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  • FIRST POST
    • Lets Get Jobless
    • By Lets Get Jobless 16th Oct 16, 9:23 PM
    • 4Posts
    • 0Thanks
    Lets Get Jobless
    Looking to start small business, confused by options
    • #1
    • 16th Oct 16, 9:23 PM
    Looking to start small business, confused by options 16th Oct 16 at 9:23 PM
    Good afternoon,

    I've recently looked at launching my own small business to operate alongside my main job. My new job involves a little freelance work, but will potentially grow into a large business I hope generating passive income through online streams such as E-books, affiliate links & Freelance writing work.

    I work full-time currently and last year earned around £38k, however, this year am on track to earn between £40-£45k from my main job.

    My question is what would be the best way to set up this side business, I'm conscious if I set up as a sole trader due to my main income from my main job I will be paying 40% tax potentially on all income. Somebody told me I should set up as a limited company but I am a little confused as to how this would work and how I would go about setting this up.

    Initially, I feel in the first few months this side venture shouldn't generate more than a few hundred pounds but potentially across the full financial year could be a lot more.

    I've also spent a fair amount of money in setting up the online domain, website, the theme's for the site etc and wondered if I would class these as an expense to the business.
    I.e. If I have spent £400 on getting the site up and running and have made £500 from the site does this mean the business is making £100 profit which I then get taxed on?

    Sorry for the question being vague, I'm trying to bravely venture out into setting up my own business but want to be cautious.

    Thank you for any input,
    Jamie

    EDIT: Also any advice on what business bank accounts would be good to look at would be greatly appreciated, In the future, I may operate this business from different countries as I travel and may be dealing with companies or customers from different countries.
    Last edited by Lets Get Jobless; 16-10-2016 at 9:25 PM. Reason: adding in info.
Page 1
    • paddyrg
    • By paddyrg 17th Oct 16, 7:44 AM
    • 12,635 Posts
    • 10,739 Thanks
    paddyrg
    • #2
    • 17th Oct 16, 7:44 AM
    • #2
    • 17th Oct 16, 7:44 AM
    In brief-
    Running a limited company is a bigger responsibility with overhead costs for what'll be a fairly small gain until you're talking 5-figure revenue. The company's money isn't your money, it belongs to the company which does part a lower tax rate on profits (ie what's left after costs), but if you want to draw that money out, you'll pay a dividends tax, and that puts you back in a position very similar to if you'd been self-employed. And you'll have to complete a year-end tax return as a director anyway.

    Put another way - getting around paying tax isn't simple. For the figures you suggest (a few hundred/a few grand) it's very unlikely cost you more in anointing fees than save.
    • ThemeOne
    • By ThemeOne 17th Oct 16, 8:17 AM
    • 694 Posts
    • 540 Thanks
    ThemeOne
    • #3
    • 17th Oct 16, 8:17 AM
    • #3
    • 17th Oct 16, 8:17 AM
    People sometimes find the decision between sole trader and limited company is made for them, as some suppliers and customers (usually larger companies themselves) will only deal with other limited companies, plus even if all your suppliers and customers are OK with sole trader at the moment, it may not stay that way forever, new ones may come along who aren't.

    I work through a small limited company myself and this was how my decision was made, so I've never worked as a sole trader.

    As far as I know your calculation re expenses is generally correct, though I'm sure others can offer more specific advice. I've found more expenses than you might imagine are allowable against limited company profits.

    The only sure way of avoiding extra tax that I can think of is to never draw any money out of the company i.e. continue to live on your employee earnings, though HMRC might ask you why you're not drawing any money. It's common with a limited company to pay yourself a small salary of at least the minimum wage, and take any further money as dividends. You'd then be responsible for administering your own PAYE etc.

    An accountant could advise in detail on all these questions, and it might be worth involving one at least at the start. However, once the business is up and running it's simple enough to administer if it stays small - in fact I noticed on my last Corporation Tax return HMRC seem to have made the process a lot simpler. If the business grows and you start taking on staff, move into offices etc then retaining an accountant would be essential.
    Last edited by ThemeOne; 17-10-2016 at 11:48 AM.
    • martindow
    • By martindow 17th Oct 16, 10:01 AM
    • 6,632 Posts
    • 3,591 Thanks
    martindow
    • #4
    • 17th Oct 16, 10:01 AM
    • #4
    • 17th Oct 16, 10:01 AM
    Would your employer be happy with starting your own business? Some employment contracts specifically mention this and if your own line of business is similar to your work it could be very problematic.

    I would suggest that you check this out before you start spending any money setting up your new business.
    • ThemeOne
    • By ThemeOne 17th Oct 16, 12:04 PM
    • 694 Posts
    • 540 Thanks
    ThemeOne
    • #5
    • 17th Oct 16, 12:04 PM
    • #5
    • 17th Oct 16, 12:04 PM
    Re your question about bank accounts, I'd say it depends what you want from your business bank.

    If you want to use your bank as a sort of "business advisor", which is how some of the accounts seem to be positioned, I don't know. But if you just want a business account which won't charge fees for everyday transactions then I've been quite happy with Santander.
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