Starting a small business

Milky_Mocha

I'm keen to start a business. I would prefer to provide services in a company name as opposed to my personal name as I feel that would be more professional to attract clients and also I'm hoping to derive some tax advantages.

I realise there is a minefield of things to consider and so am hoping for contributions from anyone knowledgeable in this area or someone who has done similar to share experiences or offer any advice. I've trawled Google, HMRC and other threads on here but I have more specific questions:

1 I understand that to claim back VAT on anything there is a threshold of £75k. I am employed full time and expect to remain fully employed while running the business. I am unlikely to make anywhere near this amount annually purely from this side business for the first three years at least. Would any of the income I earn from full time employment be considered in this threshold?

2. Is there any benefit in having both myself and my husband as the directors as opposed to just me? My husband currently is required to file Self Assessment forms even though he is not self employed. He too is in full time employment.

3. HMRC suggests (or requires?) one self assessment return to cover both full employment and the side business. Will my side business have any implications on what information HMRC provide to my employer? The side business would be unrelated and therefore not pose any conflict of interest and I would not be required to declare it to my employer but if HMRC would be giving them information I would like to know.

4. Is being VAT exempt the same as being able to claim expenses back from the business? For example, for the services I would offer I would require a sitting workspace and hope to convert the small bedroom for this purpose. I would purchase some basic furniture, stationery and a laptop. What about the cost of phonecalls and line rental? I hope to get a business number.

If the business does reasonably well I would like an office space that clients can visit if necessary and may convert the garage. Would I be able to claim back part of the cost of any of this even if I don't make £75k from the business? What about the increase in my home insurance cost as a result?

Thanks in advance.
MiM

Annisele

You really need to talk to an accountant about all of this.

I'll have a go at your questions, but I'm not an expert and if anybody contradicts me there's a very good chance they're right.

1. The threshold isn't £75k anymore, it's slightly higher. HMRC publishes a fairly comprehensive introduction to VAT. The income you receive from your employer won't have anything to do with your business' VAT turnover.

Depending on what you're doing, registering for VAT may be a disadvantage. Once you register, you'll have to charge VAT to your clients. If your clients are themselves VAT registered, that doesn't make a difference to them. If you're selling to the general public, then by registering you've just made all your products more expensive.

Plus make certain you can register for VAT. I've been a company director in the past, but everything I sold was VAT exempt - not zero rated, exempt. That meant that I couldn't register for VAT even if I wanted to.

2. Depending on your anticipated profit, it may not be worth you having a limited company at all. You can trade in a business name as a sole trader. If you do go for a limited company, then your husband being a director won't make much difference. If he's got some tax allowance to use up, you could make him a shareholder.

3. I don't know, but I don't think so. HMRC might decide to give you a different tax code, but I don't think it would tell your employer why.

4. No, being VAT exempt isn't the same as being able to claim back expenses. I'm not sure if you're talking about claiming back expenses that you pay personally from the business - with a limited company you can do that regardless of the VAT position, if you're a sole trader that idea doesn't make sense. If you're talking about offsetting expenses against tax, you can do that with any business set up.

With your conversion plans, you may need permission from all sorts of people (depending on exactly what you're doing) - from your mortgage lender, council, etc.

oldharryrocks

Their are specialist sub forums on the subject see:

http://forums.moneysavingexpert.com/forumdisplay.php?f=22


and http://forums.moneysavingexpert.com/forumdisplay.php?f=27

Milky_Mocha

Thanks for your replies. I hadn't realised there was a small business forum on here. I thought I'd searched but must've missed it.

Kayalana99

Annisele wrote: »

3. I don't know, but I don't think so. HMRC might decide to give you a different tax code, but I don't think it would tell your employer why.

Just to expand on this your full time job won't be affected by your side job (unless you get pregnat then they need to know your earning income elsewhere), your self assesment form that includes your full time jobs wage + your self employed profits is simply to determin how much tax you pay...I.e if your already using your full tax allowance on your wage expect to pay full tax on your profits (You should look into national insurance as well I am no expert with it but you have to pay something unless your only earning stupid money I belive)

And no HMRC won't tell them, its nothing to do with them.