Vanilla 1.1.4 is a product of Lussumo. More Information: Documentation, Community Support.

    • CommentAuthorCKempson
    • CommentTimeJul 7th 2010 edited
     
    I gather a few of you are running your own web development business which is something I'd love to do. I'm currently employed as a website developer but would like to start working on small projects in my spare time. However, I'm useless when it comes to business and I'm finding it really hard to understand what I need to do in order to do this (VAT registration? Tax declaration? Insurance?). I have read lots of docs on the subject but they are usually aimed at people who are starting their own "traditional business" i.e. applying for a loan, acquiring a premises, employing people and so on. To be quite honest I get lots amidst this flood of information.

    Would anyone with experience be so kind as to explain the basics I need? All I want is to be able to have design a few websites for a few clients by myself but I want to make sure it's all above board. It needn't be detailed as I can research it later but even being pointed in the right direction would be a great help!
  1.  

    The way I did it, which is similar in that I hold down a full-time job and freelance on the side, is the following:

    • Decide on a trading name, i.e.: Fred Smith trading as Cornucopia Blather.
    • Get a business account in the above name, most come with free banking for a period.
    • Go to the HRMC website and read all the stuff: http://www.hmrc.gov.uk/selfemployed/register-selfemp.htm. You'll need to register with them an probably opt out of NI contritions unless you plan on earning mega cash.
    • get some decent invoicing software (I use CannyBill) and get your accounts in order (I use a spreadsheet!).
    • Do a self-assessment at the end of year.

    HTH?

    Rob

    • CommentAuthorCKempson
    • CommentTimeJul 8th 2010
     
    Hi Rob!

    Been looking into some of the pointers you gave me. Very helpful indeed, exactly the type of thing I was looking for thank you!

    I've a few questions if I may. You mention getting a "business account", I'm guessing your talking about a business bank account? Pardon my ignorance but is it not considered a good idea to use your own personal bank account. Perhaps it's not even possible? I suppose it might make hard work of sorting your accounts out?

    The link you gave me talks about registering self-employed. Is that what I'm aiming to do? If I'm employed and self-employed then what's my official status?

    If you don't mind me asking, what kind of company did you register, was it limited?

    Thanks again!
    Chris
    •  
      CommentAuthorIgtastical
    • CommentTimeJul 8th 2010
     

    Hi Chris,

    You don't need to be registered as a company to trade; in fact it comes with a load of responsibilities like filing forms and getting accounts done, so my advice is the same as Rob.

    Get registered as self-employed with HMRC. That way you will be asked to submit a tax return every year where you declare what your employer pays you, and what you earn yourself.

    You can quite happily be employed and self-employed at the same time. It makes no bones to HMRC, but the self-assessment tax return must record both these incomes.

    I think the critical decision to register as a company (which has a number of small fees involved) should come if you feel you need to limit your liability, e.g. when you get big, are handling large transactions, or doing work on things that potentially are risky in the sense that other people's livelihoods depend on you.

    For example, if you get sued as a self-employed freelancer and are proven guilty of some misdemeanour such as breach of contract, you are ultimately liable for stumping up all the money. If you are a limited company, it is the business that pays up (it becomes a separate entity, like a person, and as a director you become an advisor to it - in sort anyway).

    That said, the minute you register as a Limited Company, the business is also then liable to pay Corporation Tax on all profits - it is no longer 'your' money, as well as the tax you already will pay on your income that you take out of the business. So hence why if you're earning less than about £20K a year from that specific business, I'd say stay registered self-employed.

    Regarding VAT. You are forced to register for it when you start turning over something like £67K per year, but if you feel you are going to be invoicing lots of clients who are accustomed to paying VAT anyway and you also need to buy stuff with lots of VAT on it, then you can voluntarily register and you maybe better off once you claim it all back, but again - more paperwork. It's not a necessity initially in my view.

    As for accounts. Get yourself a business bank account. The banks will get annoyed if they find you using personal accounts for business transactions. As Rob says, most will give you 12 or 18 months grace with no monthly fees. If you decided to go with HSBC, as long as the majority of your transactions are online, you can get a completely free account. I also would get a kickback for recommending you, so let me know if you do!

    You potentially could run the two things together as self-employed, but for your own clarity, separate it. It makes life so much easier when it comes to doing your self-assessment if you can just add up what went in vs. what went out. Also then you can see if the business is healthy and not just being propped up by your monthly salary from your main job.

    Hope that's of some use too,

    Andy.

  2.  

    What he said ;)

    • CommentAuthorCKempson
    • CommentTimeJul 9th 2010
     
    Thank you Andy,

    That really does help! Though I have a few more questions if you don't mind :)

    Regarding a trading name, are there any advantages to making some kind of name up vs trading under your own name?

    For VAT, is it the case that you can only charge VAT if you are VAT registered? Also regarding buying stuff and claiming VAT back, how does this work exactly? Obviously it would be helpful if say I bought a computer and could claim VAT back but what if I also used the computer for non work purposes, would this void the claim? If not, where exactly is the line drawn between personal and business use?

    Rob talked about opting out of NI contributions which you can do if you earn less than £5,075 per year. But is that less that £5,075 plus your salary from your job or excluding it? The documentation seems to be aimed at people who are becoming self-employed and who are not keeping an existing full-time job. If I don't opt-out does it mean I pay for NI twice or does it somehow get lumped all together?

