When does one need to create a 'business'?
Discussion
If for example I can ‘sort out’ most common problems on a PC and this was generally well known in the village I lived. Am I allowed by law to accept any payments they give me for the odd 10mins work I do in fixing their software/hardware problems?
Would the law be broken if I accepted even one payment?
Is there a limit that exists that states a single person is not allowed to accept a certain amount of money for a service if not a registered company?
Thanks for any info.
Would the law be broken if I accepted even one payment?
Is there a limit that exists that states a single person is not allowed to accept a certain amount of money for a service if not a registered company?
Thanks for any info.
The "law" certainly doesn't prohibit a person for taking money for rendering a service - as long as the service is legal.
The problem for an individual is deciding how and when they declare that money to the tax authorities.
The general view is that, if you undertake an activity with a view to making a profit, you are in business and should notify HMRC within three months of start up.
The problem for an individual is deciding how and when they declare that money to the tax authorities.
The general view is that, if you undertake an activity with a view to making a profit, you are in business and should notify HMRC within three months of start up.
oh I'm not looking to upset the taxman in any way.
The last thing I need is for the greedies to come knocking at my door demanding cash.
Just after the black and white details of how much cash, if any, I am allowed to accept for the odd simple service.
And if the odd case became more frequent, then at which point would it be deemed that I have to inform the tax man of my global domination.
At the moment I have helped a few people out with certain knowledge etc. but never taken any money, even when offered.
Now my girlfriend is thinking of doing a hobbyist pursuit whereby people may pay for her photography (ie weddings etc.) This case involves the possiblity of a sum of money being given. But the amount of work she is expecting to get would not be worth the hassle of creating a registered business of any sort. Maybe looking at 2 or 3 weddings per year.
I was just looking for clarification that (1) would she actually have to declare herself as a business or self employed? and (2) any money that she is given, would this have to be declared to the taxman?
From the reply above I am guessing the answer to (2) would be 'yes' and the answer to (1) would be 'no'.
The last thing I need is for the greedies to come knocking at my door demanding cash.
Just after the black and white details of how much cash, if any, I am allowed to accept for the odd simple service.
And if the odd case became more frequent, then at which point would it be deemed that I have to inform the tax man of my global domination.
At the moment I have helped a few people out with certain knowledge etc. but never taken any money, even when offered.
Now my girlfriend is thinking of doing a hobbyist pursuit whereby people may pay for her photography (ie weddings etc.) This case involves the possiblity of a sum of money being given. But the amount of work she is expecting to get would not be worth the hassle of creating a registered business of any sort. Maybe looking at 2 or 3 weddings per year.
I was just looking for clarification that (1) would she actually have to declare herself as a business or self employed? and (2) any money that she is given, would this have to be declared to the taxman?
From the reply above I am guessing the answer to (2) would be 'yes' and the answer to (1) would be 'no'.
Edited by AJI on Wednesday 23 June 16:31
AJI said:
oh I'm not looking to upset the taxman in any way.
The last thing I need is for the greedies to come knocking at my door demanding cash.
Just after the black and white details of how much cash, if any, I am allowed to accept for the odd simple service.
And if the odd case became more frequent, then at which point would it be deemed that I have to inform the tax man of my global domination.
At the moment I have helped a few people out with certain knowledge etc. but never taken any money, even when offered.
Now my girlfriend is thinking of doing a hobbyist pursuit whereby people may pay for her photography (ie weddings etc.) This case involves the possiblity of a sum of money being given. But the amount of work she is expecting to get would not be worth the hassle of creating a registered business of any sort. Maybe looking at 2 or 3 weddings per year.
I was just looking for clarification that (1) would she actually have to declare herself as a business or self employed? and (2) any money that she is given, would this have to be declared to the taxman?
From the reply above I am guessing the answer to (2) would be 'yes' and the answer to (1) would be 'no'.
I'm fairly certain the answer would be 'yes' to both. But declaring oneself to be self-employed is really simple, taking just a few minutes, and I'd have to say if you can't even be bothered doing this, then working for yourself, even on a casual basis, isn't for you (or your OH).The last thing I need is for the greedies to come knocking at my door demanding cash.
Just after the black and white details of how much cash, if any, I am allowed to accept for the odd simple service.
