Who wants to be an entrepreneur? Start here... (and those who are, help here please!?)

[WilfSell]

OK, I was inspired by the 'earn 1k a month working from home' thread, which turned into an inspiring if terrifying 'don't sell yourself short' thread. And wondered if, those of us who might like to work for ourselves but don't currently, could get started here? I aim to keep my job, and perhaps try to move to part-time at some point. I have some business ideas, some good, some over-ambitious, mostly attempts to roll-out my current skills into a private consultancy, not necessarily linked to my existing job (university research/teaching).

I know it is an incredibly tricky time to think about this, and I'm sure it is not easy or comfortable to make a living... But some people manage it, so why shouldn't more of us?

You should tell them when you start trading which in practice usually means when you first receive money or send out your first invoice.

Note that the three month period referred to by nickelcognito no longer exists, although there is an (even longer) period during which no penalty is due for not informing them. But no need to get into this, just tell them as soon as you start earning.

Just wanted to say thank you for this thread, and also the other one where Xenia was talking about aiming higher and earning 1k in a day, not a month.

I am already self employed but I have just had a new idea that I should be able to take much further - that thought process would never have started if it wasn't for these threads!

Can anyone point me in the right direction for this? I am currently a sole trader, as is an associate. However, we've come up with an idea and would like to form a partnership in the UK (I live in the EU so would need an accountant this end but that's fine, I can deal with that).

What is the situation in the UK? Would we be best to go for a Ltd Co? How do we do that?

What do I need to be aware of when going in to partnership with someone else? Any tips?

DolomitesDonkey it all depends on the detail - where exactly you live, what other sources of income you have, how often you come to the UK, whether you want to take profit back to your EU home or leave it invested in the UK... but I think it is unlikely that a partnership will be the best solution for either of you.

Could you not keep it very simple and one of you do the contracting and the other just be a subcontractor or paid a commission and they you avoid the problems of having to work with that person, share profits with them and all the other issues which come both with partnerships and owning 50% of the shares in a company together?

The main thing whichever route you take is to have a written agreement between you before you do much at all.

MrAnchovy or Xenia, what is the advantage of setting up as an LLP? A few companies in the area I am looking at are set up that way but isn't it better to have equal shares in a limited company and pay dividends as the way of distributing profits. Am I missing something?

Mme, I'll PM you for the forum/FB details.

I have a daft question about VAT.

We have been advised to register for VAT even though we will not be near that threshold for a while. If I charge a client £1,000 for a service plus 20% VAT what do I do with that £200, does it just sit in the account until the end of the tax year or do I have to write a cheque to the Inland Revenue straight away?

Why do people think it is better to register for VAT straight away, surely clients would prefer the simplicity of not having to claim it back. Also if they offset the VAT why bother paying it in the first place?

I am seeing an Accountant in the next few weeks for a start up consultation so hoping I won't be so clueless after that.

Nanky
Well done, that's brilliant.

Hi - another lurker coming out of the woodwork!

I've got a question for the social network pro's - I just set up a facebook page for my business, but it's linked to my personal facebook page, and I now wonder if this was a mistake as my business can't have "friends" of it's own?

For those setting up - I found Clare Rayner - retail champion quite useful, she has "10 steps to retail success" which is a simple guide to setting up business and focussing on your ideal customer / market.

Also Federation of Small Business gives access to free bank account from the Cooperative bank. Also pension scheme for employees, legal advice etc.

BonnieBumble - re VAT: if you register before you need to then you become an unpaid tax collector for the government, however without registering you won't be able to claim back VAT on your costs. VAT returns are done quarterly.

ps Can I join the Facebook group too?

In general there is no advantage of LLP over a Limited Company.

In some sectors (principally solicitors and medicine including vetinary medicine) LLPs are the norm. In these cases partnership shares are often held by individual limited companies in order to achieve the tax advantages but this obviously results in substantially higher costs overall.

BonnieBumble your accountant should explain all about VAT, but briefly if your clients are business that are able to reclaim VAT you will be better off if you register for VAT voluntarily, but if your clients are individuals (or business or charities that cannot reclaim VAT) you will be better off if you don't register until you have to.

VAT is generally accounted for quarterly, with the payment due one month after the end of the quarter. Most small business are either on a flat rate scheme or a cash accounting scheme which means they only have to pay the £200 over to HMRC at worst one month and at best four months after it is paid to them by the client.

The reason you will be better off is slightly different depending on whether you are a trader buying and selling goods or if you are selling your services. If it is the former, it is because if you don't register for VAT all your purchases will effectively cost you 20% more. If it is the latter it is because you can go on a scheme which means you add 20% VAT to your invoices but pay a lower percentage to HMRC.

As said above if you pay a lot of VAT out (you probably don't) when you buy things like paper for the office then if you register for VAT you can claim it back. If you don't then there is no advantage to you. It might make you look more professional. Many businesses have no problem at all with suppliers charging VAT as everyone who supplies them will be charging it so it is no big deal that they have to claim it back. However if you are in a sector of small suppliers and customers are consumers then the fact you charge 20% more and your competitors do not can make a major difference and make things harder for you.

I do my VAT quarterly (never used an accountant in my life but by business model is low spend and that works well) so once a quarter the money is transferred to HMRC electronically and a form sent in electronically.

BU as said above LLPs are used by professional services firms. There is no advantage to you in being one rather than a limited company.
Whenever I have done the sums at what I earn I am NOT better off as a limited company (although that would protect me is someone sued the company) as the company is taxed and then you are taxed when you take the money out. Now you can save a bit of employers NI but it is so small as in my case not worth the hassle of incorporating and you get more privacy if you're not a limited company. Many people however do not need the money they have in their company so they just pay the corporation tax rate and do not often draw out the money so they can save in that way.

