Starting a business technicalities

[Basher]

Hi all.

I've done a search for this but can't seem to find anything, apologies if I have missed anything obvious.

A friend and I are starting a business, I wont go into too much detail as it's fairly irrelevant to my question, basically its to do with hosted internet software solutions.

Now, it's just the technicalities I need a bit of advice on.

I know that as we dont earn over the set amount, we don't need to legally register for VAT, but I think it would be an advantage to us as we would attract more business customers and also get VAT returned from the servers we rent. What are peoples opinions on this?

I am also a little unsure as to my tax situation. I am currently a student on a placement year, next year I will be a full time student again, what do I need to tell teh tax man, and does this mean that I iwll need to pay NI next year as a student? Is NI a percentage of what you earn or a set amount once you reach a threshold?

Thanks for the help

[schmunk]

You pay NI if you are over 16 and under retirement age.

If you have a source of self-employment income you will need to register for Class 2 NIC (currently £2.10 pw) within 3 months of the end of the month of beginning your self-employment. You need to contact the National Insurance Contributions Office.

You will also be liable to Class 4 NIC at 8% of earnings from £4,895 (min) - £32,760 and 1% thereafter.

You will also need to complete an income tax return for the year and declare your income in full (although there may be deductions you can claim). Income is taxed at the same rates as employment income.

Have a look at {url}www.hmrc.gov.uk[/url] for more info.



WRT voluntary VAT registration, you'll need to look at the taxable status of your inputs and outputs to determine whether it's worth it. If you register you'll need to charge VAT to customers, increasing the price to them. Also you'll need to keep full VAT records and you'll make yourself liable to fines and prosecution if you don't file returns correctly and on time.

[tim_n]

tbh basher, don't bother registering for VAT until you hit the minimum. Sure it's an attractive idea to go buy yourself lots of neat computer equipment VAT free, but it doesn't outweigh the hassle you'll have filing a return!

Filing a self assessment is hard enough, as is registering a company - still in the process of registering mine after two years! ;- )

[Saracen]

Filing a VAT return should be no hassle at all, provided your accounts are set up correctly, and computerised. You take half a dozen figures from a VAT00 report your software generates, copy them onto a form, sign it and post it.

Whether it's worth doing is more complex. It will make you more expensive in comparison to other non-VAT competitors, if you customers are consumers. If you sell to businesses, it'll make no difference cost-wise, but lack of registration may make them nervous about your pedigree.

Personally, if this is a proper business rather than just a hobby that might generate a few quid, I'd do it.