Hobby turns into business

don9999

I used to be an amateur magician.
In the past few months, I have started to perform at children parties, charging £60 a time. I have done about 10 performances so far, with another 6 booked for the next month.
I realise that this has become a self-employed business and I need to inform HMRC within 3 months of starting.

I anticipate income 'on average' of 1 party per week = 52 parties at £60 = £3,120. But this may increase as word spreads :-)
Costs are minimal, being just stationary, business cards etc.

I also have a full-time job, for which I pay higher-rate of tax.

I have been reading up everything I can on the subject of Sole Trader v private limited company, and the tax effects of both. However, am still a little confused in a few areas.

1) As a Sole trader, I would pay 40% on profits + class 2 and 4 NIC.
With a company, turnover would be taxed at 19%; I could then withdraw profits as dividends, and be taxed an additional 22.5%.
Tax effect therefore appears to be negligible between Sole Trader or limited company options.

2) Using my wife
She does not work.
Hence I 'could' either set up a partnership with her, set up a company with both of us as shareholders or have HER set up a company, and me get paid a nominal amount - since she does all the paperwork, event booking, organisation etc.. it is acceptable for her to be part of the business.

As a partnership, we could make some use of her currently unused personal allowance.
Does a partnership have to be 50%:50%? Could we declare that the organisation side of the business is more onerous than my side (where I simply turn up and perform for 45 minutes at a time), and hence the income split is something like 75%:25% for her?
The fact that a partnership has no limited liability is of no concern, since the business would never be in a debt situation.

I'm not sure if we are allowed to set up a company in 'her' name, following the 'Arctic Cooling' law ruling - although I don't think this has been finalised yet.

3) Magic Props
I have accumulate a number of props costing between £10 and £120 pounds each, with total value around £1,000.
Do I record these as capital items, and claim capital allowances, or treat them as expenses?
Most have a lifetime of between 1 and 2 years. Some will break within a year, and some may last 3, 4 or more years.

This is really a 'hobby' more than a business venture, and bearing in mind I am only going to obtain around £30 a time, it hardly seems worth it.
However, I enjoy doing it, and am resigned to just having to find the most tax-effective way of carrying it out.
We don't have a problem with the administration etc.., but determining the best approach (Sole Trader, partnership or limited company) is a little difficult.

Any/all advice greatly appreciated.

Cheers.
Don

don9999

Have continued to read up about the topic, and am pretty sure that we will go with a partnership. Simple to set up, minimal additional administration, yet saving of tax.

The only outstanding issue is the percentage split. 50:50 would clearly be acceptable, but regarding work involved it is likely to be 70:30 for the wife. But.....due to the outstanding Arctic Systems case, this may not be acceptable.

I still don't know whether to treat the magic props as capital items or expenses...

PosterBoy77

Well done for doing well with your hobby! I run my own Ltd company and have also assisted a friend to be a sole trader. With the level of earnings you are expecting, you can apply to be exempt from all NI by applying for a small earnings exception. I believe the threshold is £4635 per year at the moment. Rather than a partnership, you could allways get your Wife to be your self-employed "promoter", so she invoices for the services from customers and pays you a small amount for actually doing the work. This way you could probably justify her keeping at least half the money, possibly more.

Msg me if you are after any other ideas.