In early 2017 my wife decided to leave her job and set up as self employed. Her first products/services went on sale in May 2017 but it's fair to say it did not go particularly well and it was not until November she secured her first income. At that point we registered her as self employed - at the time we didn’t view the date of registering as self-employed as especially relevant since all income would have been in the 2017/18 tax year and the date didn't seem particularly important. I remember googling at the time and finding stuff that suggested registering from date of first income was ok since when there is no income there is effectively no business.
In April 2018 we started claiming 30 hours childcare expecting we would get the business up and running (earning enough that the 12 months exemption to November would not even be needed) or that if we couldn't get it going after a few more months she would get a job. I don't want to go into why this has not happened, but I started to try and clarify our position, and it's fair to say the HRMC website is woeful beyond the basic information.
So here's what I'm struggling with:
- There is a exemption for people being self-employed for 12 months from having to earn £125 a week while they set up their business. I'm now looking back at that registration date and getting a little nervous that if HRMC reviewed it they might deem that the business started in May 2017 (products/services available) and not November 2017 (when first income occurred) and so the required income would be 9 months of £125 a week (to date) or 11 months of £125 a week if we were to apply for Q1 2019.
- I'm not clear how the minimum income requirements are pro-rated from the date the exemption ends. I assuming it would be something like if it was 1st May it would be (48 x £125) if 1st November (22 x £125)
- I'm not clear if the £125 a week has to be employment income (I suspect so since they're declared separately on the Tax Return), as she has some other income that could be used if not
- We don't intend to renew for 30 hours in January until we can clarify these questions and then only if she has full time employment lined up, in that case we have claimed for 9 months of free childcare so I assume the income requirement for that (ignoring exemptions a second) would also have to be pro-rated so 3/4 * £125 * 52 weeks
- If the November date is ok, and I have the pro-rating correct we're probably ok. The required income would be £125 * 4 for childcare for 9 months with an eight month exemption. Her income from employment ytd stands at about £700 and as she currently has client giving a small but regular income there wouldn't be any issue getting that up to the £1000 required for the two months after the exemption ran out on 1st November 2018).
- If it's the May date we've got a bit of a problem as currently she'd need to find a job got her income up to about £4,000 by April (if apply for Q1), not impossible, but not ideal
We have written to HRMC outlining the above and asking the above questions. Somebody did call us but when we phoned back to speak to her the person we got through too just didn't understand the questions.
I will write to them again telling them what we intend to do to try either to get confirmation one way or another of our position (ideally I want it in writing, not verbally), and to hopefully to cover us if they were to look at it to show we'd been transparent, however I'd really like to feel confident what I am outlining we will do will stand up to their scrutiny in (what I think is) the unlikely event they look at it in more detail.
Thanks in advance for the help. Out of interest, is there some more detailed tax documentation from HRMC you can read that I can't find or do you tax people have to work this stuff out based as best you can based on what's (not) on HRMC?