Making money from a side project

[Stupeo]

I work full time in the Healthcare IT space and recently had an idea for an application that I'm developing and plan to market under a SaaS type model.

I've already got one prospect who is committing to signing up to the service for £xxx per month. This is great as my initial monthly out of pocket expenses to support and host this is going to be around 25% of this maximum. Obviously this doesn't include my time.

The long term plan would be to build up the subscriptions as much as possible (feedback from other business has been great so far) and I could then hopefully employ someone (like the missus who only works part time) to help push it forward.

My question is, given I am employed full time at the moment and only plan to bring the missus into in the future, what's the best way to start legally selling the service?

Should I register as a Ltd Company or sole trader?
Should I be looking for an umbrella type company to operate under?

Thanks in advance.

M

[AyBee]

Have you read your existing contract with respect to Directorships and other jobs? It may well have something to say about it (I know mine does).

[UpTheIron]

Stupeo said:

Should I register as a Ltd Company or sole trader?
Should I be looking for an umbrella type company to operate under?

I'll echo what the poster above said, plus try and help a bit with those two questions.

Taking the easy one first - what would you want an "Umbrella Company" for? I think you are confusing contracting in IT (or another field) with running a proper business (which is what you are talking about).

Sole Trader v Ltd Company is harder to answer without a lot more detail. The latter is going to involve greater regulatory control and reporting (to HMRC/Companies House etc) and cost (your Umbrella co ref leads me to believe you are going to need the assistance of a good accountant). It does however provide you with benefits in terms of limited risk and potentially a better overall tax position for yourself whilst also keeping the business separate from you personally.

You may also find your potential clients will prefer to deal only with Ltd companies rather than sole traders - and that I suspect is something you are familiar with in the IT world.

In terms of your run costs, have you considered the "business" costs as well as just your IT hosting/Cloud costs? E.g. Tax, accountancy fees, insurances etc?

Are you currently a higher rate tax payer? If things went well, what sort of revenue might you be looking at in the first year? That might also help assist with the decision making process regarding incorporation.

Edited by UpTheIron on Wednesday 20th May 16:46

[Stupeo]

AyBee said:

Have you read your existing contract with respect to Directorships and other jobs? It may well have something to say about it (I know mine does).

Yes, my current contract requires me to work exclusively for them - but I am in the process of negotiating this out.

[anonymous-user]

Now despite being a UK qualified accountant I haven't worked there for 30 years, so I'm not saying I'm up to date with my knowledge, but (and I remember there was case law on this) be care full because if you have developed something that is in any way related to your full time job your employer can have a claim on the IP, can you prove you never used his time/knowledge you gained there, or resource on this?
I'd be tempted to just let your wife do it as a sole trader, with you in the background, I can see no advantage in a company as a start up.
My contract now is not one of employment rather an exclusive consultancy agreement, but I have a few things on the go, unrelated to what I do as a profession, and these are declared. Ideally I'd suggest that you get your employer to agree up front he has no interest in this one particular project.

[Eric Mc]

In UK business law these days, using a family member as a "front" for what is actually your business is far less easy to get away with PARTICULARLY if using a limited company.

[Stupeo]

Thanks for the input chaps.

As already mentioned by another poster above, I envisage that selling as a Ltd company would be much easier than as a Sole Trader - however, I guess it's still an option.

After thinking this through over the weekend, I don't want the wife to just "front" the business, I actually want her to run it (in particular sales/support activities). I'll just be a developer helping her out (not expecting payment from the Ltd co) and I'd even be happy not to have any official ties to the company if that makes things easier.

My original thought was for a umbrella type company to handle all the business side of things and I just build the product. I presumed something like this existed for SaaS models but it appears not...

[Eric Mc]

For limited companies, if you are involved in the business and "directing" or "controlling" or "influencing" its activities, even if you are not listed anywhere on the official company documentation as a "director", in law you ARE a director.

I am sure you do not want an "umbrella" company either. Do you know what you mean by the term?

For a normal, simple, trading activity, a sole trader is by far the easiest and simplest option. An ordinary limited company MIGHT be feasible if -

a) limited liability is an important factor
b) tax planning is an issue due to the size of the business profits or the personal income levels of one of the shareholders/director or partner (if a partnership).

If this is only ever going to be a small side project, is a limited company a bit of an overkill?

[sideways sid]

OP, you haven't mentioned turnover, if you're planning on turning this into a proper business over time, why not start it like a proper business?

It will cost you around £100 to form a UK Limited Company, and you should expect to pay an accountant £2k at most to handle basic accounting, VAT, tax returns, etc.

Sort out any non-compete clauses in your employment contract, and make a diary / audit-trail of all those evenings and weekends spent working on it, using your own time & equipment, as well as meetings with people external to your current employer in case you need to prove that you haven't just pinched a work project later.