Knowing how to register with HMRC for a new business is very important.
When Carrie turned her dress-designing hobby into a business, she didn’t realise that she had to tell HMRC. Read how Green and Peter eased the stress and came up with a plan that saved her home.
From hobby to pocket money
Carrie is a wedding dress designer. She’s talented and loves what she does. She started out from her front room, earning some ‘pocket money’ while the kids were at school. Her reputation grew, along with her client base and the money she made from her stylish, contemporary, unique dresses.
But our introduction to Carrie was when she phoned us, sobbing and panicked, certain she was going to lose her house. She’d just received a tax bill that she felt she simply couldn’t afford.
Creatives and tax – NOT a perfect fit
Carrie is by no means the first creative we’ve met who finds herself flummoxed by finances and tax, and she surely won’t be the last. In our experience, many creative people struggle when it comes to registering for tax, keeping records and staying on top of bills. After all, one of the most enduring clichés about artists is starving in a garret!
Whether it’s a fear of dealing with money, an antipathy to something they simply find mind-numbingly boring, or a belief that the mundanities of finance will stifle their creative drive, we see this time and time again. Creative people who do amazing work, but get themselves into hot water when it comes to following the rules that apply to all businesses.
For Carrie, it was a genuine lack of understanding that she was ‘trading’ – she thought she was simply doing something she loved, and that people liked it enough to pay her for it.
But to His Majesty’s Revenue and Customs (the Government department responsible for collecting taxes), ‘trading’ is anything you do with a view to earning a profit. Whether you do it through a multimillion international business, or from your front room between school drop off and pickup.
The fact is that if you start a business through which you earn money, you have an obligation to notify HMRC. You have just one month to do so. If your business is set up as a limited company, the process is simple, because Companies House automatically notifies HMRC when you register the business. But if you’re a sole trader, as many creatives are, then the responsibility to notify HMRC sits entirely with you.
You must register your business with them, and as soon as you earn over the personal tax allowance threshold, you have to pay tax at the statutory rate.
The moment of truth
So, back to Carrie. As the business grew, she moved from her front room to her own studio. She created a marketing plan, and decided that she needed a website, to help her get found.
And HMRC found her.
They wrote to Carrie to say that they had reason to believe she was trading, but not registered. The upshot was that Carrie owed years of backdated tax. That’s the point at which she knew she needed expert help, found us and picked up the phone.
Friendly, expert help
The first thing that we did was reassure Carrie. When finance doesn’t come naturally to you, having a sympathetic ear, and someone to explain the process and formulate a plan feels like a life saver.
We told her that we couldn’t make the tax go away, but that we could sort things out so that she didn’t lose her home. HMRC are not demons, they are simply doing their job of collecting the taxes that all businesses are obliged to pay the Government. If you are open and communicative, and show your willingness to pay, they will usually be flexible and give you time.
We’ve got decades of experience in talking to HMRC, and ‘speak their language’. We were able to negotiate a settlement and a payment plan for Carrie. She did not have to pay the amount due as a lump sum as she’d initially feared, but was given time. She did have to increase her mortgage, but it was affordable and most importantly, she stayed in her home.
How to avoid being a Carrie
Carrie was found via her website – other clients of ours who’ve made the mistake of not registering have been found when they advertised, or because they were paid by an agency, who have records of all their clients.
It’s very hard to run an invisible business. If you’re a creative, we get it. Dealing with all that tax stuff is boring and/or scary. So let us help you avoid the stress that Carrie went through, so you can focus on designing those dresses, taking those photos, making that music – and working at your creative best.
Find out how Green & Peter can help you turn your creative skills into a business … call 020 8446 8100 TODAY!