Setting up a business, where to begin?

[Whiternoise]

My girlfriend and I were thinking about setting up a little something on the side whilst we're at university to earn a bit of cash and pad the CV out a bit. She's quite nifty with knitting needles and general "crafty" things and i'm getting fairly proficient at electronics (enough to make things that i think people might actually consider buying). A rather eclectic mix, but play to our strengths.

So, we were thinking about making stuff to sell online and what we'd need legally to do it. Clearly we could flog stuff on eBay, but it would be a bit more professional to knock up a website and do it that way. eBay, etsy, etc might be a good place to scout out interest but presumably if we had demand we'd need to start selling in volume.

I'm not fussed about the eCommerce side or the marketing side, that's another matter. What i'd like to know is basically - what forms do i fill in, how does tax affect this, are there any restrictions on students (on the off chance), liability insurance, etc. Oh and i realise that selling on eBay is a book title in itself

This isn't going to be something we're pouring savings into, it's more "i've made this widget, buy it so i can make more", etc.

If anyone has any pointers i'd be much obliged - i know there must be people on here who have a bit of insight into this

http://www.startups.co.uk seems pretty handy and there are a couple of .gov sites that i'm going to flick through too.

By the looks of it sole trading is the way to go?

[Lucio]

Sole Trading is the best way to go, the main things you need to organise are registering with the Inland Revenue and making sure you keep accurate accounts.

[Bugbait]

Sole Trading is the best way to go, the main things you need to organise are registering with the Inland Revenue and making sure you keep accurate accounts.

Sole Trading is fine for limited/small volumes but if/once you start increasing volumes then you have to consider your liability. As a Sole Trader you have unlimited liability as far as your personal assets go. Depending on your line of business this could be a major point to consider.

In terms of tax, as a Sole Trader (assuming UK is similar to Australia - Haven't looked it up recently) any additional business income is simply lumped into your gross earnings. There may be some provisional tax payable up front.

If you intend to take the business side more seriously then look into a Limited Company structure. Quite cheap (can be under £40) to register and set up, but you will need an accountant to sign and verify the company books at the end of each financial year.

This is just the tip of the iceberg depending on which direction you choose to take.

[Saracen]

Initially at least, sole trader is best. The regulation is minimal, and (unless it's changed) is nothing much more than (preferably) getting a business bank account, and certainly letting the taxman know.

You will also either need an accountant or be prepared to do a lot of learning. You need to keep accounts, and you'll also find that there are things you can offset against earnings, so it's worth getting decent advice.

A Limited company is certainly an option, and may become the best one, but you WILL find yourself involved either in a lot more red tape (such as Companies House annual returns, and filling in declarations for PAYE for the Revenue, even if you don't have employees (they want nil returns). And, those Companies House returns involve paying a fee, though it's nominal.

In terms of accounting, there probably isn't much difference. If you're a Ltd, there's a small company exemption that cuts auditing requirements right down, and if a sole trader, you still need to prepare accounts and fill in a tax return, which is daunting if you don't know what you're doing., Either way, you'll probably need paid help, unless you're prepared to spend quite a bit of time getting it right.

But whatever you do, do tell the taxman. You only have a limited time after starting (something like 60 days IIRC) or you risk incurring penalties and charges when they find out, which they have a habit of doing.

Good luck with it.

[CaptainCrash]

By the looks of it sole trading is the way to go?

When I started my small business about 15 years ago I went down the limited company route right from the start - sure, there's a bit more paperwork than a sole trader or a partnership, but it's nowhere near as complicated or time-consuming as some would have you believe.

Apart from the practical benefits (I'm sure you've already looked into the pros and cons in depth), there's a psychological factor as well - it helps establish the right mindset, and you feel more professional, serious and... well, businesslike. Also when you register a limited company, it exists as an independent entity with a life of its own, and you somehow feel a sense of obligation to it apart from your own self-interest (or maybe I'm just strange).

you will need an accountant to sign and verify the company books at the end of each financial year.

You don't strictly *need* the services of a professional accountant - as Saracen mentioned, a "small" company should be entitled to audit exemption under the Companies Act 1985, at least until it turns over >£5.6m or has a balance sheet total of >£2.8m. Not that it isn't a good idea in any case, regardless of your trading status - apart from minimising your tax liability, they don't usually forget filing deadlines...

[Whiternoise]

I suppose what i need to know is when do you start needing to have a business instead of just selling things that you make?

