working from home

[goldheart]

A friend is in full time employment and his wife is pregnant and off work until the birth. Unfortunately she is not getting paid maternity benefits from work as she had not been there long enough. However she is in the process of starting up a new business - videoing/photographing weddings/ special occasions etc.
My question is how much is she allowed to earn before being taxed in the first year, what are the legalities of charging VAT etc, and also what is the best route to take when starting a new business - bearing in mind it will be run from a home office by one person and on a part-time basis.

[Loosehead]

In the eyes of the tax man she will be a "sole trader". Essentially net profit will be subject to tax and National insurance (self employed band NI) in the same way as salaried income. Note I say net, that means you can deduct all expenses etc. A good accountant will advise in detail. She will have to register for VAT if she turns over more that a certain amount, of the order of �55K I think.

[Blues Dad]

She will be allowed to earn �4745 net income for the 2004-2005 tax year.

If she has already been in paid employment during this time then she may possibly have taken home more than her personal allowance for 2004-2005 already which means she will be taxed on all her net income from her new venture for the rest of the tax year (which ends April 5 2005 in case you were wondering).

She should register herself as self-employed with the Inland Revenue and will probably also need to pay class 2 NI contributions if she is not paying any from employment. The IR will sort this out with her.

A good start for business advice:-
http://www.businesslink.gov.uk


She would only charge VAT if she was VAT registered.
If at the end of any month she has turned over sales of more than �58000 in the past 12 months or she expects to turn over more than �58000 in the next 30 days then she must become VAT registered.

She can also voluntarily become VAT registered if she doesn't exceed the �58000 threshold but feels it would be beneficial.

See Customs & Excise website for VAT info:-
http://www.hmce.gov.uk