How to declare more than one business on your tax return

I am a self-employed therapist operating as a sole trader, earning about £30k per year after costs, I have now started a second sole trader business which is different (selling digital products online) – do I need to keep this business separate from the first one on my tax return and what other things do I need to consider? This new business is likely to incur a few thousand pounds of losses in the first year or so.

multiple sole trader

If you start up a second business that is essentially a different trade, as it is in this case, then it is best practice to keep separate bank accounts & accounting records.

Both businesses will then have any profits or losses disclosed separately to HMRC on your tax return by using distinct supplementary self-employment pages.

The good news is you don’t need to register again with HMRC for the new business as you will already be registered with HMRC as self-employed from your work as a therapist.

There are a number of key things to consider with regard to taxation and the second business.

Firstly, given you are already earning approx £30k per year from your first business any profits earned from your new business will attract tax and national insurance as earnings over and above this, there is no separate personal allowance, national insurance threshold or investment allowance.

As you mention there are likely to be losses initially this will in effect reduce the overall taxable profits from self-employment and would produce a reduced tax liability to take into account these losses.

For VAT purposes both businesses will be classed as one entity by HMRC and as such total sales will need to be combined to determine whether VAT registration is required. The VAT registration threshold is £83,000 for the 2016/17 tax year, therefore if business one had total sales of £70,000 and the second business made sales totalling £15,000, you would personally need to register for VAT and charge VAT on all sales for both business.

If this is an issue then there is potential to run one of the businesses as a separate entity such as a limited company or partnership but you will need to make sure they are not caught by the VAT Disaggregation (artificial separation) rules.

It is recommended you keep track of all your costs that relate to your digital product sales before you started trading. If any expenses were incurred within seven years of you starting to trade, and the expenses would have been tax-deductible if you had incurred them while you were trading, then, in certain circumstances, you can claim they were incurred on your first day of trading.

The above is not exhaustive and there may be further tax complexities not discussed above with regard to setting up a second business.