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Original poster

To ask how much I've fucked up? HMRC

137 replies

ohshit89 · 11/04/2025 19:29

Self employed, done something a bit stupid.

Basically I admit that for the past 5 years of being self employed I have really no idea how much I've potentially earnt that year until my accountant sends me draft self assessments after 5th April. There are things I could do to keep better on top of this obviously but it's really never mattered that much because profits have never been massive. Because of the structure of the business currently, any profit counts as my own income for SA purposes so even though I only "pay" myself a modest amount every month, my earnings are whatever profit the business has made.

Basically business has boomed this past year, which I am not complaining about but our accountant has done my SA and I have earnt in the last tax year over 100k (and I'm talking about a jump from under 30k last year to over £130k). I really was not expecting it, I was obviously aware business had taken off but really I did not expect that. I do not "pay" myself anywhere near that sort of money per month and while the business does have a good float I certainly couldn't have extracted that all from the business for personal use.

Onto the issue...for the last tax year I have claimed free nursery hours for my son and tax free childcare. I am aware I will need to pay it back and I of course have no problems in doing so but I have obviously (unintentionally) been telling HMRC that I earn under 100k for a whole year when I have infact earnt over.

Will there be an issue? A penalty? I know i really should have an idea myself of profits and this has really shocked me into making sure I keep a better track of it but when I selected that I earnt under 100k I genuinely believed that I did.

Do I call them or will they contact me when my SA is submitted?

OP posts:
topcat2014 · 12/04/2025 13:45

YourAzureEagle · 11/04/2025 23:38

Based on the fact the accountant seems to have failed to give any sage advice (no pun intended) to the OP on tax at this level and the benefit you correctly mention or indeed VAT, perhaps they have very few customers!!

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I'm struggling to see when the accountant was supposed to have given this advice. In the prior year the business had little turnover, and was not vat registered. Hence, in the accountants eyes this was a once a year carrier bag job with no need for anything else.

Very fortunately this business grew massively in one year. The next time the accountant sees it is when they notice.

If the OP was paying a few hundred pounds for a once a year tax return that is the service they would have got.

Eelqueen · 12/04/2025 09:51

@NeedToChangeName

OP, it's clear from this thread that nany people have v limited understanding of self employment.

the OP being one of them

Negroany · 12/04/2025 08:26

YourAzureEagle · 11/04/2025 23:20

Its sole trader, not corporate, say I invoice £70K, deduct allowable expenses of £30K , my nett profit is £40K, so I pay tax on £40K.

Only the nett is the income, and it's your money, there is no separation between you and the business, the business assets are your personal assets, not that of a corporation.

It has lots of benefits, but once you get into VAT and higher tax brackets you are better off with a Ltd company and paying yourself via a dividend.

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I suppose it must be sole trader, yes. I know how that works.

Very odd way of referring to it though. Why not just say "I work as a sole trader" rather than go on about "business structure" and "only pay myself a modest salary" as if it's some random way of structuring a corporation!

AmIHumanOrAmIAYeti · 12/04/2025 08:25

Househunters1 · 12/04/2025 07:54

Not for OP. Literally. She would be substantially better off as a Ltd company.

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Depends entirely on the business. For my DH there is very little difference as the dividend rates are so close to PAYE rates now and he doesn’t have much VAT to claim back each year.

Househunters1 · 12/04/2025 07:54

YourAzureEagle · 11/04/2025 22:44

For a lot of self employed there is no benefit at all to being a Ltd company, it offers of course protection against personal liability financially, but if your operation is solvent, you don't have loans etc. then there is no real protection, but more administration and complexity.

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Not for OP. Literally. She would be substantially better off as a Ltd company.

NeedToChangeName · 12/04/2025 07:41

Quiceinalifetime · 12/04/2025 07:33

You have a useless accountant or else you are not listening to them. Or perhaps you have a bookkeeper rather than an accountant? Either way you need a good one now to do your tax return and sort out vat.

Or an external accountant who only receives the books at tear end ie not employed by OP

OP, it's clear from this thread that nany people have v limited understanding of self employment. Please don't burn your bridges with your accountant

Spirallingdownwards · 12/04/2025 07:37

There is so much terrible advice within this thread indicating so many people have as little a clue as the OP when it comes tk business accounts and tax liability.

Make an appointment with your accountant and go through everything together.

Spirallingdownwards · 12/04/2025 07:34

BethDutton4President · 11/04/2025 20:53

Fucks sake, what a vile thing to say

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What other business has people paying amounts that the business doesn't invoice for?

Quiceinalifetime · 12/04/2025 07:33

You have a useless accountant or else you are not listening to them. Or perhaps you have a bookkeeper rather than an accountant? Either way you need a good one now to do your tax return and sort out vat.

NeedToChangeName · 12/04/2025 07:28

YourAzureEagle · 11/04/2025 23:05

If her accountant hasn't mentioned VAT or the benefits of being a Ltd company and taking dividends at near £100K she badly needs another accountant.

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There ate valid reasons for choosing to be a sole trader, not Ltd Co

And, if external Accountant only sees the books at year end (common practice) how would they be expected to know OPs income has dramatically increased?

NeedToChangeName · 12/04/2025 07:24

Didimum · 11/04/2025 21:13

You’re fine with HMRC because you haven’t paid yourself that wage. Since you have a business account, I’m assuming your business is set up as a limited company? In which case it’s a separate entity to you as an individual. It’s you who is claiming the tax free, not your business.

