CM Club - some questions regarding tax

[mrsbigwobblybottom]

Hi all,
I'm not childminding yet but I'm a bit of a worrier and want to check I understand everything properly ahead of time. Can I ask some potentially dense questions please?

• I am spending a bit of money on setting things up and these receipts will be dated tax year 11/12 when I won't be registered for VAT. Can I carry the receipts over in to 12/13?? I won't beVAt registered until September when i start working. For example - I have bought a laptop this month that will be soley for CMing, I have also obviously done the first aid course (£84) and am paying for some craft equipment etc. I know what I can claim for and the percentages of utilities bills etc... I just don't understand about the dates

• If I keep 20% of my earnings aside each month.. I'll be covered come tax time, right? How about if I deduct all my expenses on a monthly basis and keep aside 20% of what's left over (i.e. my profit) for tax? Would that work, or is it risky?

• For purchases, can you claim the whole amount as an expense and therefore not tax deductable? Or just the VAT element of it? e.g. my laptop was £400. Assuming I am allowed to carry it over in to Spetember, do I take off my earnings before I take the 20% and put it aside for tax?

I am so confused... I don't want to pay an accountant. Does NCMA help with this stuff?

Mranchovy ? are you there?

I could be wrong but I believe childcare is classed as education and therefore exempt of VAT. I know that nurserys are, assuming it's the same for CM.

Yes you don't register for VAT as you are not a ltd company. Just record income - expenses = profit.

You need to reg as self employed with HMRC and arrange to pay class 2 NI contributions and then in April give them the figures above. You will pay tax and class 4 contributions on your profit but this is unlikely in the first year due to high setting up costs so your likely to be under the personal allowance threshold.

Paying VAT has nothing to do with being a Ltd company, it depends on your income, you do not have to be a Ltd company in order to charge or reclaim VAT.

Your laptop is not an expense, it is a capital item and will be an asset of your business. The best thing to do would be to claim capital allowances against it when you come to doing your tax return.

Okay - I have totally and utterly confused VAt and income tax!!!! Can i ask al the questions in my OP but where I have out VAT - take it I mean tax

Nannynick - I am earning in another job at the moment so i don't want to register as anything lese yet really - but does that mean i won't be able to use those receipts next year?

I'm not NannyNick but did you mean me?

You can be employed and self employed at the same time and from what I remember from my own start up year, you have to keep all receipts for the tax return of the relevant tax year. If you end up making a loss then you can carry it over to the next tax year so the loss is still accounted for and you reduce your tax bill next year.

If you register your business now with HMRC and record a loss for the 11/12 tax year, then you will still get the tax back from the other money you have earned, so you will not lose out.

When it comes to submitting your self assessment figures, you will simply put down the money coming in and the expenses going out and if you do it online, the lovely Inland Revenue will tell you what you owe :)

20% should be alright to save I think, I haven't looked at the tax rates for next tax year yet ...

You can also make monthly payments on account to HMRC if you don't want to have a separate savings account.

I'm not an expert, so MrAnchovy may be along soon, to tell me I'm spouting rubbish .

Im so sorry nicknacks!! I'm having a bad day!

That is really interesting. Thank you.

So to be clear - I register now, and file a tax return that will show a loss at the end of 11/12 (april) then come next year's tax return 12/13 april, I can carry that amount over and add it on to my expenses which will be deducted from my earnings to make the profit for the year which I will pay tax on?

So the safest thing really is to take 20% of each months earnings and put it in a savings account - then hope to have a nice bonus at the end of the tax year when I take all the expenses off and I don't have to pay 20% on everything?

Or do you do yours monthly?

apologies again!

Thanks HSMM - the problem is, I am a higher rate tax payer at the moment - and will be in April/ May/ June/ July of 12/13 so I'm a bit confused as to what this will mean for me as well...

If you're not going to be trading unitl september I would wait until April to regester as it will save you having to do a tax return for this year.

Any loss that you make can be carried forwards and set off against any profit that you make in the following year, therefore reducing your tax liability.

register even

Also, receipts can be carried forward from before you are trading as long as they are business expenses, I can't remember how far back you can go but I think it is a couple of year. So anything that you but now will be able to go on your forst tax return, even if it is dated in the previous year. You can't do this for your utilites though as the expense has nothing to do with the business.