And if the odd case became more frequent, then at which point would it be deemed that I have to inform the tax man of my global domination.
At the moment I have helped a few people out with certain knowledge etc. but never taken any money, even when offered.
Now my girlfriend is thinking of doing a hobbyist pursuit whereby people may pay for her photography (ie weddings etc.) This case involves the possiblity of a sum of money being given. But the amount of work she is expecting to get would not be worth the hassle of creating a registered business of any sort. Maybe looking at 2 or 3 weddings per year.
I was just looking for clarification that (1) would she actually have to declare herself as a business or self employed? and (2) any money that she is given, would this have to be declared to the taxman?
From the reply above I am guessing the answer to (2) would be 'yes' and the answer to (1) would be 'no'.
Edited by AJI on Wednesday 23 June 16:31
You don't need to create a 'registered business' as you put it, sole trader status can be as little as declaring that you're self employed, paying the necessary minimum NI, and completing your tax return (honestly). After that you'll get sent a demand for some tax (depending on how much you turn over). You can be self employed and employed at the same time, in fact.
If your self employed income is below £5,075 per annum, you do not need to register for Self Employed National Insurance contributions.
"Income" from a self employment point of view is not how much you charge your customers, but your gross sales to your customers less the business expenses and capital allowances you can claim against that income.
"Income" from a self employment point of view is not how much you charge your customers, but your gross sales to your customers less the business expenses and capital allowances you can claim against that income.
I believe it is fairly simple in that, if you have a job but earn money over and above the income it derives, you just let the taxman know on your tax return (expenses deducted of course!). There is no need to declare yourself as a company or sole trader. If you wish for the hobby stuff to become your full time income then it makes sense to create a company so that there is (if all goes well) a point at which you might have a truly limited liability if all goes wrong and you are sued. It might be sensible to get insurance to protect you anyway, even if it is only a part time thing. What if you did something destructive to someones computer or your OH messed up the wedding photos? Your call. Best to ask a small business advisor and take it from there.
BTW, with the local village jobs, perhaps an exchange system might work well? 'I'll fix your computer if you service my car/weed my garden/clean my bathroom for a month/do me a good service/ etc /etc (delete as appropriate). That could work better for the odd, small skills, based market.
BTW, with the local village jobs, perhaps an exchange system might work well? 'I'll fix your computer if you service my car/weed my garden/clean my bathroom for a month/do me a good service/ etc /etc (delete as appropriate). That could work better for the odd, small skills, based market.
Edited by Johnniem on Wednesday 23 June 17:26
Aside from the tax perspective, also consider whether insurance is necessary - probably not so much for you, but may be appropriate for your girlfriend. Likewise, you should use some sort of formal contracts - you may consider it a hobby, but paying customers may not see it that way if/when something goes wrong.
Johnniem said:
I believe it is fairly simple in that, if you have a job but earn money over and above the income it derives, you just let the taxman know on your tax return (expenses deducted of course!). There is no need to declare yourself as a company or sole trader. If you wish for the hobby stuff to become your full time income then it makes sense to create a company so that there is (if all goes well) a point at which you might have a truly limited liability if all goes wrong and you are sued. It might be sensible to get insurance to protect you anyway, even if it is only a part time thing. What if you did something destructive to someones computer or your OH messed up the wedding photos? Your call. Best to ask a small business advisor and take it from there.
BTW, with the local village jobs, perhaps an exchange system might work well? 'I'll fix your computer if you service my car/weed my garden/clean my bathroom for a month/do me a good service/ etc /etc (delete as appropriate). That could work better for the odd, small skills, based market.
Not quite the case. If you are doing self employed work i.e. carying out tasks for people and/or other businesses and charging for doing that, you are supposed to notiofy HMRC within three months of commencement. This is in order that they set you up for the Self Employed Class 2 NI contributions. However, if your net income from Self Employment is going to be less than £5,075 (as mentioned above), you still need to niotify within the three month window but, at the same time, apply for the "Class 2 NI Exception".BTW, with the local village jobs, perhaps an exchange system might work well? 'I'll fix your computer if you service my car/weed my garden/clean my bathroom for a month/do me a good service/ etc /etc (delete as appropriate). That could work better for the odd, small skills, based market.
