Childminders and tax

[duckdodgers]

Hi, Im after some advice for my DH whos set up as a childminder, well hes been registered since last October and thats him just getting his first 2 children now! It will only be 1 day a week but hes just so happy to get anyone, he was beginning to become demoralised after all the work hes done.

His earnings will be approximately £53 a week and hes wondering what to do about tax as hes been given advice to keep money aside for his tax bill. He already works as a support worker at weekends and pays tax on that obviously, earning £150 a week. I take it he will be taxed as a second job for his childminding? He has been told to put 20% aside, so approx £10 a week then. Does anyone have any advice?

Wont be able to check thread until later, but thanks to anyone who can help!

He will be regarded as self-employed for his childminding business so he needs to inform HMRC that he is doing this. He will pay tax on the profit from his childminding, NOT his turnover. Profit is the balance left over after his childminding expenses have been deducted from his child minding income.
If he has any balance of personal allowance left (after his earned income has been taxed) he will be able to set this balance against any profit and pay tax on the balance. He will have to fill in an annual income tax return and will need the 'employment' section and the 'self employment' section. These will be quite simple to fill in as the 'self employed' section is faily simple for low earners and there are guideline notes to help you.

He will need to inform HMRC that he is starting a self-employed business. As he will be earning less than £5,315 a year he can apply for exemption from paying Class 2 National Insurance (note that I normally advise people, particularly women who may become pregnant, to pay Class 2 even if their earnings are low but if you are employed earning more than £102pw there is no benefit from doing this).

Links both for registration and for Class 2 exemption are here.

There are two sorts of tax paid on earnings, Income Tax and National Insurance. Income Tax is worked out on your whole earnings added together, National Insurance is worked out on each job. You don't start paying Class 4 National Insurance on self-employed earnings until you earn £7,225 a year so this is no concern yet.

Income Tax is paid on profit after allowable expenses (and any allowances for capital expenditure). As a childminder you are automatically allowed expenses of 10% of your income as a wear and tear allowance. There will also be start-up costs he has incurred - Ofsted registration etc., and ongoing costs - insurance (if this isn't already in place it needs to be from the day he starts minding) etc.

Once you add all this up until the end of the tax year (which is only 5 weeks away) you may well have more expenses than income, resulting in a loss. You can either offset this loss against your employment income and get a tax refund, or wait and offset it against next year's childminding profit (which could save you 9% National Insurance as well as 20% tax).

Many thanks for both your replies, I will let my DH see and absorb all the information!