Starting your own sole trader

[mossj]

For a long time i've been thinking (like many of us do) of running a small biz on the side, I'm confident that I've nailed the technical aspect...

 

But i really don't know about the non-technical (vat, taxes, company registration etc etc) bit, has anyone got any links/advice?

 

p.s A google just bought up loads of advice for people looking to start businesses with there own premisis/employees/huge amounts of investment...

 

p.p.s I'm not to bothered about the risks even in this climate, and investment is minimal as well..

[K.C.Leblanc]

All you need to do is register for self assessment with your local tax office. Then make sure you keep records of everything you spend and everything you charge. They'll send you a form every year, you fill it out and send it back (or get an accountant to do it). They'll then bill you. It'll be a good idea you put some of your earnings aside as you earn them for tax.

 

I'd also find out about liability insurance. Especially since you're not registering as a limited company, so if the doo doo hits the fan they'd sue you personally.

 

You don't need to register for VAT, until you're turning over quite a lot (I think it's £50k a quarter). Company registration is only for limited companies.

[Jamman960]

For the registering side of things it'll all need to be done via companies house - Incorporating a company

 

I'm not entirely sure on the rest but theres a fairly high threshold before you need to worry about being VAT registered - I think its towards 60k

 

again HMRC is the department for VAT stuff -

 

HM Revenue & Customs

 

Both hmrc.gov.uk and companieshouse.gov.uk should cover most of the things you need to know.

[K.C.Leblanc]

For the registering side of things it'll all need to be done via companies house - Incorporating a company

 

That's only if he wants to start a limited company.

[m25man]

Do yourself a favour and book yourself on one of the FREE courses available from your local Business Link before you fall into one of the many pitfalls that THIS government has created for Sole Traders and Small Business.

 

It needn't be difficult and as soon as you find your feet join the FSB and get yourself down to the local FSB meetings.

Network with as many peers as you can, in many cases it's not what you know but who you know!

After a long period of PAYE I returned to being my own boss 3 years ago.

 

Never looked back, last year our little 4 person operation turned over £1.2m, we never advertise and we have a waiting list of customers!

 

I would be very cautious of taking advice from this forum on this particular subject unless those posting are actually running their own businesses!

 

Bad technical advice from this forum at worse may leave you with a busted server, whilst bad business advice can leave you jobless, pennyless & homeless!

[powdarrmonkey]

Find yourself a good, small accountants (the sort who care) and come to some back-scratching arrangement - you manage their systems, they discount your fees or something similar. Get them to help you with sorting out what you need to record and with filling in the forms at the end of the year. They will be invaluable to you (if they're a small business specialist, even better).

 

You probably want to find out about double-entry book keeping. I've found Microsoft's accounting package very helpful and I've also used GNUCash, which is more functional but less pretty.

 

The VAT threshold this year (from 1st May just gone) is £68,000. It's measured annually, not quarterly as K.C.Leblanc said, but you can arrange to make your returns to HMRC quarterly, or sometimes monthly or annually. There is also a lower rate available for businesses turning over less than £150,000. But I doubt you'll need to worry about VAT at all if this is just going to be on the side of your normal job.

Edited May 3, 2009 by powdarrmonkey

[FABEnterprises]

Mossj, take a look at the business link website where you'll find lots of information about starting your own business, from the types of business ie sole trade, partnerships or a Limited company to advice on tax.

 

Also take a look at and register with the various business forums, these can be an excellent source of information. Two of note are:

 

UK Business Forums and A1BusinessForums

 

Good luck in your new venture.

 

Mason

[contink]

Just a couple of pointers on how I did things.

 

1. Register with HMRC as a sole-trader

 

2. Get registered with the FSB (Federation of Small Businesses). They provide a LOT of useful services including legal, insurance and banking advice/offers.

 

3. Get a business account (Not vital but it helps you keep business income and expenditure seperate and helps if/when you want to expand).

 

4. Get a decent accounts package.. I'd recommend Kashflow and get into good habits of recording income and expenditure.... Also visit http://www.ukbusinessforums.co.uk and start asking questions about how to fill out your accounts.

 

5. Finally, do a PROPER costs analysis of all your expenditure, including training, stationery, travel, phone, website, email, ISP, etc... and then work out what you actually need to cover in terms of costs before you even look at profits. This is VERY salutatory in terms of understanding why you need to chage £25 an hour instead of £10. I can provide a spreadsheet I use to keep myself up to speed on my fixed, variable costs and get sensible on my charging.

 

 

From there on in it's all down to making a real impression, promising less, delivering more and building things up slowly but surely... Best of luck...

[mossj]

Okay i think i've got an idea of what i need to and in what order (correct if wrong)

 

1. Get on a business link open day, for a drop in. Also register on the forums mentioned and research using them.

 

2. Whilst waiting for an open day to come by, carry on sorting the technical aspect of things and maintain proper records using accounting program

 

2.999. Tell school about business, as thats in my contract.

 

3. With the advice gained from the open day, register with the hrmc (I'm guessing this dept also do tax self assesment) and buy the packages i need to do business/automate it the best i can.

 

4. Start trading and hope for profit...

 

 

 

I still have a few questions

 

1.

I plan to run this from home, and have as little physical infrastructure as possible (to keep costs as low as possible). How would I separate expenditure in terms of laptop/electric/isp, given that I use these regardless?

 

2.

from the business link site

You must register for VAT if your annual sales are £67,000 or above but you may be able to register even if not

 

Does that mean turn over or profit?

 

What if i'm dealing with a school/charity that doesn't pay VAT, yet I'm below the threshold? The way i understood it is that they pay it then claim it back (but it would never reach the gov, to pay back). Do i charge with vat, and then if i don't hit the threshold, happy days?

[powdarrmonkey]

2.

from the business link site

 

 

Does that mean turn over or profit?

 

What if i'm dealing with a school/charity that doesn't pay VAT, yet I'm below the threshold? The way i understood it is that they pay it then claim it back (but it would never reach the gov, to pay back). Do i charge with vat, and then if i don't hit the threshold, happy days?

 

(disclaimer: I am not an accountant nor vat registered) Turnover, which is your raw taking before subtracting any costs etc. If you're not VAT registered, you just don't charge for it.

[contink]

I still have a few questions

 

1.

I plan to run this from home, and have as little physical infrastructure as possible (to keep costs as low as possible). How would I separate expenditure in terms of laptop/electric/isp, given that I use these regardless?

You would need to ask an accountant..

 

2.

Does that mean turn over or profit?

Turnover... If you sold one item and you charged £67,001, even if you only made 1p profit you would still need to be VAT registered.

 

What if i'm dealing with a school/charity that doesn't pay VAT, yet I'm below the threshold? The way i understood it is that they pay it then claim it back (but it would never reach the gov, to pay back). Do i charge with vat, and then if i don't hit the threshold, happy days?

Unfortunately if you buy the stuff and then sell it on to the school you cannot pass on the VAT in a way that the school can claim it back. You would be selling the item with VAT without being able to actually declare the VAT separately. You cannot deduct or otherwise do a damn thing with VAT unless you are VAT registered. For a school this sucks!

 

The best workaround to this is to source the correct suppliers for the school and then get the school to purchase directly. This does mean you won't get any margin on the supply of the goods but I charge a fee for sourcing materials/software/etc... and the school gets the warranty direct from the supplier.

 

To this end, getting to know people like CPL, etc... is definitely a good move. Oh and best of all it keeps your turnover lower and avoids pushing you into VAT any earlier than absolutely necessary.

 

Let's be clear... VAT is a pure pig pain in the backside like a red hot poker being slowly shoved through your nose... THE HARD WAY! You just want to avoid it until you can afford an accountant to look after ALL your books.

[russdev]

I would also if got good advice with your burser then ask them for advice as well.

 

Pretty much what was said here was what I was told when I ran my own business.

 

Also I am not accountant or a lawyer..

 

Russ

[Brpilot99]

Hiyah ... Ive done much the same as you ... a small thought on VAT ... I registered and have found it very easy to deal with ..... You simply calculate your Vat costs subtract them from your Vat charges and pay them the difference ... You basicly are collecting the tax for them and passing it on ... Its every 3 months and is on a cash basis IE only on what you have recieved rather than what you have invoiced... So by being registered you can increase you profit by 15% ....

[m25man]

So by being registered you can increase you profit by 15% ....

 

This is the kind of feckless comment I warned about...

 

Charging VAT will most certainly NOT increase your profits by 15% - utter nonsense.

The 15% VAT ultimately is a tax and you will be an unpaid tax collector as correctly stated.

 

If you have no plans to resell goods or all of your customers are non VAT registered then you can consider putting off the VAT registration process until it becomes obligatory.

 

If however you wish to purchase goods to resell then you will be far better off registering early.

 

Service only businesses can marginally benefit from some of the "FLAT RATE" VAT schemes available but reselling goods will be a nightmare unless you can claim the VAT back on your purchases.

 

The only way you will increase your profits by 15% by being VAT registered will be to commit VAT fraud.

Claiming the VAT back on goods you have purchased but not declaring the VAT elsewhere!

This could as stated by Brpilot increase your profit margins but will result in your arrest and loss of your business and possibly freedom.

 

As I said be very careful of taking business advice from this forum.....

 

Go to Business Link, seek professional advice and be lucky.

[Dos_Box]

From my own experience of running EduGeek.

 

1. Get an accountant.

2. Only register for VAT if you know you are going over £60 in turnover.

3. Learn the difference between sole trader and limited company.

4. Get all contacts and dealings in writing (verbal agrements count for jack)!!!

5. Be careful who you deal with. Some companies\individuals WILL string you along. Ask around about your clients first.

6. Good luck

[mossj]

This is the kind of feckless comment I warned about...

 

As I said be very careful of taking business advice from this forum.....

 

 

I've always treated advice on this forum as a way to steer you in the right direction, not defentive answers.

 

Also what if i am reselling a good/service as part of my business (and i am being charged VAT on it at there end)

Edited May 4, 2009 by mossj

[m25man]

Also what if i am reselling a good/service as part of my business (and i am being charged VAT on it at there end)

 

If you have paid VAT in the supply chain both you the reseller and your client (if VAT registered) will want to reclaim the input tax.

 

By being VAT registered you will have to charge VAT on everything you supply that is standard rated.

 

Likewise your customer if VAT registered will be able to claim back any VAT that you charge!

 

End users (consumers who cannot reclaim VAT) are the ultimate payers of this dreaded tax and as such will be less likely to want to engage you for your services as you will appear to be 15% more expensive than the chap down the road whom is not VAT registered and is therefore likely to undercut you!

 

However, a business whom is VAT registered is more likely to engage you as a contractor if you too are VAT registered.

If you find that you have to supply a Hard Drive for instance as part of the repair process and you are not VAT registered you will have paid the full inc VAT price for your parts.

You can invoice for the repair inc the parts but the customer will NOT be able to claim the VAT that YOU paid!

Effectively, any parts you supply will be 15% more expensive to your VAT registered client!

 

Being VAT registered you quickly learn to dismiss the VAT element in all transactions.

VAT is irrelevant to you, everything you buy is VAT exluded everything you sell is VAT excluded.

The VAT belongs to the HMRC and don't you forget it!

[Brpilot99]

This is the kind of feckless comment I warned about...

 

Charging VAT will most certainly NOT increase your profits by 15% - utter nonsense.

The 15% VAT ultimately is a tax and you will be an unpaid tax collector as correctly stated.

 

 

 

I’m sorry but what a load of old rubbish ……. You obviously don't understand the VAT system attall.

Yes you have to pass on VAT charged but you can also claim back tax on the purchase price of that same item. Thats what makes the difference

 

Take 2 businesses one VAT registered and one not ...

 

Vat registered …. Purchase an item for £100.00 pay 15% vat =£115.00

Sell the item for £200.00 + 15% vat =£230.00

Pass on the 15% (£30.00 to the VAT man its easy … just one form to fill out …)

Claim back the £15.00 paid originally

That leaves you £200.00

Therefore £100.00 profit

 

 

Non Vat registered …. Purchase an item for £100.00 pay 15% Vat =£115.00

Sell the item for £200.00 (no Vat)

Therefore £85.00 profit

 

 

 

 

If you have no plans to resell goods or all of your customers are non VAT registered then you can consider putting off the VAT registration process until it becomes obligatory.

 

 

Agreed

 

If however you wish to purchase goods to resell then you will be far better off registering early.

 

 

Agreed also

 

Service only businesses can marginally benefit from some of the "FLAT RATE" VAT schemes available but reselling goods will be a nightmare unless you can claim the VAT back on your purchases.

 

I agree about the service only bit but reselling legitimate goods and accounting for your input and output VAT is simple ..

 

The only way you will increase your profits by 15% by being VAT registered will be to commit VAT fraud.

Claiming the VAT back on goods you have purchased but not declaring the VAT elsewhere!

This could as stated by Brpilot increase your profit margins but will result in your arrest and loss of your business and possibly freedom.

 

 

Complete rubbish .. The idea of the Vat system is that it is paid by the end user I.E. your customer Vat registered or not. You can claim the VAT back on any purchases on goods for resale as part of your legit business activities ... They might have some words to say if I'm registered as an ICT company and tried to start selling nuclear submarines ... the way around that is to register as a general trader .. The bottom line is where and who are your customers going to be .... I sell goods to schools and Vat registered companies so for me its a no brainer. Schools claim it back later and companies pass it on thier customers .... If it was to the general public and you didnt register then you have to raise your prices to account for the VAT you can't claim back or take a loss.

 

As I said be very careful of taking business advice from this forum.....

 

Couldn't agree more

 

Go to Business Link, seek professional advice and be lucky

[mossj]

I’m sorry but what a load of old rubbish ……. You obviously don't understand the VAT system attall.

Yes you have to pass on VAT charged but you can also claim back tax on the purchase price of that same item. Thats what makes the difference

 

Take 2 businesses one VAT registered and one not ...

 

Vat registered …. Purchase an item for £100.00 pay 15% vat =£115.00

Sell the item for £200.00 + 15% vat =£230.00

Pass on the 15% (£30.00 to the VAT man its easy … just one form to fill out …)

Claim back the £15.00 paid originally

That leaves you £200.00

Therefore £100.00 profit

 

 

Non Vat registered …. Purchase an item for £100.00 pay 15% Vat =£115.00

Sell the item for £200.00 (no Vat)

Therefore £85.00 profit

 

 

But say I charged £230 for the same product as a non vat registered company then I've made £115. To make the same profit I could charge £215 which would be a saving for Jo bloggs, but £15 more for VAT Registered companies.

 

From what i'm gathering it comes down to who you are dealing with either Jo public or businesses.

Edited May 4, 2009 by mossj

[m25man]

I’m sorry but what a load of old rubbish ……. You obviously don't understand the VAT system attall.

Yes you have to pass on VAT charged but you can also claim back tax on the purchase price of that same item. Thats what makes the difference

 

 

So, by your own logic you buy an item for £100 + VAT = £115.00

You sell the item for £200 + VAT = £230.00

 

You claimed the origional £15.00 back as input tax, so your goods cost you £100.00

 

You then sold your goods for £200.00 but charged the client £30.00 VAT (Total £230.00) £30.00 of which is output tax.

 

That means the £15 VAT you paid out less the £15 VAT you claimed back = £0.00 VAT cost to you.

Which is correct.

 

You made 100% net profit by marking up your goods but of course you now have to charge £30.00 in VAT on behalf of the HMRC which you will have to pay them at the next return!

 

Sorry Brpilot - YOU NEVER MADE 15% extra profit as you implied in your first post!

So by being registered you can increase you profit by 15%

You gave it all to the HMRC!!!!

 

The end user of course if he can, will claim it all back if it is to be used the course of his business....

 

YOU CAN'T MAKE A PROFIT OUT OF CHARGING VAT - SORRY.

[torledo]

So, by your own logic you buy an item for £100 + VAT = £115.00

You sell the item for £200 + VAT = £230.00

 

You claimed the origional £15.00 back as input tax, so your goods cost you £100.00

 

You then sold your goods for £200.00 but charged the client £30.00 VAT (Total £230.00) £30.00 of which is output tax.

 

That means the £15 VAT you paid out less the £15 VAT you claimed back = £0.00 VAT cost to you.

Which is correct.

 

You made 100% net profit by marking up your goods but of course you now have to charge £30.00 in VAT on behalf of the HMRC which you will have to pay them at the next return!

 

Sorry Brpilot - YOU NEVER MADE 15% extra profit as you implied in your first post!

 

You gave it all to the HMRC!!!!

 

The end user of course if he can, will claim it all back if it is to be used the course of his business....

 

YOU CAN'T MAKE A PROFIT OUT OF CHARGING VAT - SORRY.

 

i haven't got a business bone in my body, but i think you are right and brpilot has a valid point, although he certianly phrased his statement incorrectly by using describing a situation of profiting from VAT. which doesn't sound right at all.

 

your saying VAT for business effectively nets to zero, becuase it's the taxmans take, the advantage is in selling to other VAT registered businesses who like you, can effectively ignore for the purpose of the transaction the VAT cost, becuase it can be claimed back. No-ones increasing profits via VAT, but a vat-registered supplier can gain a competitive advantage when dealing with vat-registered customers over a non-vat registered supplier trying to do business with a vat-registered customer. is that right ?

 

non-registered vat supplier has to factor in VAT costs in the pricing of products they sell, because they take the hit. they can't claw it back. VAt-registered customer immeditaely has a product pricing advantage when dealing, but does that advantage only apply when dealing with VAT-registered customers/partners ?

[Brpilot99]

i haven't got a business bone in my body, but i think you are right and brpilot has a valid point, although he certianly phrased his statement incorrectly by using describing a situation of profiting from VAT. which doesn't sound right at all.

?

 

Yes you are quite correct ... I didnt explain that very well .... theres no profit in VAT but less loss overall is maybe a better way of saying it ...

 

your saying VAT for business effectively nets to zero, becuase it's the taxmans take, the advantage is in selling to other VAT registered businesses who like you, can effectively ignore for the purpose of the transaction the VAT cost, becuase it can be claimed back. No-ones increasing profits via VAT, but a vat-registered supplier can gain a competitive advantage when dealing with vat-registered customers over a non-vat registered supplier trying to do business with a vat-registered customer. is that right

?

Thats how I read it !!

 

non-registered vat supplier has to factor in VAT costs in the pricing of products they sell, because they take the hit. they can't claw it back. VAt-registered customer immeditaely has a product pricing advantage when dealing, but does that advantage only apply when dealing with VAT-registered customers/partners ?

 

Yes thats how I understand it

[witch]

There are lots of sites that will help you to work out what expenses you can charge to the business when working from home: What expenses can contractors claim for using a home office?

 

is the one that I was given by contractor friends of mine, but I think it gives you the info you need.

 

And definitely go to Business Link -(mrwITch technically architects (!) some of the site, so of course I think it is brilliant!) No, really, it has a wealth of info

[contink]

Perhaps this thread is now demonstrating why you need an expert when it comes to the whole VAT and accounts thing... It's a bit of a bugger to understand..

[elsiegee40]

Get yourself an accountant and see Business Link before starting anything.

 

Having had to wind up my father's sole trader business when he died unexpectedly, my first problem was VAT... it turns out that death of the sole trader isn't a valid excuse for handing in your VAT return late... it has to be in, on the dot, every three months Dad's was due 2 weeks after his death. Luckily, I'm married to an accountant who was able to sort it out from my Dad's books. Dad was registered for VAT principally so he could reclaim VAT; his turnover wasn't huge.

 

Secondly, it is possible to buy ready registered off-the-peg limited companies that have not traded. I know little about this, except that this is what my Dad did.

 

Finally, make sure your will is up to date. My father was very young when he died and we had major problems unpicking everything (It started with him and his business being in Edinburgh and me living in Kent - different legal systems ) I don't mean to be pessimistic, but should anything happen; make it a bit easier for your family!