If you are worried about being sued however then a company might be best for lots of people.

Todo list
Will add you

You can have as many "likes" as you can gather on a FB page but there is a limit to how many friends you can have. For that reason, it might be better to have a page. Depends on your business really. There are other differences - will post properly later

Xenia that is not what I said and it is not correct. In fact the biggest benefits of being on a VAT flat rate scheme arefor people who DONT spend a lot on purchases.

Here is an example for a management consultant billing £50,000 a year before VAT:

She adds 20% VAT to her invoices so bills £60,000 a year.

As a management consultant she uses a flat rate of 14% (for most other trades the rate is more favourable - the rates are here, but in the first year there is an additional 1% incentive so the rate is 13%. This rate is applied to the £60,000 to give £7,800: this is the amount of VAT paid over to HMRC.

She is thus £2,200 better off through being registered for VAT on the flat rate scheme for 12 months. That would pay my fees for a self employed person for about seven years.

MrAnchovy really? I didn't know that (notice period)
god, it's only been 4 years since i set up!

Your set-up date is the date you take your first order, not the first invoice/payment date.
It makes no difference to anything except NI contributions (because your income isn't counted until your first invoice date), so from that POV it's better to have your NI up-to-date, and it's nice to have a date to count from!

(it'll also mean you can sort out letterheads etc and get your wholesale accounts set up)

I would recommend "making your books up" to 5th april (end of tax year) every year, though, because if you don't you will have complicated tax returns (your first year will just be a short year)

and have spreadsheets for everything!
keep money in and money out on separate files, it'll make it more transparent when you do your tax return.
keep receipts for stuff you've paid for listed separately from those of credit invoices (i call mine "bills that need paying")

Bumble - you do a VAT return quarterly.
so, for jan-mar, apr- jun, jul-sep and oct-dec.

It cuts across the end of the tax year, but it helps with your End of year tax return (because you've done most of your calculations already! )

I sell non-vatable goods (mainly) so I end up getting money back from the VATman each quarter (usually to the tune of £200-odd), which is fab.
But it's worth putting, as you say, vat income into a separate pot.
when you complete your vat return, you send the vat man the money owed, and the difference, you can put back into your main account.

And Xenia your assumptions about the savings from incorporation are similarly incorrect.

The principal saving to be made is Class 4 NI. For someone earning over £42,475 this is over £3,000 a year.

And although you are taxed on the income you take out of a company, the rate is lower than if you earn this income as self employed. For instance on every £1,000 of self employed earnings over £150,000 in 2013 you pay £500 in income tax and £20 of Class 4 NI leaving you with £480. Through a company you are left with £511. The gains are clearly more marginal here, but as an example someone in the £1,000 a day club with self employed profits of £250,000 should be over £10,000 better off incorporating.

Marking place on thread.
I'm nearly 2 years into a Social Enterprise business. Ups and downs.......lots of personal changes to cope with in that time.
Love it.
Doing Business Development today......I even quite like that !!!

This thread has really got me going...

got the stuff I need for trialling the physio parties. I think I've persuaded a mum at the school gate (who's a GP who works in women's health, how handy) to host a trial.

squee!

nickelcognito it changed in April 2009 along with the definition of whether the date for is when you take your first order or the first invoice/payment date which is now totally unclear: in practice HMRC accept the latter.

Registering for NI makes no difference to your letterhead or anything else except having to pay £2.65 a week.

I'd definately NOT recommend making your books up to 5th April, in most cases it is easiest to make them up to 31st March. However if your earnings increase rapidly in the first 18 months of trading (particularly if you are currently not earning) it may well be worth using a different date. An accountant is necessary here.

Do you really think it is worth saving a couple of hundred quid in accountancy fees to spend time finding out about all of this and possibly end up paying more than that in tax unnecessarily anyway?

no, i know, but if you don't register early enough, then your stamp is affected.

i still think that making your books up t 5th april is infinitely easier than any different date.

i put invoices and takings into the spreadsheet as "march" (obviously i put the correct dates in, but i put them on the same sheet as march) - then i add up (at the bottom)
actual month
and
tax month.

i suppose it depends on what business you have.
i think that as a supplier of goods, a tax year end date is easier.

i just don't see how making your books up to a different date can be easier?!

The HMRC recognises that if you run your business from November, that your first year to 5th April is a short year. You still only get tax assessed on income.

If you assume that you will pay 30% on your profit tax (i know that's not the exact amount, but it's useful to have an "approximation" in your books as an allowance for when you calculate your tax later on - mainly because it allows for errors and it means that you won't be short or having to find the money from somewhere!), then you can roughly work out how much of each thing you sell you need to keep by.
if it costs you £3 per item, and you sell it for £5, then without working out what your capital expenses are, or any other stuff, you can put by £0.66 per item in case of tax.

If you make less than that, you can carry it forward to next year( in your separate account), or use it for buying new stuff.

but it means you've always got that buffer.

and i've found no need for an accountant for the last 4 years, as a business that has a turnover small enough to use a shorter tax return.
I have a year end of 5th of april, which makes my spreadsheets easy to handle, and the HMRC stuff easy to fill in and add up.

I keep track of everything I spend, everything I invoice and everything I receive.
I add it all up at the end of the month, at the end of the quarter and the end of the tax year.
It works fine for me, as a sole trader.

in fact, a quick google shows massive companies with loads of outlets and huge numbers of staff (and directors and stuff- so limited and plcs here) are the ones with different tax year ends.
a sole trader or someone with a very small business is sooo much easier to use the HMRC's date.

the HMRC says that it's easiest to use the 5th april as tax year end if you're just starting up "to keep your calculations simple"

nickelignito I don't understand how that would be easier than only putting March invoices into March and not recording 'actual' months and 'tax' months separately?