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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4074
Experience:  FCCA FCMA CGMA ACIS
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I am considering starting up a small online business offering

Customer Question

I am considering starting up a small online business offering email and various other web services to small businesses. However I currently work part time and cannot afford to give this up. I am trying to work out how all the tax will work, income, national insurance and VAT etc but I am so confused. I would purchase the services from another company and sell them on, but if it can be avoided I need to make sure my current employer does not find out. My contract does permit me to have another job. I just don't want to get in trouble or difficulty for not paying certain taxes, and I also have a tiny budget so I don't want it to end up costing me lots of money. I need a really detailed explanation.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Presumably you are employed under PAYE with your current employer; please advise before I can respond to your question.
Customer: replied 3 years ago.

Hello Keith,


 


Yes I work part time and I pay tax through PAYE

Expert:  bigduckontax replied 3 years ago.
Right, thank you for that data. This is relatively simple. Your new venture is a self employment so the first step is to register with HMRC accordingly. Their instructions are:

'How and when to register with HM Revenue & Customs (HMRC)

It's important to let HMRC know that you're self-employed as soon as possible - even if you already fill in a Self Assessment tax return each year. If you don't tell them, you may have to pay a penalty.

You can let HMRC know about your self-employment by registering online for business taxes. You'll be asked for information about yourself and your business. HMRC will set up tax records for you using the information you provide, for example records for:

Self Assessment

National Insurance

PAYE if you have people working for you

A Self Assessment Online account automatically will be set up for you at the same time, unless you say that you don't want one.'

So far so good.

You will now have to account for your new business which in simple terms means recording all income (sales) and expenses (purchases) and setting one off against the other. Small hint here, if you make a loss in some tax year on this business you may either carry the loss forward or back or have it set against your PAYE assessment. HMRC will never disclose to a third party your tax or business arrangements. If your turnover exceeds or indeed approaches the limit, currently GBP 79,000, you will have to register for VAT and charge for this in your invoices and account for same too.

Every tax year you will have to make an Income Tax return in which both your employment and self employment activities will have to be declared. Finally, of course, you will have to pay the tax and National Insurance assessment which will follow your return. What is it Benjamin Franklin said? Oh yes; 'There are but two certainties in life, death and taxes.'

Do you need any more help at this stage?
Customer: replied 3 years ago.

Ok, so just to clarify;


 


 


I can register as self-employed online and leave my current arrangements at work as-is. Let them automatically deduct my tax and national insurance, and then at the end of the year when I declare all my earning to HMRC they can bill me for the tax from my own business?


 


I will also not need to charge VAT to my customers unless I have a revenue of over £79,000 per year? How does this affect the claiming back of VAT on my purchases for the business? How would I even go about doing this?


 


 


Also would I need a separate business account for all business related transactions? Or can I use my personal one?


 


Also is there any recommended way to account? Any tools or utilities or can I do it manually very simply?


 


Thanks a lot for your help so far


 

Expert:  bigduckontax replied 3 years ago.
Yes, you have got it right. When you declare your income annually HMRC will send you an assessment of what you owe which you should check carefully. It will include any outstanding Income Tax or National Insurance due. In order to complete this form you will have to maintain an account of yourself employment activities.

If you are not registered for VAT you just have to pay it on the items you buy for your business and this cannot be recovered. If you are registered of course it can be reclaimed as input tax, but you will have to charge the tax on all your invoices. Of course, if you make export supplies then these are zero rated and this can make registration advantageous financially. You would be better to keep a separate bank account for your business activities. This could take the form of a second personal bank account.

There are various account packages available for computer maintenance, equally any good stationer will have an on paper book accounting system available which will accommodate any even quite extensive businesses. I regret that Just Answer site rules preclude me from naming the more common products.

Hope I have helped.
bigduckontax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Lovely thanks a lot

Expert:  bigduckontax replied 3 years ago.
Thank you for your support.