figures to go on your tax return, maximize your expense claims and avoid a fine.  Records can also help prove an activity is only a hobby.  Simply not declaring your income is not an option.  You will be caught out and the Revenue can go back at least 20 years for tax, interest and penalties.
Whilst, it may seem there is a lot of red-tape, the registration forms are not too complex and are readily available from the HM Revenue & Custom’s website.  Help is on hand from the Revenue’s helplines and seminars; visits can be arranged.  Alternatively, an accountant can help with all the above, as well as advising on the best way of conducting your business.

*These limits apply from April 2009

April 2009