Thanks Baabaa I wish I'd waited to read your comment as I called HMRC and the woman told me I had to register now else the receipts would go to waste as they will be dated in wrong tax year..! This is in now way shape or form an indication that you are wrong - IMHO it depends who you reach when speaking to any goverment body as to what advice you receive

Anyway, I've registered with her so I'll have to file a return for Now to end March but it won't be too hard as will just have a few expenses on it - laptop, paint brushes etc! And it's good to know these will be carried over to next year.

It is also interesting to know that your self employed status and your employed status run along completely independantly of one another.

If you're a higher rate tax payer this year then your loss for this year will surely get you a tax refund at higher rate?

Sorry I wasn't here earlier, there are a LOT of things to pick up on here....

Just to confirm, child care services are exempt from VAT. This means that you do not charge VAT on your services, but you cannot recover VAT on your expenses. The fact that you are not a company or that your turnover is low has nothing to do with it - the situation is exactly the same for the biggest nursery chain in the country.

NCMA don't provide individual tax advice, you could join the Childminding Forum as there is a helpful section there, or look for an accountant - it could be cheaper than you think (certainly less than £300 a year, possibly only 1/3 of that).

Major purchases (things that last for more than a year) are claimed as Annual Investment Allowance - if you only use the item for your business you claim the whole of the cost, if you use it 25% of the time for non-business stuff you claim 75%. This reduces the amount you are taxed on by the amount you claim, and therefore you pay 20% of that amount less tax (assuming you pay basic rate tax).

As well as tax you pay Class 4 National Insurance at 9% BUT you only start paying that and income tax once you earn over the thresholds which are slightly different, about £7,800 for 2012/13. So to save the right amount, work out your profit each month (don't forget the 10% wear and tear allowance), take off £660 and save 29% of what's left. You won't have to pay a penny until January 2014 (yes, 2014) so you should have built up a fair balance by then.

If you are earning in another job you could get a tax refund for your expenses this year, but if you can afford to wait it will be better as you will then save the Class 4 NI as well.

You didn't need to register as self employed until you started trading (which is usually taken to be when you actually start minding, or take a deposit), but you have now - no matter. You can submit a nil self employed tax return for this year (no income, no expenses, no nothing) and put all the expenses in next year (this is a special situation for dealing with what is called 'pre-trading expenses', you can't normally do this).

WOAH just read the higher rate taxpayer bit, you presumably won't be in 2012/13 on just 4 months of your current earnings so better to start trading NOW to take as much expenses as you can in this year. It might be an idea to do some weekend babysitting for money before the end of March to make sure you can show your business has commenced. With higher rate tax at stake, you really should get a decent accountant - if you paid £400 for that laptop, I have just saved you £44 so decent advice should pay for itself many times over.

Well, I would have thought so too... but apparently your self employed status and your employed status are two seperate things... so i could be earning £200,000 a year as an employed person but still earn £20,000 profit self employed and only lose 20(odd)% of it to tax

Does that sound mad? Should i call back in case i just happened to speak to a donkey??

That's not right.

Your income from all sources is aggregated for income tax purposes, however national insurance is calculated separately for each employment and for self employment.

HMRC give out INFORMATION on how to comply with the rules so that you pay the amount of tax they want you to pay. Accountants give you ADVICE so that you do not pay any more tax than you have to.

X posts Mr Anchovy.. thanks so much for that. You are soooo helpful

I am concerned though as my current employer doesn't know of my plans so I don't want them to get wind of me claiming for expenses and things as self-emoployed. It's a very small company and they are close to everything.

In April/ May/ June/ July I will earn approximatly £3500/ £4000/ £3500/ £3000 respectivley...

Maybe I do need an accountant!!

X Posts again, sorry. I thought I smelt a rat... it just sounds barking that the two things don't link up.

Okay, so I'm going to have to just fill in a nil return and then wait to put all the receipts through in Oct 13..

On a bit of a tangent, and I realise you are not getting paid for this (!) My other concern is that I will end up earning over £37,000 for 12/13 and owe a load of tax at the end of it all.

I know it sounds pathetic but I am virtually in tears over this now. How can it be so confusing, I'm not exactly stupid...

Your current employer will never know anything about your self employed tax affairs. You may want to comply with a contractual obligation to notify them that you are doing other work, and if you have maternity leave coming up you will want to make sure you are not breaching any SMP conditions.

You have a lot going on - you really need some personal advice. You can contact me here.

smelled even

Now I have crossposted.

My other concern is that I will end up earning over £37,000 for 12/13 and owe a load of tax at the end of it all.

Avoiding this situation is a key priority for you to discuss with your new accountant .

I don't think I'm under obligation to tell them as the industries aren't connected in the slightest and I won't actually be working until a month or so after I leave