Basic start up advice please

[crofty1984]

Hello All,

I currently have a full-time job, which I like and will keep doing, however, I'm also considering doing some custom/classic bikes on the side.
Tinkering with motorbikes is a hobby, but if I could make the hobby pay for itself, that'd be pretty good. Not looking at making a full time career out of it, worrying whether or not the mortgage will be paid if it doesn't go well, etc. just doing what I enjoy and maybe making a bit of spending money.
Basically, buy a cheap base bike, make it nice/customise, sell on, probably one at a time (max 2)
Could be anywhere between 1-10 bikes a year, and say for the sake of argument I'd make between £500 and £2k (optimistically!) on each.
So I'd guess that's probably more than a regular Joe who likes chopping and changing his bike now and then and officially a "business", albeit a part time one.

I was wondering if
a) I had to register as a business - and how to do it if so
and
b) what kind of advantages does that have (VAT off tools/equipment for example?)

I'd not be looking to perform services as such, just "I have this thing I've built, would you like to buy it?"

Any advice would be gratefully received.
Thanks,
Dan

[Eric Mc]

crofty1984 said:

Hello All,


I was wondering if
a) I had to register as a business - and how to do it if so
and
b) what kind of advantages does that have (VAT off tools/equipment for example?)

I'd not be looking to perform services as such, just "I have this thing I've built, would you like to buy it?"

Any advice would be gratefully received.
Thanks,
Dan

There is no legal requirement to "Register as a business" as such. However, if you start running a business as a sole trader (i.e. you personally) you need to notify HMRC that you have started a trade and that you will need to start completing a Self Assessment tax return each year. You have three months from commencement of your business to notify HMRC.

VAT registration is an entirely separate matter. A trader only HAS to register if their turnover (i.e Sales) reaches or exceeds £83,000 in a 12 month period. Many smaller sole traders therefore never register for VAT as their turnover does not reach this threshold. There is an option to register for VAT voluntarily so a smaller trader can register if they want to. Once registered a business can reclaim VAT on any business costs that contain VAT (not all do). This would include capital costs such as tools, equipment, plant and machinery and some vehicles, such as vans.

HOWEVER, once the trader is VAT registered, they are obliged to charge VAT on the sales they generate with their customers.

[sumo69]

Eric Mc said:

HOWEVER, once the trader is VAT registered, they are obliged to charge VAT on the sales they generate with their customers.

Hence making your selling price 20% higher - at this sort of scale, it normally works best to remain un-registered.

David

[Simpo Two]

It depends very much on whether your customers are likely to be VAT registered (ie businesses) or not (ie Joe Public) and also whether the majority of your invoices are covering what I call 'bought-in' services or fees. I've run both ends of the spectrum, but in this case it looks like you might be better off staying unregistered and just sucking up the VAT on purchases (the gross sum is deductible of course, so not as bad as you think).

[daemon]

sumo69 said:

Eric Mc said:

HOWEVER, once the trader is VAT registered, they are obliged to charge VAT on the sales they generate with their customers.

Hence making your selling price 20% higher - at this sort of scale, it normally works best to remain un-registered.

David

Surely VAT on motorbikes operates like cars or second hand goods, ie, you pay VAT out of your gross margin?

You wouldnt add VAT onto the selling price of a second hand motorbike.

[Eric Mc]

Still no point in VAT registering unless you had to.

[daemon]

Eric Mc said:

Still no point in VAT registering unless you had to.

Indeed.

[2 sMoKiN bArReLs]

And don't forget to get the correct insurances

[crofty1984]

Apologies for the silence - been away - but I really do appreciate all your advice. It's been interesting reading, especially the VAT bit. Looks like there's no point as you say as I have some tuff already - there's no point saving £20 off a set of new spanners if I have to give £600 off a £3k bike to the government.
One thing about profit - /how would I sort labour? I'm basically doing the labour for free, do I pick a reasonable but arbitrary figure for that and count it as costs?
i.e. Profit = Sales price - (base price of bike + purchased bits + 40 hours@£10)

Think I'm going to make a couple just for me for a bit of fun, then see about setting up as a sole trader. What insurances would I need? Public Liability I guess, if I've made something and it breaks then I'll want to be covered.

I assume there's some sort of threshold to becoming a sole trader? I mean a bloke selling one or two bikes a year privately is one thing, but selling 200 is quite another. What's the cross-over point? I've heard 6 mentioned, but that's based on nothing I think, or is it a certain sum/%age of income?

[veevee]

Bikes will be subject to the VAT margin scheme - you only pay VAT on the profit. Still not worth registering for VAT unless you absolutely have to IMO.

Sole trader just means you are entirely responsible for everything, you are the businesss, rather than the business being it's own entity. You can sell as many bikes as you want.