Setting up as a freelancer

mrpete

Hello,
I am thinking of propperly setting myself up as a freelancer (in webdesign/general graphic design).

What is the best way to do this? Sole Trader?

I won't really need any additional money etc, or really need to buy things, but if for example i set myself up as a sole trader & bought a new computer for working on (and i mean this ... not asking this but really meaning if i bought a new computer for games or anything) could I claim vat etc on it?

cheers

the_geary

Hi mrpete
My OH is currently doing exactly the same thing; he does GD/webdesign.
He has set up as a sole trader to run his own business but the freelancing he does separately.
He rang the Inland Revenue, IIRC you have to have approx £60,000 turnover before you can become VAT registered. You can claim the tax back as an expense, but with a computer, because it's so much money, you have to split it up over several years as it's a capital asset.
I just checked with him & he said that the IR gave him loads of helpful advice and sent him a pack with info about setting up small businesses.
Good Luck!

WHA

To reclaim the VAT, you have to be registered for VAT, which is OK to reclaim VAT on expenses, but you have to charge VAT to your customers, which is OK if they are VAT registered businesses as well, but if they are domestic customers or small businesses that aren't VAT registered, you make yourself more expensive to them as they can't reclaim the VAT. You don't have to have turnover of £61k to register for VAT - if you do, you have to register for VAT, but if you don't, you can register voluntarily.

Re your equipment, you claim 50% capital allowance in the first year, which means 50% of the cost is deducted from your taxable profits. Then in year two, you claim 25% of the remaining balance, and so on. If you aren't VAT registered, the VAT you have paid on the equipment is included in the cost on which you get your 50% allowance. If you are VAT registered, you claim back the VAT on your VAT return, so can claim the balance at 50% capital allowance.

DavidPeakeweb

Obviously you can't charge VAT either. Setting up as a sole trader doesn't give you any protection, if anything happens, and you are sued, as legally you and your company are the same entity. This means, that if something did happen, where you are taken to court, you have unlimited liability if you lost. I set up a limited company, webdesign and computer support, it means that the company and me are seperate entities.

With regard to VAT though, if you are targetting companies, who are most likely to be registered for VAT, I would become VAT registered, if your target market are individuals or small companies who, mostly, won't be VAT registered I wouldn't bother for now.

Reasonable expenses can be claimed against your company, thus lowering your profits. A limited company would pay corporation tax, which is currently 19% on profits, a sole trader, or individual would pay normal income tax, which is more, although you should talk to an accountant about this.

mrpete

Hmm. By the sounds of it it seems easier to set myself up as a sole trader? And also, easier to just forget about VAT - most of my clients will be in USA anyway, and paying over paypal.

Do you have to set yourself up as a sol trader (or at least some form of company etc) if you are doing work to US customers? Because, to sell things online (ie ebay) you don't. You are just selling a service rather than a 2nd hand product (or in some cases , a brand new product)

tru

mrpete wrote:

Because, to sell things online (ie ebay) you don't. You are just selling a service rather than a 2nd hand product (or in some cases , a brand new product)

Yes, you do.

If you buy to sell, then you're trading so need to register as SE, even if what you're buying is second hand. If you're just selling your old [strike]junk[/strike] lovely items then you don't. Selling a service is the same as selling a bought-to-sell item so you'll need to register.

mrpete

Ok.

If you make money (i'm talking *just* enough to live on (a 17 yr old), so a considerable amount but nothing special at all) through affiliate programs in the us (same way as some links on this site run... ie i have sites, i put a link to companyx.com, if a customer buys from companyx.com i get y% commision). I get cheques, from us. As i am not providing a service or anything, just putting up links, if i setmyself up as a sole trader would i have to pay tax on these as well?

tru

You have to register within 3 months of starting, even if you think you're going to make a loss. You'll have to fill in a tax return each year (it's really easy). You'll get a bill - if you haven't made any money then it'll say £0.00. You have your tax code which allows you to earn £5030 before you pay any tax. But if you have another source of income already, and that earns you more than £5030 per year, then you'll pay tax on everything you earn as a sole trader.

Ring your local tax office, they're really helpful and they'll send you an info pack.

mrpete

Ok thanks.

Say for example I did freelance work, under a sole trader. And all money from that goes into a business account (i don't know much about them at all - don't even know if i could get one ...).

If I also have websites that generate income (through advertising, referals etc - for example google adsense - some may know about this and how it works, if not basically they send a wir transfer every month of $x amount, depending on how many clicks on ads on my site), that money goes to my private bank account. Would i have to declare that as well? Even though it : a) comes from us, b) isn't a job really

thanks