Selling craft items - better to set up as limited company or sole trader?

[harkness]

I want to start selling things I've made, old books and collectables I've been collecting over the years. I want to set up a website to sell from there and possible also on eBay, Etsy, Amazon, potentially craft fairs when the virus settles down. My head is spinning with all the advice I'm reading online.

I clearly need to register with HMRC because I want to make a profit by selling these things.

So I thought about setting up a limited company so my brand name is properly registered as a company name etc - then I read about people getting into massive trouble and issued with huge fines because the paperwork is very complex and they've missed something they needed to do and HMRC come down on them like a tonne of bricks... which made me think OK that means registering as a Sole Trader is probably best, but then I'm personally liable for everything as a Sole Trader - what if someone burns their house down with one of my candles or something - I'll be getting insurance but still. Or what if someone registers my brand name as a company - I don't have the means to make someone stop it. What's the right thing to do?

I will be paying for my website and set up costs myself from selling my children's old clothes and baby stuff on eBay, is this allowed? I can't remember how much any of this stuff cost and have no receipts so how would I fill out my tax return to show where the money was coming from to fund my business?

I know I should get professional advice with this but I really can't until I have the money to do so, which I don't have at the moment (hours cut at work, thanks COVID)

It all seems so complicated! Would anyone mind pointing me in the right direction?

I've started 3 businesses so I can tell you from my experience. They are all different so not one size fits all.

The reason I've been limited companies has been to do with the tax threshold so I pay corporation tax which is lower than higher tax bracket.

When you start out I would stick with sole trader as there is a cost to setting up with companies house. If you are worried about doing it correctly it's around £100 for accountants to do it for you.

Depending what you're selling I would explore marketplaces as it's very hard to be noticed on Amazon without paying a huge amount for advertising.

You might find etsy is better for you.

Regarding a website. If you're selling through a marketplace like etsy I wouldn't worry about your own site. Set up social media channels so people can follow and engage with you but leave the website you direct them to, to be your marketplace store.

Let me know if you have more questions

I will be paying for my website and set up costs myself from selling my children's old clothes and baby stuff on eBay, is this allowed? I can't remember how much any of this stuff cost and have no receipts so how would I fill out my tax return to show where the money was coming from to fund my business?

I don't really understand this bit. If you are selling on eBay, your income will show from there in your account for when you do tax return. If you want to make it super easy make a seperate business account and have all costs for your business and ebay/etsy income paid into there, then pay yourself a salary into your normal current account. This is optional.

And sorry regarding trademarking your company name - this is seperate and can be done if you are sole trader or Ltd

Thanks for replying doadeer.

Good point about social media and Etsy rather than paying for a website though I think I probably will at least buy the domain name just in case.

So with trademarking, which looks like it's £170 then £200 to renew every ten years, does that mean that no one can then set up a Limited company in the same name? Or can they, but then I have to pursue them at my own cost if I want to change from sole trader to Ltd company at some point in the future? And I would need to trademark anyway, regardless of whether or not I set up as sole trader or Ltd - so registering as a Ltd company doesn't stop someone using that name? (It's probably vanishingly unlikely that anyone would but I want to make sure I've protected myself from the start!).

Re the paperwork, from your experience how much of an increase is there from sole trader to ltd? I'll need to keep detailed financial records anyway as a sole trader, is it a lot extra with a ltd or just a bit, in terms of time and complexity?

Also, with naming/branding, is it better to set up my sole trader name as something completely different and generic to the 'brand name' I want to use to label the products? I have other ideas that I would like to branch out into in addition to the craft business which I would like to keep separate - as a sole trader can I set up under a name, then have different, separate, businesses under that one name?

Sorry - one last question! With regards to starting up, I've already bought and paid for pretty much everything I need to scale up my crafting. Do I need to declare everything I've already bought for the business, or is there no point. Is there any help at all with these set up costs for a sole trader? Would there be if I set up as a ltd, despite not being likely to get anywhere near the VAT threshold any time soon, if ever!

Hopefully none of these questions are too silly, I am completely new to this. I really appreciate your help, thank you!

You don't need to think too hard about your setup before you actually begin.

You don't need to 'show' HMRC anything of the sort of level of detail you're thinking if you're a sole trader- it's pretty self explanatory that people purchase things using existing savings- as long as it's not a huge purchase it's unlikely to cause any red flags initially.
You only need to submit a self assessment when you've earned over the tax free limit- this includes income from your current job and business earnings

If you're just starting out and testing the water, keep costs low- if I was you, I'd become a sole trader (you have a declare to HMRC that you are self employed) as there's no associated costs to doing so, and it's fairly easy to do your own self assessment. Don't forget that even though people have limited companies with different names they often trade under a completely different name.

Re. Actually trading- definitely purchase your own domain name- even if you don't use it straight away- and get all the related social media pages using your name- Facebook, Instagram, Twitter, snapchat etc. Even if you don't use all of them, these will be your main marketing tools as they are free and DIY. And as a PP suggested, start of on Etsy- and I'd also say eBay as it's quite easy to start trading on there. Amazon is a whole other ball and and probably could be something you think about in the future. If you're social media takes off and you want to earn more by selling direct- not via Etsy/eBay then consider using your domain to set up a shopify store- really quite easy to do.

Good luck!

Trade mark and Ltd company are different things. I would just start as simple as you can and if it's a success you can start to think about these things. Minimise your financial output at the beginning.

I'd say what you need to launch:
A name
A logo
Brand identity (colour scheme etc so everything looks unified)
A company description
Products (!)
Facebook
Instagram
Packaging materials
A delivery solution
A spreadsheet for managing stock, expenses and income

Nice to haves
An email platform like mailchimp so you can send promotional info to customers
Promotional flyers you send with the order
Other social media channels
A website