It's right there in opening post. OP is a sole trader

so, Self assessment and VAT are based on business income / profit, not OP's drawings from the business

NeedToChangeName · 12/04/2025 07:21

MuchasSmoochas · 11/04/2025 21:07

Don’t panic OP, your income is what you have taken out, not what has been put in. Yes speak to your accountant and well done on building your business.

Not true

Business income is her income. The "salary" shes taken from the business is drawings

Lots of people blaming the accountant, but this is on OP

Bigfish51 · 12/04/2025 07:11

VAT will be more of a worry than the other stuff with expenses you may get the 130k down to under 100k.

You should think about setting up a ltd company as your tax on account for coming years is going to be a killer if you remain self employed.

Congratulations on your flourishing business.

ClashCityRocker · 12/04/2025 07:10

What has your accountant said op?

And has he actually seen the books, given that it's only a week past the year end? He must have, to give you a draft SA claim.

There's a lot that doesn't add up here - the tax free childcare could be the least of it. At face value, you're going to have a significant tax bill on top and potentially VAT registration (assuming what every you supply is subject to VAT) issues.

The accountant can't be blamed for not setting up a limited company if he or she hasn't heard from the op since the last accounts which showed £30k profit. It would be unlikely that a limited co would be suitable in those circumstances.

However if they aren't now telling you about breaching the VAT threshold (and they should know if this applies to you) or considering the most suitable structure for you, that's an issue.

You need to sit down with an accountant and go through everything, quantify how much you're likely to owe and what you can do about it. Don't take too much advice from an online forum - there's some sound advice on this thread but also some utter rubbish, and no one here can (or should!) know the ins and outs of your personal circumstances which can make big difference in how you approach things.

Eelqueen · 12/04/2025 06:52

Tricho · 12/04/2025 06:44

Chortle chortle chortle sneer sneer sneer

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Huh?

Tricho · 12/04/2025 06:44

Eelqueen · 12/04/2025 06:21

Given OP’s utter ignorance re how to operate finances of a business, in fact how to operate basic personal finances, I don’t think it would be a surprise to learn the OP had misread her turnover of £130k to actually be £13k

or worse still

the £130k is listed in the liabilities column

Chortle chortle chortle sneer sneer sneer

Eelqueen · 12/04/2025 06:21

Given OP’s utter ignorance re how to operate finances of a business, in fact how to operate basic personal finances, I don’t think it would be a surprise to learn the OP had misread her turnover of £130k to actually be £13k

or worse still

the £130k is listed in the liabilities column

Eelqueen · 12/04/2025 06:19

GirlOfTudor · 12/04/2025 03:59

Did you post this just to brag?
How could you possibly not know how much you earn?? Especially if your revenue has supposedly QUADRUPLED?? Did you not notice that you were doing quadruple the work?? This is why not everyone should be business owners 🤦🏽‍♀️

Edited

If op did post to brag, well that back fired!

This “business” is skating on think ice and I would guess that this particular issue is a drop in the ocean compared with the messed up finances of this company.

GirlOfTudor · 12/04/2025 03:59

Did you post this just to brag?
How could you possibly not know how much you earn?? Especially if your revenue has supposedly QUADRUPLED?? Did you not notice that you were doing quadruple the work?? This is why not everyone should be business owners 🤦🏽‍♀️

juggleit · 12/04/2025 01:00

CallIpswichNow · 11/04/2025 19:36

Under 30k to over 130k in a year? What the hell kind of small business are you running?!

Edited

Following….. 🧐

DancefloorAcrobatics · 12/04/2025 00:38

YourAzureEagle · 11/04/2025 23:05

If her accountant hasn't mentioned VAT or the benefits of being a Ltd company and taking dividends at near £100K she badly needs another accountant.

Show quote history

That and show a bit more interest in the financial side of the business.

gertrudebiggles · 12/04/2025 00:31

Become a Ltd company.
Pay yourself dividends.

user1492757084 · 12/04/2025 00:16

Consult your accountant with your direct questions.
It will be sorted quickly enough.
Possibly, due to your size, you do not engage your accountant regularly. Pay for them to work a few more hours and to make a rough forecast of what your income will be in the coming years.
Ask them to advise on the best business model for you - sole trader, partnership, company etc. And whether you would be better as a Trust etc.
Do you have family also working in the business?
Do you wish to expand or upgrade essential equipment?

Then seek a second opinion from another accountant, one recommended by some successful businesses in your area.

Sit down and make some decisions.

ohnowwhatcanitbe · 12/04/2025 00:02

YourAzureEagle · 11/04/2025 23:38

Based on the fact the accountant seems to have failed to give any sage advice (no pun intended) to the OP on tax at this level and the benefit you correctly mention or indeed VAT, perhaps they have very few customers!!

Show quote history

That is what had crossed my mind too.

Mardyybum · 11/04/2025 23:52

The comments on this post sum up why we as accountants are permanently exasperated (and kept in work!)
It may be surprising to some that we actually don’t have crystal balls 🙄

OP - I’m sure this has already been mentioned to you but now is the time to consider quarterly management accounts so that you can keep on top of things a little better, if you remain a sole trader with similar profits you’ll have to submit details of earnings quarterly from next tax year anyway.
If you expect similar profits a limited company may be a more appropriate setup, your accountant will be able to provide tax comparisons of sole trader vs Ltd co.
You may also have to register for VAT depending on your type of supply.