Tax Advice for Self Employed Avon Reps

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Avon is a great way to earn some extra cash, be your own boss with hours to suit you – all from your own home.  If you are an Avon Rep or planning to become an Avon Rep then you should be aware that you are required to be self employed and this brings tax responsibilities, regardless of how much you actually earn.  So here is some tax advice especially for Avon Reps to help you understand:

  • How to register for self employment;
  • What taxes you need to pay as a Self Employed Avon Rep and how much;
  • Fully understand your HMRC self employment responsibilities.

What is Self Employment?

When you run your own business such as Avon all the money you that you collect is untaxed. It is unlike when you work for someone else and they pay you after deducting all your tax on your behalf.

When you are self employed you are responsible for letting HMRC know how much you have earned and how much tax you need to pay (much like an employer would do if you worked in a job).

You report your earnings on a Tax Return and it is really important to remember that you must complete this return regardless of how much you earn,  even if you earn below the threshold for paying any tax.

Going self employed is by far the simplest and quickest way to get started when you want to run an Avon business.

The Four Essentials of Self Employment:

  1. Visit the HMRC website and register as Self Employed;
  2. List out and keep all the receipts from your Avon income and expenses;
  3. Complete a Self Assessment Tax Return before 31 January each year summarising your business income and expenses;
  4. Pay any Tax and National Insurance due by 31 January each year (and payments on account by 31 January and 31 July each year).

Registering as Self Employed Online with HMRC

The process of registering as Self Employed on the HMRC website can take 10 days to complete. Upon which HMRC will post you a UTR number (Unique Taxpayers Reference). Keep this safe as you will need this code to file your Self Assessment Tax Return.

Your Responsibilities being Self Employed

Self Employed Individuals are responsible for reporting their income to HMRC under Self Assessment by submitting a personal Tax Return by 31 January each year detailing all of your income as an avon rep along with any other earnings (from a salaried job for example), income tax and national Insurance due, as well as paying any tax you owe.

Your tax return submitted by 31 January covers the previous tax year (a tax year runs from 6 April to 5 April). So for example, your tax return due by 31 January 2018 details your earnings between 6 April 2016 to 5 April 2017 from being an avon rep as well as any other income you have (such as employment income, rental income, bank interest or dividends).

Payments On Account

Watch out, you are also required to make a payment on account to HMRC by 31 July each year too which is normally 50% of your previous years income tax bill and class 4 national insurance bill, so make sure you budget for this additional payment too.

If you already Submit a Tax Return

It is also worth noting that if you already complete a Self Assessment Tax Return, for example because you collect rental income or have savings interest, that you need to complete a Form CWF1 to notify HMRC that you have a new form of income (in this case self employment) that you need to report to them on.  Again, you can do this online here and you will need your Unique Taxpayers Reference.

How to Work Out Your Earnings as an Avon Rep

When you are self employed the tax you pay is based on the income you make as an Avon Rep.  Confusingly, income actually means profit – all the money you make less all the costs you have incurred.

Self Employed Avon Income

You income will be everything you make selling products and any extra commissions you earn in the tax year from your Avon business.

Allowable Expenses

When you are self employed it is really important to understand which are allowable as they reduce the amount of tax you have to pay.

Generally speaking most things you pay for as part of your Avon business will be allowable, here are some examples:

Computer & Printer

If you need to buy a computer and printer to use in your Avon business these will be tax allowable so make a note and keep the receipt to discuss at tax time.

It is a common to have something, like a laptop, that you use for business and personal reasons.  In these types of cases HMRC allows you to only claim for the portion of the item being used for the business. So if for example you use your laptop 60% of the time for your business and the other 40% for personal things like internet shopping, facebook etc then you would only be able to claim for 60% of the cost of the laptop against your taxes.

Avon Fees

If you incur any avon charges or fees in the course of your business, then again you will be able to claim these against your taxes.

Telephone and Internet

If you use your phone as part of your Avon business (mobile and/or landline) and your internet, then your business portion will be an allowable expense.

Travel

If you need to travel around you will incur costs. Keep hold of your receipts for trains, tubes or taxis as they should all be allowable expenses and help reduce your tax bill.

Mileage

If you need to use your car to travel around then you should note down the mileage as this falls under the category of travel. Record your miles to and from your destination since you can claim 45p for the first 10,000 miles of driving and 25p thereafter.

