smallbusiness.co.uk: Helping your business think big

If operating as a sole trader, profits (or losses) will be taxed under Income Tax rules and you can continue working in employment under PAYE (Pay As You Earn).

You have three months from the date of commencement to notify your Tax District that you have started a business. At the end of the tax year in which you commenced trading in your own business you must complete a Tax Return including a Self Employment section. Basically if your turnover is under £15,000 you only need to fill in figures for turnover, expenses and profits. If the turnover is greater than £15,000 detailed profit and loss and balance sheet figures are required. Profits for the period up to the 5th April after you started will be subject to tax. Self employed payments of Tax and National Insurance are required twice yearly - by 31 January and 31 July.

You need to keep a record of income and expenses and a set of accounts (a profit and loss account and balance sheet) will be required. If you buy equipment you are allowed a proportion of the cost (called capital allowances) as a deduction from your profits for tax purposes.

If you are working from home a proportion of the house expenses might be allowable. There may be others who should be advised that you have started a business from home such as the local authority, your insurance company, etc. If your business annual turnover reaches £60,000 you must register for VAT.

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