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    Hi there

    I setup a small online-based business at the end of February last year. It was merely to bring in a small amount of income, but relatively speaking it was more for the experience then any money.

    It has bought in a small profit (I think, it's hard to tell), no more than £200 or so over the year. However, I'd like to start expanding the business in terms of the clientbase and marketing etc, as I am currently in full time employment but will be leaving in August for University (and if income from this business is my source of income at Uni, that would be ideal!)

    Where do I stand in terms of registering the company? Do I need to register as a sole trader/ltd company even though it's small profit margins? Do I need to charge VAT? How does all of the VAT work?

    It's a webhosting company, that provides webhosting/VPS/dedicated servers etc for clients. It's currently losing money at the moment (invested a fair amount this month, which is why)

    I'm not bothered about the setup costs, I just don't want to get chased by the tax man and I'd rather have it all set up properly.

    Any help is appreciated
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    You effectively have two options here. One is to register as a limited company, and the other is to set up as sole trader. I'm no expert, but they both have various advantages and disadvantages.

    Setting up as a limited company is easy to do, but there is a pretty hefty volume of paperwork and regulation that you need to wade through. It's also a lot more difficult to file your own accounts, and the penalties are large if you get it wrong. From my own experience, I'd say that setting up as a limited company if you're still small is not worth it.

    Accountants fees add up (at least £500 per year), and there's little benefit for you. When you have a larger turnover, it can become more tax efficient, but that's a discussion to have with an accountant.

    Keeping track of business transactions is a lot easier as a sole trader, by comparison. You can run the whole thing through personal bank accounts (although I'd recommend getting a separate one for business income / outgoing, and the accounting is a lot easier to do on your own, and cheaper if you require the assistance of an accountant.

    From the start, I'd also recommend getting some basic bookkeeping software and using it to keep on top of business transactions.

    As far as VAT goes, you have no legal obligation to register until turnover hits £90k ish (can't remember the exact number). However you can register with a turnover below this threshold if you'd like. This means you collect VAT on sales you make and become an unofficial tax collector -- there are benefits to VAT registration however, as you get to claim back VAT on goods and services you buy for the business. On balance, I probably wouldn't recommend registering. I'm in a similar industry to you, and think it would leave me worse off.

    Setting up as a sole trader is dead easy. Just a quick form on the HMRC website, and you're good to go.

    Hope that helps. Let me know if you have any questions
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    (Original post by SouRz)
    Hi there

    I setup a small online-based business at the end of February last year. It was merely to bring in a small amount of income, but relatively speaking it was more for the experience then any money.

    It has bought in a small profit (I think, it's hard to tell), no more than £200 or so over the year. However, I'd like to start expanding the business in terms of the clientbase and marketing etc, as I am currently in full time employment but will be leaving in August for University (and if income from this business is my source of income at Uni, that would be ideal!)

    Where do I stand in terms of registering the company? Do I need to register as a sole trader/ltd company even though it's small profit margins? Do I need to charge VAT? How does all of the VAT work?

    It's a webhosting company, that provides webhosting/VPS/dedicated servers etc for clients. It's currently losing money at the moment (invested a fair amount this month, which is why)

    I'm not bothered about the setup costs, I just don't want to get chased by the tax man and I'd rather have it all set up properly.

    Any help is appreciated
    There's pros and cons to incorporation (i.e. becoming a Ltd company), and they're not all to do with size: Mike Ashley of Sports Direct continued running his business as a sole trader long after most would have incorporated.

    A company has 'legal personality' i.e. it can own things, sue and be sued, enter into contracts etc independent of its directors. This has many advantages, not least a separation of the assets of the entrepreneur and the business, meaning if you business went under, its liabilities would technically be limited to the amount of unpaid share capital. In practice, this is irrelevant, as any mainstream finance would require a personal guarantee from you as the sole Director. The other main benefit of incorporation was the tax regime on dividends - this has now all changed, though large profits are still better taken as dividends rather than income as a sole trader because of the NI position. The only other benefit I can see of incorporation for you would be the ability to 'roll forwards' losses in previous years to mitigate future corporation tax bills, which you can't do as a sole trader.

    However, running a limited company has a large administrative burden which you do not have as a sole trader, and keeping on top of this could be a bit of a pain if you're also a university student. I would recommend that you continue as a sole trader until the business starts turning over decent money, and then consider whether incorporation is right for you.
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    Hi,
    You need to register with HMRC no matter what your profit/loss, and you only need to register for VAT if you go over ~80K/year (the HMRC website will tell you, but around that if memory serves).
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    (Original post by davsu)
    Setting up as a sole trader is dead easy.
    As someone trying to do this at the moment I can confirm it is anything but dead easy.

    I've not known any other organisation to make it so complicated and difficult to give them money. HMRC are utterly incompetent.
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    (Original post by Reue)
    As someone trying to do this at the moment I can confirm it is anything but dead easy.

    I've not known any other organisation to make it so complicated and difficult to give them money. HMRC are utterly incompetent.
    To call an organisation of 40,000+ people incompetent based on your one small issue is quite the sweeping statement.

