The Taxman

[charlievictorbravo]

Jack Straw - I have seen several threads about tax on this forum and did not feel I had learned the principle behind whether income from honey should be declared. Your post was the the best and most authoritative I have seen and I thank you for taking the trouble to put it down such that even dumbos like me can understand it.

CVB

 

[itma]

Indeed thanks, the effort is appreciated.

 

[Gilberdyke John]

Jack Straw - I have seen several threads about tax on this forum and did not feel I had learned the principle behind whether income from honey should be declared. Your post was the the best and most authoritative I have seen and I thank you for taking the trouble to put it down such that even dumbos like me can understand it.

CVB

To Admin. Can Jack Straws post be made into a sticky please?

 

[Hivemaker.]

Very informative, JS.

 

[Stiffy]

Having been advised many years ago that we should declare our sales but never really understanding the reasoning from our accountant its nice to read something factual and authoritive on the forum.

Sent from my Nexus 7 using Tapatalk

 

[Erichalfbee]

Yes, thanks JS

 

[itma]

To Admin. Can Jack Straws post be made into a sticky please?

Well, I've tried to create a thread in the "Sticky Posts" forum which references JS's post - BUT - my effort is "awaiting moderation" and will not appear until someone blessed with the relevant authority presses the right button.

 

[Hivemaker.]

Well, I've tried to create a thread in the "Sticky Posts" forum which references JS's post - BUT - my effort is "awaiting moderation" and will not appear until someone blessed with the relevant authority presses the right button.

Try this...http://www.beekeepingforum.co.uk/showthread.php?t=32799

 

[itma]

Try this...http://www.beekeepingforum.co.uk/showthread.php?t=32799

Thank you!

 

[Moggett]

I wonder if Jack could clarify one last point for the sticky post.

If for example one person in a marriage or civil partnership pays tax on income or pension, but the other is a househusband/wife with no income, could the non taxpayer use their tax free allowance for honey sales - i.e. income up to £10k? tax free?

If so, would the honey and equipment purchases have to be in their name or could honey jars be just labeled with a surname only? What would be the rules if this was possible?

This happens with savings to use the tax allowance, so could it apply to honey sales?

 

[clv101]

Seemed to work for Philip Green:

In 2005 his company paid a £1.2bn dividend to the owner of Arcadia - Sir Philip's wife, Tina. Since she is a resident of Monaco, the tax advantages were substantial, according to BBC business editor Robert Peston:

"There was a great saving of tax, but when the perception is that dividend has been generated by the business acumen of Philip Green and not particularly the business acumen of his wife, it stokes up enormous controversy."

http://www.bbc.co.uk/news/business-20641981

But remember, tax avoidance isn't cool, neither when billionaires do it or anyone else.

 

[wessexmario]

Why couldn't the husband just gift the honey to his wife? Then, being her property, she can sell it.
The only problem with that would be as it was her property, she would own the income!

 

[Moggett]

Seemed to work for Philip Green:



But remember, tax avoidance isn't cool, neither when billionaires do it or anyone else.

Does that include ISAs too?

 

[Erichalfbee]

Heavens....if it's "our honey" rather than "mine" there is surely, no issue.

 

[Gilberdyke John]

Seemed to work for Philip Green:



But remember, tax avoidance isn't cool, neither when billionaires do it or anyone else.

Tax avoidance = using the rules and is legal despite Margaret Hodges hysteria in her parliamentary committee. If the rules need changing that's a job for Parliament.
Tax evasion = breaking the rules and incurs penalties (as it should)

 

[wessexmario]

Heavens....if it's "our honey" rather than "mine" there is surely, no issue.

there would be an issue with the taxman - as every legal person[*] who earns income is individually responsible for the tax due (if any).
As far as HMRC is concerned, you don't 'jointly own' anything for income tax purposes, you'd own 50% each, and so each be liable for the tax on your share.

[*] A "legal person" can be an individual, a company or other formal organisation.

 

[Jack Straw]

Partnership - is it worthwhile tax planning?

I wonder if Jack could clarify one last point for the sticky post.

1. - If for example one person in a marriage or civil partnership pays tax on income or pension, but the other is a househusband/wife with no income, could the non taxpayer use their tax free allowance for honey sales - i.e. income up to £10k? tax free?

2. - If so, would the honey and equipment purchases have to be in their name or could honey jars be just labeled with a surname only? What would be the rules if this was possible?

Yes, and I think this is potentially excellent tax planning.

Using subterfuge by gifting the honey to another party and then getting that party to sell the honey runs into two potential problems. Under the BBKA rules I believe that the producer of the honey (beekeeper) needs to be named. If so then it must be the donor of the honey named on the label and not the seller. Fairly easy for HMRC to run a coach and horses through this and any subsequent argument you put to them. Secondly you lose the chance for more worthwhile tax planning

If there were two parties; be they married, a civil partnership, parent /child or just buddies, and one is paying a higher rate of tax than the other then I would recommend them forming a partnership and registering this with HMRC. It would mean slightly more work each year because three tax returns would need to be submitted, one each and one for the partnership but if the profit is more than a few hundreds of pounds the effort: reward is in their favour.

A partnership does not have a fixed profit sharing ratio (PSR) it is set each year. So the PSR could be set 100% to the individual with earnings in the lower tax band in years of profit whilst it could be set to 100% to the individual paying the higher tax should there be a year where a loss is made. This would enable that individual to claim a tax refund on a loss which might otherwise be lost.

Forming a partnership may also enable two taxpayers in the same tax band avoid one of them moving into a higher rate tax band.

If a household receives Child Benefit and one individual earns around £50,000 then by forming a partnership for honey sales and working the PSR it might help them to avoid or mitigate the High Income Child Benefit Charge.

The other consideration would be national insurance. Class 2 NIC (£143 pa) is payable by all individuals with an income from self-employment. Exception can be claimed by those under the threshold (2014/15 £5,885).Class 4 NIC is payable at the rate of 9% on self-employed earnings over the lower profits limit (2014/15 £7,956). There may be occasions when both tax payers day jobs already put them in the same tax band but by forming a partnership and playing with the PSR they might be able to avoid one or both of them paying NIC.

Another aspect to consider is VAT. Many users of this forum will be aware that it is the trader who is registered for VAT and not the business. Therefore if an individual is a vat registered sole trader for their day-job then they will need to include their honey business income/expenses in their VAT Returns. Generally this is not an issue as honey is foodstuff and is therefore zero-rated, but if a trader is registered for the Flat Rate Scheme (the full details of which are beyond the scope of this thread) then the honey income must be included in their total gross income and multiplied by the FRS %. This effectively means that they will be paying vat to HMRC which they have not charged/collected.

In this scenario forming a new partnership will help avoid this

If honey/bee-related products are being sold via a partnership and having considered the badges of trade you have determined that it is trading then I would suggest the name and initials of the partners or the partnership name is included on any labels or sales invoices.

Where items are bought for the bee business be they revenue items (under £200 or lasting for one season) or capital items (more than £200 cost and lasting 2 or more seasons) then it does not matter for tax purposes whether they are bought in one or other partner's name or in the partnership name

It should be borne in mind that each individual partner is jointly and vicariously responsible for the debts arising from a partnership and so you should only ever enter into a partnership with someone you trust absolutely (or your spouse!)

When looking at tax planning it is important to take into account all the variables - most especially the affect any move will have on different taxes and the potential advantages and disadvantages

If anyone has a scenario they would like me to comment on please feel free to ask on here or PM me

Kind regards

Jack Straw

 

[Arfermo]

Seen this?
HMRC targets Etsy, eBay and Gumtree sellers – but when is your hobby taxable? See
http://www.telegraph.co.uk/finance/...m=Edi_Pfi_New_2015_06_03&utm_campaign=DM22265

 

[Arfermo]