Limited company is probably not as much hassle as it sounds, but is more hassle than i've got time for. I doubt we'd be looking at anywhere near the sort of profit levels where we'd need to consider things like VAT registration (£68k i believe? If i could make that on the side at uni i'd be a lucky man ). To be honest i doubt we'll get more than the minimum amount for income tax anyway (£6k ish)

I had another look at direct gov, they provide a handy pdf with details about what i required and i quote:

Most people starting a small business become a sole trader. It’s quick, easy and cheap. Sole traders can employ people. They keep simple accounts and submit tax returns to HM Revenue & Customs (HMRC). Tax and National Insurance (NI) payments are likely to be lower than for a limited company structure, but sole traders are personally liable for business debts and they are entitled to fewer social security benefits.

Debts, well we're not taking out loans and it's coming out of our pockets. I can do the website and set up the e-commerce, advertising, etc and the rest is raw materials.

To become a sole trader, you must notify HMRC within the first three months of starting up. You will be told what to do about paying tax and NI.

That's all doable. With regards to accountants, i'd rather do it myself. Nothing against accountants, but i think it's a good thing to be able to do and saves money (given that we're not looking to turn over masses profit is important). I suspect if this goes ahead we might see about getting a quick consultation on what we need to do though.

[lodore]

I have started my own business this year and definatly reccomend the free business link courses.
there is two hour sessions to get started and if your still interested there is a three day course explaining all the sort of stuff you need to know. each day explains different parts. At the end you get a a4 binder with tons of information.
there is also some free courses from HM revenue and customs. very informative.

[Drogba]

Have run a business for 8 years in the past. Even in these days there is a lot of work that needs doing, the trick is to get paid for it. Having been made redundant in a construction recruitment business this year I applied for hundreds of jobs, one of which for a National Sales Manager role for a company. They held on to my details as they had other roles coming up. The guy who got the NSM job then contacted me and suggested the role for this Company he had wasn't good enough but he was working with another Company on a joint venture. I was told that the Company I applied to was well aware of the joint venture and was then taken on for a 3 month self employed contract (signed & sealed!) with a publisher called Eye Lifestyles. Promises in respect of business cards and support materials never arrived but as the National Sales Manager for the first Company had still got their answer phone message on his mobile I didn't worry at first. However as I was trying to set up a new publication on their behalf there is only so much you can do without the support so mutually agreed to end the contract after one month, forfeiting the second and third month of the contract. Still waiting for my payment a month after it was due and on contacting the original Company was told that they knew nothing about their man and a tie up with Eye Lifestyles (was told it was discussed at main board level). They dismissed their National Sales Manager on the spot and are offering to help to try and get the money I am owed off Eye Lifestyles. However, it just goes to show that you can have over 30 years of business experience, think you are in a good place only to wonder where it all went wrong! Beware of any promises unless they are from blue chip businesses if you work for another under a contract. I now know not to trust anything to do with Eye Lifestyles, Barnsley Eye, Huddersfield Eye, Weston-super-Mare Eye, Swansea Eye, Bath Eye, Bristol / Clifton Eye, The Locksmith and Clearview magazines. Another to avoid is Steve Sidebottom the ex NSM concerned!

[daniel_owen_uk]

....I now know not to trust anything to do with Eye Lifestyles, Barnsley Eye, Huddersfield Eye, Weston-super-Mare Eye, Swansea Eye, Bath Eye, Bristol / Clifton Eye, The Locksmith and Clearview magazines. Another to avoid is Steve Sidebottom the ex NSM concerned!

Then there is their Japanese connections....

On topic, I thought there was an amount that you could sell before it was declared as a business? Have 5k in my head for some reason? Maybe that's just income though?

[Andeh13]

Contact your university about this, My university has a specific department to help out students who are setting up their own business and they advertise the dept widely. They also offer grants up too £4,200 to help out!

One of my girlfriends mates set up a ''business'' importing Xboxs from china and selling them on in the UK and they gave me £1000 to help get him started.

[Lucio]

One of my girlfriends mates set up a ''business'' importing Xboxs from china and selling them on in the UK and they gave me £1000 to help get him started.

Your university funded illegal grey market importing? Wow they have to be dense...

[Andeh13]

Your university funded illegal grey market importing? Wow they have to be dense...

Thats all we were all told, admittedly I should have said it should be taken with a pinch of salt.

[GlasgowGuy]

Just one to remember. If you are dealing with personal information in any shape or form, you really should register with the Information Commisioner as part of the Data Protection Act.

Don't know how much it would affect you, but it's wise to be cautious, especially if you are shipping to people's addresses, holding their email addresses, but more importantly if you're using a payment system where you see the actual numbers (bad idea. Use a payment gateway. Hint hint. Much less hassle that way.)

Hope this is of some use to you.

[Saracen]

I suppose what i need to know is when do you start needing to have a business instead of just selling things that you make?

