A common misconception we hear is that the money earned by Avon representatives is somehow tax free or is generally so low that it does not need to be declared. So, should an Avon rep be declaring her (or his!) income on a tax return?
The Answer: Yes.
Unless directly employed by Avon in the capacity of a full employee all Avon reps are classified as self-employed – and this is something that the company mentions on their own website.
And remember – even if you are currently employed you can, for tax purposes, still be classed as being self-employed elsewhere too.
What are the tax consequences of this?
The self-employed are taxed on their net business income. This is basically your business income minus costs that are wholly and exclusively for business. Examples are:
1. Avon subscription fees
2. Products, samples and catalogues.
3. Accountancy and professional fees
4. Relevant business travel. Etc
In many cases representatives might be earning profits that are too low to be taxed – for this you will need to see the current and historical personal allowance rates (for income tax) and class 4 NIC thresholds (for the self-employed). In terms of income tax the rep must consider all income from all sources – any current employment income might ear up all of the personal allowance making ALL net profits taxable.
However, even if the profits are too low for tax or national insurance you will STILL need to file a return to show this.
The self-employed are also required to pay class 2 national insurance contributions which are currently £2.65 per week but are set to increase to £2.70 per week in the 2013/14 tax year. You can fill out a CF10 form with HMRC to apply for exemption if your profits are below a certain limit.
What should you do if this applies to you?
Firstly, if you’re worried, get in touch for some impartial advice and check out our fees for an example of what we would charge for a return. The problem as we see it however is that the fee of many accountants can easily be larger than the profit of many Avon reps. Here’s some advice on how to start the process yourself:
The first thing you would need to do is register as self-employed with a CWF1 form. After this you then need to determine your net profits and file all the relevant returns as outlined above.