# Starting a small business VAT/TAX etc...



## thebiz (30 Jan 2006)

Hi All
Sorry this is a bit log winded but probably a common enough situation...
I appreciate any help.

Thanks

Background:

I currently work as a PAYE employee in a permanent position for a company.
I design websites in my spare time. So far this has been for people I
know and am usually paid in cash.I want to formalise it a bit.
I want to provide the hosting,
->have a reseller package that I pay an annual fee for.
->I can sell this to customers
I want to provide the domain (.com's etc)
->I will be registering these with an existing registrar company and charging my customer.

This is only a part time business and will probably make less than 10K
per year.

My questions:

1) Should I set up as a limited company or a sole trader.
2) Can a Sole trader operate under a business name other than their own given name if they register the business name.
2) I predict that I will not reach the VAT threshold so:
   Do I NOT charge the customer VAT.
   If so do I have to tell them that I do not charge VAT.
   Does this have to be written on an Invoice.
   Some customers will be in the UK+NI and possibly Outside the EU is this different for VAT?
3) My place of business will be my home
   How do I calculate my expenses separate form my living costs e.g. light / heat
4) I currently Earn 32K in my job so will I pay tax at the higher rate on all my earnings from the business?
5) Basically what's the best way to do this 

Thanks


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## Glenbhoy (30 Jan 2006)

1) Should I set up as a limited company or a sole trader - sole trader would appear to make more sense for you.
2) Can a Sole trader operate under a business name other than their own given name if they register the business name. - yes, just register the name
2) I predict that I will not reach the VAT threshold so:
Do I NOT charge the customer VAT.
If so do I have to tell them that I do not charge VAT.
Does this have to be written on an Invoice. - an invoice should break down the price into the cost of the service, the VAT element and the gross being the total of the previous two, so yes the customer will know if you're charging vat or not - in addition you would need a vat number on your invoice if you were charging vat.
Some customers will be in the UK+NI and possibly Outside the EU is this different for VAT?
3) My place of business will be my home
How do I calculate my expenses separate form my living costs e.g. light / heat - may not be worth doing this as there can be capital gains tax implications - see some previous threads.
4) I currently Earn 32K in my job so will I pay tax at the higher rate on all my earnings from the business? - that depends on your circumstances - it is probable that you will unless you are married and your wife does not earn more than 19K per annum (I think).
5) Basically what's the best way to do this - you have to deecide for yourself if it's worth formalising this 'hobby' - it may not be, but if you want it to grow it's probably better to.

As always, this advice may not be accurate and see a professional before making any concrete decisions


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## thebiz (30 Jan 2006)

Many thanks for the answers - much appreciated


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## ButtermilkJa (30 Jan 2006)

Hey, I'm in exactly the same position as you. I'm a graphic/web designer in full-time employment and was doing a few nixers too on evenings & weekends. I started getting a bit more work so I had to decide if it was worth it to register and go legit so to speak. Well I did.

Anyway, like you I was over the threshold so all my earnings are taxed on the higher rate. The reason I decided to go for it was because I reckoned I would get more clients if I had a VAT number/ registered business name /.ie domain  etc. Also, I was going to need broadband, mobile phone, hardware, software etc. so if I registered for VAT I could claim the VAT back on these expenses. Plus they are all deductable from my earnings so technically I don't pay Income Tax on everything. Just the 'profit'. Also, my dream is to own my own business one day so this was all a step in the right direction.

I didn't earn any more than 10k in the 10 months Mar - Dec '05, but the last few months have really started to peak so I reckon it will be a lot more in 2006. Fingers crossed!! It gives you a sense of ambition when you go legit I think. Maybe it's because you're telling yourself you've 'started' something. Not sure, but I'm enjoying the ride anyway. It's interesting if nothing else. Plus I'm learning new stuff every day, and that's a great thing to be able to say at the end of every day!!

Anyway, I've been doing this since March 2005 so just PM me or post a new thread anytime you have any more questions and I'll help you along the way. Anything you need to know about VAT, invoicing, expenses etc, just shout!

And good luck!!


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## thebiz (31 Jan 2006)

Sounds like it's going well for you - best of luck with it.
I did not realise that you could register for VAT below the minumun figure.
Is there any negatives i should know about before i register for VAT?


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## ButtermilkJa (31 Jan 2006)

Yes you can register for VAT if you like. You don't have to be above that figure (€26,000 or €52,000 or whatever it is??) before you do.

No pitfalls really. You have to fill-in a VAT3 return every two months but don't let that scare you. Just keep all your recipts for your expenses (ask for a specific VAT recepit where available). I registered with the Revenue Online website and it takes about 20 seconds to file my VAT3 return. You can do that with your eyes closed. It's just maths. Also, don't worry about the fact that you may have a negative VAT figure for the first return or two. That's normal.

Other than that, you fill out a final VAT form at the end of the year (which I haven't done yet but I believe it's easy enough) and you also file and pay your Income Tax. Probably best off to get an accountant to do this part. At least for the first year.

Basically, registering for VAT gives you the benefit of claiming back part of what you pay for day-to-day expenses for your business. You'll be paying these costs anyway (broadband, phone, stationery, etc) so why not claim back some of it?

It's really a personal choice at the end of the day. I've read posts where people say your mad registering for VAT if you don't have to. I've gained from it personally! Can't see any disadvantage so far.


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## Glenbhoy (31 Jan 2006)

> It's really a personal choice at the end of the day. I've read posts where people say your mad registering for VAT if you don't have to. I've gained from it personally! Can't see any disadvantage so far.


 
I would say that the difference comes down to who your customers are - if you are vat registered and reclaiming vat outlay you will have to charge them VAT, this will be irrelevant to them if they are a vat registered business as they will be able to reclaim this 21%. If however you are selling to individuals your prices will be 21% higher as they can't reclaim the VAT element.


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