Limited company is probably not as much hassle as it sounds, but is more hassle than i've got time for. I doubt we'd be looking at anywhere near the sort of profit levels where we'd need to consider things like VAT registration (£68k i believe? If i could make that on the side at uni i'd be a lucky man ). To be honest i doubt we'll get more than the minimum amount for income tax anyway (£6k ish)


......


That's all doable. With regards to accountants, i'd rather do it myself. Nothing against accountants, but i think it's a good thing to be able to do and saves money (given that we're not looking to turn over masses profit is important). I suspect if this goes ahead we might see about getting a quick consultation on what we need to do though.

It doesn't necessarily save you money by not using an accountant. In fact, it might save you money to do so.

For instance, that VAT threshold is turnover, not profit. If, for instance, you sold three "items" at £25,000 each, then you qualify under that threshold, even if you only made £10 profit on each having bought them at £24,990 each.

You wouldn't be paying any income tax on that (unless you had other income) but you would be liable for VAT.

If you should have registered for VAT, and didn't, then you wind up in the situation where you can't change it or claim it back from your customers because you aren't registered, but you do owe the VAT you should have charged to the4 taxman.

Also, even if you don;t pay tax, or don't even make a profit (at least in the early years) it's STILL a good idea to know what can can and should charge against the business because losses can be carried forward, reducing your tax bill in future years when you will be paying it.

Or, for instance, you could be claiming a proportion of some domestic bills, such as phone and heating. But, get that wrong and, if you own your own home, you could end up with an unanticipated capital gains tax liability when you sell the house in future. Or you might not. A lot depends on your personal circumstances.

My point is simply that it can be expensive to do some things, and it can be expensive to not do others.

It might well, for instance, be worth doing you own bookkeeping, but to get an accountant to prepare year-end accounts. And take heed of CaptainCrash's warning about filing deadlines ..... and if relevant, payment dates too. Accountants know what to watch for and, sure, you can learn yourself. But if you miss something ....

[Drogba]

Then there is their Japanese connections....

On topic, I thought there was an amount that you could sell before it was declared as a business? Have 5k in my head for some reason? Maybe that's just income though?

Dont understand the Japanese connection bit? As you are from Chesterfield do you know more about this organisation?

As for turnover etc. As a sole trader you have your normal tax allowances (as if you were employed) but can charge costs of overheads against the business done. There are no bottom end limits for trading but to be fair if you dont make a profit then there is little point of being in business. From personal experience, working for a blue-chip is usually a good sign as to getting paid. Unfortunately there are chancers around that are not blue-chips that tell a good story (ie Eye Lifestyles / Clearview / Sidebottom) until they have to put their hand in their pocket to pay. Been informed that they have not returned deposit cheques paid by potential advertisers, having cashed them when I had been told they had not!

Running your own business is NOT a recipe for bringing in money. 80% of new businesses fail in the first two years and a further 15% within the following 12 months. So if you were a person into betting you are on a 20/1 shot.

[Saracen]

....

Running your own business is NOT a recipe for bringing in money. 80% of new businesses fail in the first two years and a further 15% within the following 12 months. So if you were a person into betting you are on a 20/1 shot.

I agree, it's not a get-rich-quick scheme, and those working for themselves often end up working harder than those employed by others .... if nothing else, lack of income and business failure provides good motivation.

But the "1 in 20" analogy might be a bit off-putting.

I think you need a given mindset to make a go of your own business. Some have it, some don't. But how do you find out? IMHO, there;s only one way.

Second, a lot of the time, even if the first attempt fails, you learn valuable lessons for the second go, and are less likely to fail second time around, partly because you learned the lessons and can avoid mistakes, and partly because if you haven't the mindset, you probably won't try again.

Also, for me at least, it's not just about money. Running your own business has it's own challenges and is no guarantee of an easy time or great financial reward, but it has other challenges and rewards too, not least of which is being master of your own timetable, and the satisfaction derived from each little success you make, and the hopeful overall success.

Finally, while I'm tempted to say you'll never get rich working for someone else, it's a generalisation that maybe broadly true but to which there are exceptions, as proven by some bankers and their bonuses. However, by and large, the opportunity for financial reward is greater working for yourself than working for a salary in most occupations. So even if it is a 1 in 20 shot, it's a 1 in 20 shot at a pretty tempting target, even without the extra non-monetary rewards.

It's something I would encourage anyone with the inclination to do to try, but to do so eyes wide open. It's not easy, and it's certainly not easy to succeed. There's also obviously the world of difference between doing something to make a few quid on the side or in the evenings, and taking on the challenge of, say, opening a shop, which not only requires full time commitment but probably a fair capital investment too, especially if you give up a comfortable salary to do it.