Starting own business - advice needed please!

indebtbigtime

what about vat?
in this example if the new business bought stock of say £2000+vat (£300)

and at end of year showed revenue of say 3000 less £1000 of expenses....petrol, ebay fees, phone etc etc,

no profit, can the VAT be caimed back, or is this only for those who spend over a certain limit?

thanks

orangeslimes

indebtbigtime wrote: »

what about vat?
in this example if the new business bought stock of say £2000+vat (£300)

and at end of year showed revenue of say 3000 less £1000 of expenses....petrol, ebay fees, phone etc etc,

no profit, can the VAT be caimed back, or is this only for those who spend over a certain limit?

thanks

Reclaiming the VAT back is for those that are VAT registered - you only have to be so if your turnover is over £67000 (or thereabouts) but you can choose to do so.
You'd also have to charge and pay VAT on all your sales - so for revenue of £3000 that would be around £400..so I reckon you wouldn't end up with very much back if anything.

Kit603

Give me a shout if you're looking to do this via your own online shop, people think it's really difficult but it's not. I've set up an online shop for a friend which is able to accept payment via paypal or card, manage stock levels by itself (all you need to do is enter how many you start with and it'll tell you when to order more), calculate postage by weight and create features such as popular products and recommendations to the customer according to what other people have bought.

It costs about £5.00 a month to run + paypal fees when a payment is accepted. Not expensive at all.

Moonbeam

Kit603 wrote: »

Give me a shout if you're looking to do this via your own online shop, people think it's really difficult but it's not. I've set up an online shop for a friend which is able to accept payment via paypal or card, manage stock levels by itself (all you need to do is enter how many you start with and it'll tell you when to order more), calculate postage by weight and create features such as popular products and recommendations to the customer according to what other people have bought.

It costs about £5.00 a month to run + paypal fees when a payment is accepted. Not expensive at all.

What package do you use for your online shop? There are so many out there.....

Chell

Moonbeam wrote: »

What package do you use for your online shop? There are so many out there.....

Oscommerce is free, that is what I use.

schneckster

As one poster has already mentioned, osCommerce is a good piece of software for online shops. However, security is an issue... even if you use Paypal as your payment processor, a lot of people will still expect it to be a secure site whilst they're ordering things. So, a security certificate is needed. Depending where you go, that could be around £80 per year, plus your hosting. This would put the padlock on your browser, though.

As for accounts, if you register as a sole trader, you are, by the HMRC definition, a business. Therefore, most wholesalers would still deal with you. They probably won't offer credit, but to be honest, that may be a good thing.

As for accountants, as a sole trader, you can probably do without. You're only taxed on your profits which makes life very easy. You simply subtract what you spend from what you make. All an accountant would do is identify more things you can subtract, but is that worth it for several hundred pounds a year?

A good way of keeping track, though, is a book I used when I started as a sole trader. It's called Tax Tracker and it's like a diary, but in it you enter your expenditure and income. The columns are set out to sort of match the tax return, so it is a big help. It also allows you to keep track of mileage. At the end of the year, simply transfer the totals you generate to your tax return. Easy. It costs about £20... but you can subtract that from your profits and therefore your tax, too! It's available in WHSmiths, and I think Collins print it.

As for VAT... personally, I'd get registered whether you get to threshold or not. Once you get your head round it, it can prove useful in retaining cash.

Tax returns are simple... register for online Self Assessment as soon as you can, certainly months before the tax return deadline of 31st Jan each year. The online return asks you a load of questions and builds up the forms you need to fill in. It then takes you through each form. You can save it and go back to it so if you think it calculates too much tax, just save it and go find something else to enter in. When you're happy, submit the return. The good thing is, if you do this just after the end of the tax year (around 1st april each year) you have till the end of the following january to find the money you know you need to pay.

