Soletrader accounting and tax question

writable

Hello

I'm an uni student who is planning to launch an e-comemrce and register myself as a soletrader to HMRC. I don't expect to make lots of money at the beginning of business but I still have to pay rent for my student accommodation and for my living. To aid those needs, my mother will be funding me through out my course. For complicated reason, I can only get the living cost loan from student loan company but can't get the tuition fee loan. So I'm getting the living cost loan to cover my tuition fee. So after all, it's living cost loan paying off tuition fee and my mum paying for my actual living cost. I will use different bank account for my personal transaction and business transaction. Now, my question is, for tax purposes, will my income from mum and loan be taken into account along with my business banking account? Or is it left out of business account? Obviously, if my business goes well enough, I will stop receiving money from my mum. But until then, I'm worried whether if I'm going to be taxed for the fundings that just maintains my student life. (Not business related.)

Also, my business will be based on drop shipping. So I won't actually hold any stock at any point. In that case, is it only income tax that I need to pay in regard to my business? If I'm not wrong, my understanding is that I don't have to worry about VAT until my annual sales is over 79,000 pounds. If my sales is less than that, is there anything I need to do in relation to VAT?

Thanks in advance.

Savvy_Sue

You're partly right about the VAT: it's your turnover you need to worry about (people sometimes think it's the profit, but they're wrong).

As for other tax, you either need to request a certificate of small earnings exemption from HMRC, or pay a small weekly amount (by quarterly DD I believe) for Class 2 NI contributions. If your profit from this venture is likely to be less than c. £6000 pa then that's probably worth doing at your age.

You need to register with HMRC as self-employed so they can get you to do a tax return, so why not ask them about your loan? I don't think it would count, as gifts aren't taxable (ie your mum funding you) and nor are student loans.

writable

Thank you Savvy_Sue

You've explained everything I wanted to know!

soolin

One unrelated point, if you are dropshipping please be careful if you ever decide to sell on eBay. Despatch times are now ultra important with most serious sellers doing 1 day despatch Nd it is unlikely that a drop shipper will care that much about your stars to guarantee that.

Drop shipping can be done, but if not a UK based wholesaler can lose you your eBay account quite quickly.

writable

I'm building my own website atm but was going to sell on both ebay and amazon. I'll have a detailed look at my suppliers' delivery guarantee before I decide anything further thanks to you Soolin!

soolin

writable wrote: »

I'm building my own website atm but was going to sell on both ebay and amazon. I'll have a detailed look at my suppliers' delivery guarantee before I decide anything further thanks to you Soolin!

Both eBay and Amazon expect you to have the items in stock before you list, so check the despatch guarantee carefully. Please also ensure your wholesaler is sending items from the UK and not from overseas as that will cause you enormous issues.

Also make sure you build returns into your business model. As a business yu will have to refund , including original postage, if buyer changes their mind.

Have you also checked out your profit margins properly, eBay and PayPal fees can take a new seller by surprise and Amazon are even higher, does eBay show completed sales of the goods you want to sell at a level that will make you money?

We have a thriving eBay board on here (see my sig) so do come and ask any questions that you may have.

writable

Oh.. I never even thought about it.
I've just bookmakred your page. I'll go study your board.
Thanks again Soolin

Brassedoff

Soolin is correct OP, I see quite a few people read a little ditty online, next minute, they are the next Derek Trotter. I now have several sites doing DS, plus wholesale DS. I have the odd requirement to get stuff from China/HK/TW on a 24 hr air freight. In fact just finished a Skype conversation with my agent out there arranging for some trackers to be boxed.

You must have the items in stock that you are looking to sell on eBay, Amazon or secondary selling sites. Most will throw you off if you don't abide by their T&C's.

You will also lose money when the shippers take 20 days instead of 10, customs from China holding outward packs up, another week at least, then UK Customs who hold yours up as the box has "translation" issues or you are selling iffy goods that are counterfeit or are clearly dangerous.

If I may, start small and very slow. You have already entered too late to benefit from Christmas.

Finally. You need some good cover, by that, I mean insurance. Ruin a birthday or Christmas by a 3rd party failing to deliver and you'll be in small claims for cash compensation before you know it. Get planning permission too. You only need four vans a day every day of the week before your neighbours will be on to the council.

By from the Amsterdam shipping hubs instead, they are only a few days away by sea.

writable

Hi Brassedoff

Thanks a lot. I understand all your point but I'm not sure about the insurance part. Do you mean specific insurance that covers failure of delivery OR just normal business insurance? and also, what do you mean by planning permisson?

Amsterdam shipping is something I haven't taken into care of yet. I'll definitely look into it.

Many thanks

Brassedoff

writable wrote: »

Hi Brassedoff

Thanks a lot. I understand all your point but I'm not sure about the insurance part. Do you mean specific insurance that covers failure of delivery OR just normal business insurance? and also, what do you mean by planning permisson?

Amsterdam shipping is something I haven't taken into care of yet. I'll definitely look into it.

Many thanks

You have to think or have IMHO:

Public & Product liability in case you import something that causes some harm.
Carriage insurance, to protect you when (and it happens) something does not arrive, or you get something different to what you have ordered.
Loss insurance, to protect you when a carrier loses it. It protects your profit margin and costs .02-.05% of the product cost. I pay .02% on the basis of the volume.