Previous post above did not allow full link. Abridged details in the artivcle herewith:
HMRC targets Etsy, eBay and Gumtree sellers – but when is your hobby taxable?
Websites are being forced to hand over customer account data as the taxman targets 14,000 suspected evaders.
Thousands of online sellers who use websites such as eBay, Etsy, Amazon and Gumtree are the focus of fresh attempts by HM Revenue & Customs to crack down on tax evasion, Telegraph Money can disclose. Such websites are being forced to hand over customer account details, including their selling activity, as part of the taxman’s legal powers that were extended last year. This type of information gathering has enabled the taxman to target 14,000 individuals it suspects of failing to declare profits on their self-assessment tax returns, the Revenue confirmed. Using extensive new powers introduced last year, HMRC can download people’s account information and even force sellers to pay tax that is disputed or subject to an inquiry. The fresh crackdown follows a campaign that ended in 2012 to warn sellers that tax might be due on their hobby as long as their activity is classed as “trade”. The Revenue has sent 14,000 letters to traders suspected of running a business and failing to declare this on their tax returns. Of these, 1,000 letters are being sent to people where the taxman has already identified a shortfall on their self-assessment forms. Some of those targeted make as little as £100 profit online, Telegraph Money has learnt. However small, any earnings above an individual’s tax-free personal allowance – £10,600 for the 2015 16 tax year – are taxable if the money made is considered a business profit.
In one letter, an eBay user is told: “HMRC receives information about fees paid by you from the e marketplaces you use and is aware you were registered as a business seller. HMRC thinks you should have declared more on your tax returns than you did.” Anyone who fails to reply will face an automatic tax charge, where HMRC makes its own calculations on tax due and demands that it is paid within three months. So-called “accelerated payment notices” (APNs) will be issued to those who fail to comply. With these notices the taxman has a statutory power, among those afforded to HMRC in the 2014 Finance Act, to force people to pay tax upfront, even if the amount is subject to dispute or appeal. And if you are deemed to be running a business, you could face a huge bill. “Few people consider the tax implications of selling items through eBay and Amazon, Gumtree and Etsy, and may think it is just a hobby,” said Dawn Register, a tax specialist at BDO. Getting it wrong could involve paying back taxes, late payment interest and penalties to HMRC.” Because HMRC can download information online, finding evaders should be “easy pickings” for the taxman, Ms Register said. “Clearly the Revenue is using information about volumes of sales, looking at your transactions, and using this to estimate your tax bill. You’re then in the hands of HMRC’s debt collectors.”
When is a hobby actually a business?
You might think that selling second-hand items and crafts online is a hobby, but the taxman will class you as a business if it can prove you are doing “anything in the nature of trade”. If you collect items and resell them in a short period of time, or sell home-made crafts online, you could be classed as a business. There are several traits that mark you out as a business in the eyes of the taxman, known as the “badges of trade”, listed below. Just one of these could be enough to show that you are trading. Profit is the trigger to get the taxman interested in you in the first place. If your hobby is considered a business, you must declare any profits via your self-assessment tax return. The tax return deadline is on January 31 at midnight for the previous financial year, which ends on April 6. There is now an automatic penalty of £100 for filing a late return – even if no tax is owed – and you could owe up to £1,600 in penalties after a one-year delay regardless of how much tax you owe. You may also have to submit a VAT return if your taxable turnover exceeds £82,000 in any given 12 month period. You have to register with HMRC within 30 days of reaching this limit – though the Revenue may allow you an exemption if your turnover only goes above this threshold temporarily.
The nine ‘badges of trade’
1. Is your primary motive to earn a profit? If HMRC thinks you intended to make money, rather than selling items for fun, your selling activity is considered to be a business.
2. The number of transactions matter. If you repeat very similar transactions in a short period of time, this might be considered a badge of trade.
3. What type and quantity of goods are you selling? Are you buying so many that you profit from an economy of scale? Did they yield an income while they were in your possession? To demonstrate that your selling activity is a hobby, you may need to prove the goods gave you “pride of possession”, for example, a picture for personal enjoyment.
4. If your online transactions are similar to an existing type of business, such as a clothing retailer or specialist collectables seller, this may be used by HMRC as evidence that you are trading.
5. If you modify items before selling them, again this is a badge of trade. Ask yourself: do you repair, alter or improve items to make them more saleable and, therefore, achieve a greater profit?
6. How did you carry out the sale? If you sold an item in the same way as a shop or auction house – where customers agree to buy something at a fixed price – you could be classed as a business. This is known as an “undisputed trade”.
7. If you borrowed money to buy an item, especially if this loan could be repaid only by selling the items again, this is evidence of trade.
8. The period of time between when you bought the item and sold it again will be looked at by HMRC. Any assets that are the subject of trade will normally, but not always, be sold quickly. This suggests that you only bought an item with the intention of selling it. By contrast, an asset that you bought with the intention of owning it, but then decided to sell after a period of time is much less likely to be suspect.
9. How did you acquire the item? If you received something as a gift, or an inheritance, you’re far less likely to be seen to be running a business when you go on to sell.