Use of Home

If you choose to work from home then there are rules that will allow you to claim an amount for the running costs of doing so from your home as a portion of your household bills such as gas, water, electricity or rent.

Alternatively, HMRC allows you to claim a flat rate of £4 per week for using your home for work purposes and you don’t need to substantiate this claim with receipts.

Wages

If you need some assistance and support from others then the cost of these individuals will be tax allowable since they are an incidental cost of your Avon business.

Marketing/SEO/PPC

Any marketing you do (online or offline), paid ads or anyone you pay to help you with your marketing is also fully allowable so make sure you download or ask your marketing assistant to send you an invoice before you pay them.

Accounting & Bookkeeping

If you choose to use an accountant to complete your self assessment tax return again their fees will be an allowable expense. Keeping accurate records will definitely help keep their fees down too as well as giving them all the information they need to make sure you receive all the deductions and reliefs to reduce your tax liability.

Bank Charges

It is advisable to open a business bank account and keep your business and personal expenditure separate. The bank charges you pay on your business bank account is an allowable expense.

All expenses must be supported by a receipt, so make sure you keep hold of all your paper or emailed receipts. It is also really important to be aware of which expenses are allowable for your business because incorrect claims can result in penalties. If you are unsure, always seek the help of a professional.

Top Tax Tip:

Even if you are currently not making any money as an Avon rep, you must still register with HMRC and complete a tax return.  This may feel onerous, but completing a tax return means you can record all your expenses to create a tax loss.  This can then be used against any money you make in future tax years and save you tax at this point.

How Much Tax does a Self Employed Avon Rep Pay

As you now know the amount of tax you pay is based on the profit you make from being an Avon Rep (all your income less all your allowable expenses).

However the amount of tax that you actually pay is based on your own circumstances and how much you earn in total during a tax year.

Income tax is calculated at different rates according to how much your profits are.  So for 2017/2018 the rates are:

2017/2018 2016/2017
Personal Allowance 0% Up to £11,500 Up to £11,000
Basic rate 20% £11,501 to £45,000 £11,001 to £43,000
Higher rate 40% £45,001 to £150,000 £43,001 to £150,000
Additional rate 45% over £150,000 over £150,000

 

Example of Working Out Tax for an Avon Rep

Molly is an Avon Rep but also has a part time job earning £15,000 per year, so has paid tax of £800 through payroll.  She is getting ready to submit her tax return for the tax year 2016/2017 which is due by 31 January 2018.  She has worked out that her profit from her Avon business was £22,000 therefore she will need to pay tax of £4,400.

What are Payments On Account?

What Other Tax Must a Self Employed Avon Rep Pay?

Self employed Avon Reps may need to pay Class 2 and Class 4 National Insurance as well as tax.  The amount of Class 4 National Insurance you pay is based on your Avon Rep profits. The current rates are:

Class Rates for tax year 2017/2018 Rates for tax year 2016/2017
Class 2 £2.85 a week on taxable profits above £6,025 £2.80 a week on taxable profits above £5,965
Class 4 9% on profits between £8,164 and £45,000 2% on profits over £45,000 9% on profits between £8,060 and £43,000 2% on profits over £43,000

In our example above, Molly earned £22,000 therefore would need to pay Class 1 National Insurance of £145.60 and Class 2 National Insurance of £1,254.60.

Molly’s total tax bill is therefore:

  • Income tax £4,400.00
  • Class 1 National Insurance £145.60
  • Class 2 National Insurance £1,254.60
  • Total for 2016/2017 £5,800.20
  • Payment on Account £2,827.30
  • Total to pay by 31 January 2018 £8,627.50

Complete Your Tax Return

In our example Molly would need to complete the self employment section AND employment section of her Self Assessment Tax Return.  She would need to disclose what she earned in her job which will be on her P60 provided to her by her employer.

What is Class 2 National Insurance?

What is Class 4 National Insurance?

When you are self employed it is important to budget for your tax and national insurance bill, one of the simplest ways is to set some money aside for HMRC as you get paid. If you are unsure how much tax you need to pay or of your tax status we definitely recommend you ask an accountant.

What About VAT? VAT affects all businesses, find out whether Avon Reps need to be registered for VAT here.

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.