    Also, I was wondering if either of you have business insurance of any kind? Is it advisable to have it?

    Sorry for all these questions but thank you very much for patiently answering them! Hopefully they will be useful to others too.

    Chris
    •  
      CommentAuthorIgtastical
    • CommentTimeJul 9th 2010
     

    Hi Chris,

    "are there any advantages to making some kind of name up vs trading under your own name?"

    Not really. It's down to you. The reality is, if someone writes a cheque out to you, it'll be to whatever is written on the bank account. I don't think what I called myself made much difference as it only ever really appeared on the statementss. You can also trade as one thing, and call the business/advertise as another name. My business is Andy Higgs Design Ltd, but I trade as The Higgs Design Co.

    "For VAT, is it the case that you can only charge VAT if you are VAT registered?"

    Yes. If you are registered it's an extra 17.5% compulsory fee you have to put on your sales. If you are not registered, it's illegal to do it (or at least claim it's for VAT purposes).

    The benefit is that once you are registered you can claim back any VAT you spend. So if I buy a new mac worth £1000 including the VAT, it might only cost around £825 once I've claimed the VAT back. However, it really bumps your prices up for customers who aren't VAT registered (because they can't claim it back, and you're competing against people who don't have to charge VAT).

    Regarding business and personal use, you need to speak to an accountant. There are very strict rules about what is allowable and what is not. Whether you are VAT registered or not, you still need to know what you spend on the business between April 6th and April 5th (personal tax year), because ultimately that amount is deducted from your profits at the end of the year, and your profits are what your income tax is based on.

    Therefore, if you turnover £10,000, then spend £2,000 on kit, you are only income-taxed on the £8,000. This is why it's critical you record all business spending by keeping all receipts because it will help lower your income tax.

    If you keep it all in order, you can then work it out what is allowable at the end of the year, or ask an accountant to tell you what exactly is allowable and what isn't. There are very specific rules on things like fuel usage and food/entertaining - but I cannot give you much detail on that. You need proper advice.

    "Rob talked about opting out of NI contributions which you can do if you earn less than £5,075 per year. But is that less that £5,075 plus your salary from your job or excluding it?"

    That's including your salary and any other income. All your incomes (salaries, stocks and share dividends, unit trusts, bank interest, eBay sales) all are added up, and every person in the UK gets that flat relief on their total income. If you earn more than that on PAYE, you already are getting it as part of the system.

    I would therefore hazard a guess than anything you are earning as a freelancer will be taxed at the full rate of personal income tax (somewhere around 20% I think for normal rate taxpayers, but you'll need to check that out).

    Regarding NI - I don't know. You need to speak to HMRC about that on the helpline. They will be very clear about it if you explain the situation, and you maybe eligible to pay more NI on your earnings, but your employer won't have anything to do with it, and you will need to write the cheques yourself.

    As for business insurance - that's down to you again. I pay for PI (Professional Indemnity) and PL (Public Liability) which are the big ones. Public Liability is less important for me as I've not got premises where others work or visit, but PI means that if I get into hot water professionally, I'm protected. It costs a few hundred quid every year and I use Simply Business.

    The reality is a good business advisor or accountant can be worth their weight in gold. This is where I picked all this up from. You learn by doing!

    Hope that's of some more use!

    Andy.

    • CommentAuthorCKempson
    • CommentTimeJul 9th 2010
     
    Hi Andy,

    Wow, another very helpful post. The information I've learned from this thread seems very hard to find on the Internet unless you know exactly what to look for (which I didn't being entirely new to this). At last I have enough understanding to have some sense of direction and can finally make a start on this now.

    Thank you very much!
    Chris
  3.  

    Re: they NI bit you'll only pay NI on your freelance business if you earn over a certain threshold. Can't think off the top of my head, but you can opt out by filling in a form.

    Business Link has some great resources: http://www.businesslink.gov.uk/ despite the horrendous website. Also Startup Donut is a good place to find help: http://startupdonut.co.uk/.

    Rob

    • CommentAuthorCKempson
    • CommentTimeJul 18th 2010
     
    I thought you could opt-out if you earn less that £5,075 a year? According to Andy the £5,075 includes my current salary and earnings for my business combined. If this is the case it's well over the £5,075 so I don't think I'd be able to opt-out. Anyway, thanks for the links, had found Business Link before but not Startup Donut.

    By the way... I don't suppose you know anything about the legality of holidaying abroad whist working on a clients project? I know you need a work visa to claim any income from the country you are holidaying in whilst aboard but if you had a holiday visa and were working for your company back in England that was paying money into your English bank account which you accessed whilst you were on holiday then would this be an issue? Just wondering if you'd come across anything like this before whilst on your travels :)

    Thanks again!
    Chris
  4.  

    It's a different kind of NI compared to your "normal" work. The information I read indicated that you only pay this class of NI, irrespective of other NI classes, when you hit the threshold.

    Regarding the visa, sorry chap. Haven't got a clue.

    • CommentAuthormbtshoes
    • CommentTimeAug 18th 2010
     
    Thanks for sharing this.