And if you get stuck with any of this... ring HMRC and ask for advice! They're not the ogres people make them out to be. They only want what you should pay, not more. Make a mistake, they'll help you. Try to pull a fast one on them and then they'll get nasty. But they know that most people are not accountants and mistakes are usually honest. And they are very helpful when you ask.

A lot to think about, but once you get the hang of it, it sort of becomes second nature. Once I have the information, my tax return can take me as little as 20 minutes. My VAT returns (no longer registered as no longer self employed) used to take even less. The better your records, the quicker and easier it becomes.

Best of luck,

Schneckster

indebtbigtime

orangeslimes wrote: »

Reclaiming the VAT back is for those that are VAT registered - you only have to be so if your turnover is over £67000 (or thereabouts) but you can choose to do so.
You'd also have to charge and pay VAT on all your sales - so for revenue of £3000 that would be around £400..so I reckon you wouldn't end up with very much back if anything.

Thanks - if I buy product at £2k, I pay £300 vat today. I then sell it for £3k, thats £700 profit.

If I register now for VAT, I pay £2,300 for product, but claim the £300 back. I cant charge people more so I still only get £3k of which I now owe the VAT of soemthing like £395, meaning I am £95 worse off

Let me kjow what I am missing?

(i am ignoring expenses for the purpose of simplicity)

orangeslimes

indebtbigtime wrote: »

Thanks - if I buy product at £2k, I pay £300 vat today. I then sell it for £3k, thats £700 profit.

If I register now for VAT, I pay £2,300 for product, but claim the £300 back. I cant charge people more so I still only get £3k of which I now owe the VAT of soemthing like £395, meaning I am £95 worse off

Let me kjow what I am missing?

(i am ignoring expenses for the purpose of simplicity)

Yes I think that is right...generally you will end up paying more VAT than you can claim back (if your business is doing well anyway and making a profit)...I wouldn't bother until you are more established.
And i personally wouldn't listen to anyone who says doing accounts (correctly) is simple - but i am biased.

schneckster

VAT isn't that difficult. What you've written is technically correct, but if you change your mindset, you'll start to see the benefits.

You seem to look at it from the point of view of what it costs you as though you are your customer. In other words, they pay your price including VAT and never notice the difference. If you view it that way, you'll see yourself as £95 worse off.

However, a sole trader can view it differently. If you look at the price of goods as excluding VAT, then you can see the VAT for what it becomes... a means of getting extra credibility and increasing your cashflow a little.

Let me put it like this...

If you view like your customer...
£2300 out and £3000 in. VAT is £300 and £391. So you've paid 2300 and will get back £3000, of which you need to pay £391 to VAT man. So that leaves you with a profit of £309.

If you view it like a business, you pay out £2000 and get back £2608. So that's £608 profit. And then from the £391 VAT you get in, you claim back the £300 you paid out leaving a VAT bill of £91. Since the VAT you take in comes in with the £2608, you haven't got to find any more cash, anyway, so why worry about it? What it also means is that from the £3000 inc VAT you take in, only £91 is going to the taxman on VAT... so cash income from all of this leaves you with £2919 - £2000 which is £919 profit in your bank account, but only £608 taxable profit.

And of course, fuel to go to the wholesaler, admin, phone bills, sales costs (Ebay fees, etc) all attract VAT so that £91 VAT gets even smaller.

When you look at prices as excluding VAT, like a business would, and not including VAT like a customer, then you can see the benefits. It's extra paperwork, but you can do it online, and the figures are easy to get if you get good records. The Tax Tracker I mentioned in an earlier post has colums for VAT so it's easy to read a couple of numbers, put them into the online VAT return and it works it out for you.

Personally, I can't see why you wouldn't go VAT registered, but then, that's just me.

Schneckster

malcolmcoles

In answer to the original question of setting up the company, there are several places you can look for more advice, such as:
http://www.which.co.uk/advice/starting-your-own-business/steps-to-success/index.jsp
and
http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073858805
and
http://www.hmrc.gov.uk/startingup/index.htm