New business, LTD company?

orb505 · 6 June 2017 at 9:14AM

Hi,

I'm looking for a little advice and hoping that someone could help.

I'm a full time employed software developer but have a personal time interest/hobby in making Android mobile games. I'm going to put the games on the Google Play store for free but supported by adverts which would (depending of the popularity of the games) generate cash.

Because this is a hobby I've no immediate interest in leaving my secure employment. What happens in the future who knows!

What I'm wondering however is how to proceed. I've my own personal e-mail address, PayPal and bank accounts but I'm thinking that if I actually make even a small amount on the advertisement on the games then it would all be classed as addition income direct to me and I'd need to pay tax at 40% (it would take me into the next tax bracket once you include my full time job).

At this stage I'm not looking to take a wage as such from this business, heck if I get enough to buy a new PC (perhaps as a company asset?) then I'm fine with that.

Someone said I should set myself up from the outset as a LTD company and just don't take a wage as a director. But would all the overhead as a LTD company be worth it? If I just class myself as a "sole trader" then can I just class anything I make from the games as "company profits" and not effect my personal tax?

macca1974 · 6 June 2017 at 9:50AM

If you class yourself as a sole trader (i.e. don't set up a ltd company), then any profits that the business makes (so turnover minus allowable costs) will be added to your income and you will need to pay whatever the marginal rate of tax is on it.

If you set up a Ltd company, then potentially you could hold the money in the business (having paid corporation tax on any profits @ 19% I think). You could also draw up to £5K per annum (at the moment) tax free as dividends. But....Unless you know a lot about setting up and running a Ltd company, you'd need an accountant. I've got a Ltd company and the accountancy bill comes to about £1,200 per annum and this is in the Midlands. They do earn the money as there a lot of hoops that you have to jump through to make sure the company is run properly (with both HMRC and companies house). So I suppose, the calculation to make would be at what point does any potential tax saving make up for the accountancy fees. If you aren't earning a lot initially and it takes you above the higher rate tax band, you could always make a pension contribution and get 40% tax relief on it.

My advice would be to book a few initial meetings with local accountants, explain the situation to them and see what they say.

orb505 · 6 June 2017 at 11:26AM

Hi,

Thanks for the reply.

So as a sole trader would I have to open another bank account to keep everything separate (even if it's best practise) or is it a case or pay everything into my personal current account and just keep records of this different income stream and pay the 40% income tax at the end of the year? (My employed income is just under the 40% limit already)

I understand there is only so much help a forum can give and a live chat with an accountant would be better but I'm going into this on the basis I might not make anything at all and so want to keep expense as close to zero at possible.

Resource wise (PC, internet connection, software license etc) is costing me precisely nothing and so this is a "risk free" venture, it owes me nothing but my free time. If I start paying for accountants it's then eating into my finances and unless it's an unexpected whirl wind success it's just a hobby, but one I don't want to be on the wrong end of HMRC for doing (if all that makes sense?)

I don't need to take an income from it,
The IDE software licencing is such that I can use the free version until I make $100,000 sales (unlikely but if I do I'll happily buy the $35 per month license!),
I'm using my own personal PC hardware,
I've no premises etc,
In short I've no outgoings from this business unless I fancy using it to buy a new PC.

So if it's all sitting in an account and just piling up as a sole trader is it all still classed as my income (and thus libel to 40% income tax in me case)? THen if I do use it to say buy a new PC for the business I can claim all/part of the 40% back as this was a business expense?

EDIT:
I know I said I want to keep spending to zero but any suggestions on an 'Idiots Guide to UK Hobby Businesses for Dummies (and Programmers)' book I'll buy it!

ThemeOne · 6 June 2017 at 9:41PM

It's honestly not that difficult to set up and run a limited company without an accountant - there is plenty of advice about how to do it online.

Savvy_Sue · 6 June 2017 at 11:29PM

ThemeOne wrote: »

It's honestly not that difficult to set up and run a limited company without an accountant - there is plenty of advice about how to do it online.

It's the production of the accounts in the right way and to the right deadlines where an accountant can be jolly useful.

To the OP, there is at least one accountancy practice which specialises in indie game design, and it would definitely be worth checking whether those you speak to have any expertise in virtual sales. My brain is too tired to explain precisely why, beyond there being some complications in this area because of its borderless nature.

orb505 · 7 June 2017 at 8:33AM

Thanks again for your replies. Some more friendly and useful to someone who is new to setting up a business that others. Apologies for not using correct terminology, I'll be sure to brush up before posting questions again.

Thanks

Mark

New business, LTD company?

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