Register as self employed or not ?

Haggis

Hi,
I had an interesting enquiry from a potential client this morning and would welcome anyones thoughts on his position and the best way for him to go forward.

His position is that he receives a state pension and has been involved with the production of a CD
locally. He has not received any income and is simply helping to manage the whole project.
He is concerned as he is now at the stage of talking to companies and selling the CD to them for them to sell on. He is in the process of opening a business account (using the company name - not a
limited company) at his bank so that he can keep any income/expenditure in a separate account.
I believe he will have to at some point, depending on how sales go, pay out royalties to the people
involved on the CD (percentages have been agreed). As far as I know he is still happy not to take
any income from the company and only needs his expenses paid (phone calls, postage, travel etc)

Do you think he needs to register as a sole trader and if so I assume as a pensioner he does not pay NI ? I imagine that the profits will amount to little as they will all be paid out as royalties.
Or is this whole thing more complicated ?

many thanks for your help

T.C.

I would say, yes, he should register. No he would not pay NI, but his small profit, added together with his pension and any other income, could result in a tax liability.

Pete12

Haggis,

I agree with TC.

The situation initially appears to be one that sits on the fence but on re-reading - the main reason it does so is that your client does not receive income and is still happy not to receive income; BUT, everything else he is doing looks like he is in, intending to be in, or at least is a long way towards being in business. The APPARENT nonchalance with regard to income/profit does not sit easily with the ACTUAL effort he is putting into the activity. I have the feeling it is not the situation that sits on the fence, but the client who is trying to sit on the fence.

Pete12

Haggis

Thanks to you both for your help, I think you are absolutely correct and he has to register for self assessment,
regardless of his situation and I will advise him to do so.:001_smile:

JodieR

Look here: http://www.hmrc.gov.uk/manuals/bimmanual/bim20205.htm for a summary of the 'badges of trade'. Although No 1 would point towards it not being a trade, Nos 2 and 4 would suggest it is.
If it were me I would give the client 2 options:
1. Write to HMRC with full details and request that he doesn't need to register
2. Register and submit tax returns for him on the basis that Nos 2 and 4 out-weigh No 1 and therefore he's trading. I don't think that there would be any penalties for registering & submitting returns when it wasn't neccessary.

The only potential sticky point would be if the accounts actually showed that he made a loss and he tried setting the loss against other income to generate a tax refund (and then HMRC deemed him not to be trading), but as he's a pensioner that's not going to apply in any case.

Haggis

Wow - thanks for that, really useful to me, I will definitely explain this to him so that he can make an informed decision, thanks again.:001_smile: