Do I need to start a Ltd company?

[Cariad90]

I set up an Etsy shop back in 2018, and for the first time it's on track to make more than £1000 revenue within the tax year, which I believe means I need to submit a tax return (I've never done one before).

I have a full time job earning over £50k, so I'm worried I'm going to have to pay a really high level of tax on the revenue, which is frustrating as almost all of it has gone back into the business (equipment, materials, etc). Should I set up a limited company as a way to avoid this? How do I go about this, and if I do it now will it mean by 2020-2021 earnings are taxed as a limited company?

I'm on maternity leave and still in baby brain mode - feeling a bit confused! Any help would be appreciated! Thanks in advance.

[doadeer]

I would speak to an accountant. There are lots of costs and requirements with setting up a Ltd company so not worth it unless revenue substantial. Do you mean £1000 a month or £1000 a year?

I believe you can submit a tax return for items without being a Ltd if full time employed, eg this is what happens when you own rental properties isn't it?

[LarsErickssong]

No point setting up a ltd company for £1000 a year I would just stick to being a sole trader. Also you pay tax on the profit not the revenue so if you are buying lots of expenses etc then you include these and the tax will be minimal.

[Hollyhocksarenotmessy]

You only pay tax on profit, not total income. All materials etc come off your income, what's left is the profit.

Have you been keeping records of all incoming and outgoings? Receipts?

Forget the limited company, a tax return for a turnover of £1000 plus paye income from your job will be pretty simple.

You need to register with the HMRC as self employed and get a UTR number, then complete your tax return on line. You will only have a minimal amount of tax to pay.

[LarsErickssong]

If you were to set up a ltd company you would pay corporation tax of 19% plus income tax (at the same rate as any sole trader income) on any dividends you took over £2,000. However you would also need to pay an accountant to make up your accounts whereas as a sole trader you can do it yourself very easily.

[PolkadotsAndCandyfloss]

I’ve been wondering the same thing. Am I right in thinking you don’t have to declare if it’s £1k or under in a year?

I’m looking to be around the £1k mark or perhaps slightly over, depending how it goes in the next few months.

[Cariad90]

Shops, sorry I didn't see that there had been replies on this thread! Thanks for the advice everyone.

So it seems the consensus it's not worth becoming a ltd company for such a small revenue and that the tax should be on profits only, not revenue. Annoyingly I don't have a receipt for my main equipment purchase (over £250 😩).

I feel silly filing a tax return for such a small amount, but I think I have to do one anyway as I am getting child benefit for the first time and earn over the threshold where it's taxed (though because of maternity leave, I'm not sure I actually did in this tax year). So confusing!

[Cariad90]

@PolkadotsAndCandyfloss according to the HMRC website the cutoff is £1000. They have a short questionnaire here that tells you whether you need to submit a tax return www.gov.uk/check-if-you-need-tax-return/y

[SatsumasOrClementines]

I think you need to sort the tax bu October of your second year of the business (if you’ve along 1k+) but I’m not 100% sure. Worth checking though because otherwise you might need to get your tax return in by Jan 31st (and it takes some time to hear back from them to set everything up) which is a bit of a stressful deadline.

[Kazzyhoward]

If your profit is going to be just over £1,000, simply spend some of it on more equipment or stock to bring the profit back down below £1,000 and you can then kick the can down the road for another year.

[Cariad90]

It's so confusing because on the HMRC that I linked above it says 'Did you earn more than £1,000 from working for yourself?
This is the amount you earned before taking off any expenses.' Which makes it sound like they're talking about revenue, rather than profit...?

[Cariad90]

@SatsumasOrClementines eek, I hope that's not the case as I have no idea where to start!

[Cariad90]

Thanks for the suggestion @Kazzyhoward. If I took my profit below £1000, but had to file a tax return anyway to pay tax on the child benefit, would I have to declare my earnings anyway or just leave this out?

[PolkadotsAndCandyfloss]

Thank you, Cariad!

[sneakysnoopysniper]

You dont actually need receipts for everything. I sell vintage items online which I often (pre covid) used to purchase at car boot/jumble sales etc. Try getting a receipt from a car booter! Haha. You just buy a standard receipt book and write your own.

If you paid for the £250 purchase with a credit or debit card or Paypal then a screen shot of the transaction in your account would also be proof of purchase.

As a very small trader you can use the "cash basis" accounting method whereby you dont have to account in detail for all your expenditure. You just lump it together on the tax form. The downside of this accounting method is that in the event you make a tax loss then you cannot set it against other taxable income (eg your salary). However you can set it against the accounts for your business.