Edited by Johnniem on Wednesday 23 June 17:26
People should steer clear of setting up limited companies UNLESS they intend to trade in a serious maner and expect their net profits to be in excess of £40,000 per annum at least. Otherwise, the hassle factor and additional compliance costs involved in running the company are excessive for the apparent tax saved or even the apparent piece of mind that limited liability sometimes gives.
AJI said:
Just after the black and white details of how much cash, if any, I am allowed to accept for the odd simple service.
As much as you can get 
Assuming you are employed and already use up your allowance, then anything else you earn is taxable and should be declared.
It's probably been said already but there are three basic types of 'business':
Sole trader
Partnership
Limited company
I'd say you definitely fall into the Sole Trader category. It's simple to run and you don't need more complexity than you, er, need.
Basic rules are (1) Keep a record of every transaction (2) Open a seperate bank account so you can keep 'business' money seperate from your private money.
So, it goes like this:
1) Mrs Miggins rings up and says 'Can you fix my computer?'
2) You say 'yes' and go barreling round with a big box of bits.
3) You tell her how much it will cost to fix.
Then it goes one of two ways:
Either:
4a) She says 'b
ks to that, I'll get my son to do it for free.Or:
4b) She says 'Great, when can you start?'
If (4b) then you fix the computer (either at her house or at yours).
When it's fixed, you give it back to her with an invoice. An invoice is a piece of paper with your name and address on it, a unique job number, a brief description of the work done and a total cost. She says 'Thank you sonny' and pays up.
Back at base you print a copy of the invoice, file it, and put the money in the bank. Record all transactions in a thing called a cash book (it may sound old fashioned but they don't crash or lose all their data). One side is cash coming in, the other side is cash going out (for spare parts, office supplies and any other legitimate business expenses. Then once a year you add it all up and either try to do your own tax return, or get a bookeeper/accoutnant to do it for you - because it can get quite complicated, even if the business is simple.
And finally, keep the admin up to date. If you get the recording system set up properly on Day One (suggest you ask the bookeeper/accountant on this) then it everything will be simple and you won't get in a mess, either personally or with HMRC.
Enjoy
AJI said:
Thanks for that response Simpo. Very clear and understood.
Happy to help; I'm even more pleased to see I didn't get any corrections from Eric You might also consider what happens if something goes wrong, for example if you can't fix it or make something worse. Hence it would be an idea to consider drawing up some T&Cs just for that bad experience - which will happen eventually. Even if you do your job perfectly, or offer 'no fix, no fee', you may run into a 'professional complainer' who will bully you for 'compensation' and generally make life needlessly unpleasant, so some kind of contract would help. However, you don't want to scare normal people off with loads of legalese in small print, so you have to make a judgement.
Oh yes, and don't make the first job number '0001', it doesn't inspire confidence!
So if you have a full time PAYE job and maybe once a year help a friend out with a website they have for their small business and they give you a pittance for it, say less than £100 a year. Does that count as not for profit so you don't have to declare it or do you then have to do a tax return?
If you do have to declare it and you start working for a company that forbids holding down a second job, presumably you'd then not be able to help the friend out?
If you do have to declare it and you start working for a company that forbids holding down a second job, presumably you'd then not be able to help the friend out?
ewenm said:
ringram said:
... when one wants to avoid tax
Surely undeclared cash-in-hand would be even more tax "efficient" but also tax evasion too 
Sole traders find it much harder to claim for business expenses than limited companies. The options are much greater. Not for abuse as you alude, but to perfectly legal expenses encountered in the line of business.
Do a google on tax evasion and tax avoidance. There is a difference which it seems you are unaware of..
ringram said:
ewenm said:
ringram said:
... when one wants to avoid tax
Surely undeclared cash-in-hand would be even more tax "efficient" but also tax evasion too Sole traders find it much harder to claim for business expenses than limited companies. The options are much greater. Not for abuse as you alude, but to perfectly legal expenses encountered in the line of business.
Do a google on tax evasion and tax avoidance. There is a difference which it seems you are unaware of..
I run a limited company myself so am well aware of the differences between evasion and avoidance thanks.
Edited by ewenm on Thursday 24th June 11:36
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