Summer’s here and the time is right for – making hay while the sun (hopefully) shines. This year perhaps you’re among the very many people in the UK who start or restart their own summer business.
Many summer-only businesses are of course linked to tourism or the great outdoors. And because they’re enabled by warmer, dryer seasonal weather, such businesses aren’t viable throughout the year. However, many summer businesses are lucrative “side hustles”. Some owners actually earn enough in the summer to last them the whole year, they can be highly profitable.
When is summer business income taxable?
Summer business income is taxable if it goes over certain thresholds. Most people operate as a sole trader, rather than register their summer business as a limited company. Sole traders can earn up to £1,000 of tax-free income (this is their “trading allowance”). As soon as their gross income (ie total sales or income before deductions) goes over £1,000, tax can be payable.
To operate as a sole trader, you must register for Self Assessment, which is the system UK tax authority HMRC uses to collect tax. You must register before 5 October following the end of the tax year in which you earned taxable income. The UK tax year lasts from 6 April until 5 April. Even if you’ve registered for Self Assessment in the past, if you didn’t file a tax return in the previous tax year, you must register again.
Need to know! If you plan to claim tax expenses, you cannot claim your trading allowance. So work out which option better suits you.
How much tax will you pay as a sole trader?
Income Tax may be payable on your summer business sole trader “net profit”, which is your gross profit (ie total sales) minus allowable tax expenses that HMRC allows you to deduct. You may also be able to claim tax allowances that further reduce your tax bill.
The Income Tax band into which your total taxable net income falls determines your sole trader tax bill. Your total taxable net income can include income from employment (a full-time or part-time job, although you will have already paid tax on this via your employer’s payroll), shares, savings interest, pension payments, property rental income, etc.
You don’t pay tax on your first £12,570 of income, because this is your tax-free Personal Allowance.
You fall into the basic rate of Income Tax if your total taxable income is between £12,571 and £50,270. You’ll pay 20% Income Tax.
You fall into the higher rate of Income Tax if your total taxable income is between £50,271and £125,140. You’ll pay 40% Income Tax.
You fall into the additional rate of Income Tax if your total taxable income is more than £125,140. You’ll pay 45% Income Tax.
*2024/25 for all figures above, England, Wales and Northern Ireland. Income Tax bands and rates are different in Scotland.
Is National Insurance payable on summer business income?
If your summer business profits are £6,725 or more within a tax year, Class 2 National Insurance contributions (NICs) are no longer payable. If they’re more than £12,570, you must pay Class 4 NICs (for 2024/25 they’re 6% on profits between £12,570 and £50,270, then 2% thereafter).
If your profits are less than £6,725 a year, no NICs are payable, but you may choose to pay voluntary Class 2 NICs (£3.45 a week in 2024/25) to safeguard your State Pension and qualify for other benefits.
What tax expenses can your summer business claim?
When running your own sole trader summer business, you can claim for many tax expenses, which will help to minimise your tax bill. These are called “allowable expenses” and you detail them in your business accounts and summarise them in your annual Self Assessment tax return.
Summer business allowable expenses include:
stock or raw materials
packaging and printing
mobile phone and broadband
travel (eg fuel, parking, taxis, train or bus fares)
premises costs (eg rent, heating, lighting, business rates, etc)
office stationery and postage
business marketing/advertising costs
insurance and bank charges
accounting and solicitor fees
training and professional membership fees
wages paid to people who work for you
safety clothes and business-branded workwear.
You can only claim allowable expenses for things you use wholly and exclusively for your summer business. If you use something for business and personal reasons (eg your mobile phone), you must work out the business use proportion and only claim for this. HMRC can ask for proof of any allowable expense that you claim.
If you run your summer business from home, you can claim for a proportion of your domestic heating, electricity and water costs, Council Tax, mortgage interest or rent, broadband and telephone use. Again, you’ll need to reliably work out how much you can justifiably claim, because HMRC can investigate.
Need to know! To save time and effort, rather than working out your actual business expenses, you can claim flat-rate simplified expenses for vehicle use and running your business from home. You can’t claim any tax expenses or capital allowances if you claim the £1,000 tax-free Trading Allowance.
Keeping tax records and filing your tax return
Sole traders must maintain accurate, up-to-date records of their sales and expenses, detailing dates and exact figures. You’ll need them when completing your annual Self Assessment tax return, so using accounting software is recommended. You must retain copies of all invoices you send out, as well as receipts and invoices to support your tax expense claims. Keep a detailed mileage log if you plan to claim for fuel/vehicle expenses.
Need to know! HMRC can fine you if your records are not accurate, complete and readable. You must keep your records for at least five years.
Each year, you report your taxable income, expenses and allowances to HMRC by completing a Self Assessment tax return (SA100) and the SA103 supplementary tax return pages, which summarise your summer business income, expenses and allowances. If you have more than one summer business, you must complete an SA103 for each. You may have to file other supplementary pages to report other sources of income (eg SA105 for rental property income).
Need to know! The annual deadline for filing your Self Assessment tax return online is midnight on 31 January, although you can file any time after the tax year finishes on 5 April. Miss the filing deadline and a £100 fine is immediately payable. Once HMRC receives your tax return, they’ll work out your tax bill and tell you how much you owe.
• This blog was written for GoSimpleTax, market-leading provider of tax return filing software.