    If you're dealing with the call centre then you have my sympathies. But if you pay peanuts you get monkeys. I'd rather work checkout on Aldi that do that, probably get paid more too.
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    (Original post by Mega0448)
    To call an organisation of 40,000+ people incompetent based on your one small issue is quite the sweeping statement.
    Every encounter I've had with them over the past 13 years of employment has been a clear demonstration of their incompetence.
    And I am far from alone, HMRC appear frequently in polls for worst customer service.

    Honestly; there's no excuse for it. They are a government agency and should know what they are doing. Call centre or not.
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    (Original post by Reue)
    Every encounter I've had with them over the past 13 years of employment has been a clear demonstration of their incompetence.
    And I am far from alone, HMRC appear frequently in polls for worst customer service.

    Honestly; there's no excuse for it. They are a government agency and should know what they are doing. Call centre or not.
    Call centres are understaffed and under trained. So there are going to be long waiting times and inconsistent advice given. I'll agree with you there.
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    (Original post by Mega0448)
    Call centres are understaffed and under trained. So there are going to be long waiting times and inconsistent advice given. I'll agree with you there.
    I wonder just how little training someone must have had to post 2 different tax codes to me in the same envelope...
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    (Original post by Reue)
    I wonder just how little training someone must have had to post 2 different tax codes to me in the same envelope...
    They time their toilet breaks as well, so sending you two tax codes out is the least of their worries.
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    (Original post by Reality Check)
    The only other benefit I can see of incorporation for you would be the ability to 'roll forwards' losses in previous years to mitigate future corporation tax bills, which you can't do as a sole trader.
    Sole traders can relieve losses against future profits. OP, keep a record of all your set up cost because you can use them to offset future profits.
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    (Original post by SouRz)
    Hi there

    I setup a small online-based business at the end of February last year. It was merely to bring in a small amount of income, but relatively speaking it was more for the experience then any money.

    It has bought in a small profit (I think, it's hard to tell), no more than £200 or so over the year. However, I'd like to start expanding the business in terms of the clientbase and marketing etc, as I am currently in full time employment but will be leaving in August for University (and if income from this business is my source of income at Uni, that would be ideal!)

    Where do I stand in terms of registering the company? Do I need to register as a sole trader/ltd company even though it's small profit margins? Do I need to charge VAT? How does all of the VAT work?

    It's a webhosting company, that provides webhosting/VPS/dedicated servers etc for clients. It's currently losing money at the moment (invested a fair amount this month, which is why)

    I'm not bothered about the setup costs, I just don't want to get chased by the tax man and I'd rather have it all set up properly.

    Any help is appreciated
    There is no such thing as registering a sole trader. If you carry on a trade on your own, which you are doing, you are one. You need to pay income tax and NI on profits so you will need to register for self assessment to declare your profits.

    You only need to register with VAT if you are over the threshold.

    I wouldn't bother with making it a company at this point. It is much more complicated administratively. It is best to get experience as a sole trader first. You don't seem to know whether you are making a profit or a loss or what a company is. You have a lot to learn before you are ready to run a company.
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    (Original post by Sternumator)
    Sole traders can relieve losses against future profits. OP, keep a record of all your set up cost because you can use them to offset future profits.
    Not necessarily in the OP's case.. To be able to offset losses against future PAYE, he would need to be spending more than 10 hours per week on the venture and in primarily be in it to make a profit. From his original post (is already in full-time employment, and primarily set it up for experience rather than money) it's far from clear that these conditions are met, and the Revenue could take a dim view of it were they to make a determination that is a 'paying hobby'.

    https://www.gov.uk/government/public...t/hs227-losses

    OP - it all depends on interpretation. The general rule with HMRC is if in doubt, check!
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    (Original post by Reue)
    I wonder just how little training someone must have had to post 2 different tax codes to me in the same envelope...
    I know! I wonder how much time the country in general would save if HMRC could learn to differentiate their arse from their elbow.
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    (Original post by Reality Check)
    Not necessarily in the OP's case.. To be able to offset losses against future PAYE, he would need to be spending more than 10 hours per week on the venture and in primarily be in it to make a profit. From his original post (is already in full-time employment, and primarily set it up for experience rather than money) it's far from clear that these conditions are met, and the Revenue could take a dim view of it were they to make a determination that is a 'paying hobby'.

    https://www.gov.uk/government/public...t/hs227-losses

    OP - it all depends on interpretation. The general rule with HMRC is if in doubt, check!
    It wouldn't be offset against PAYE. It is not employment income, it is trading income so the OP wouldn't pay tax by PAYE. He would self assess the tax. There is no 10 hour rule.

    In relation to the hobby point, it is a matter for interpretation but if this is considered a hobby, anything could be. Clearly the OP is making a genuine attempt to make money. If he wants experience to help him make money that is okay.
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    (Original post by Mega0448)
    They time their toilet breaks as well, so sending you two tax codes out is the least of their worries.
    I'd care more if HMRC were a private company which we could boycott. Unfortunatly we are forced to use their service.
 
 
 
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