Side hustle? Business? Starting off on the right foot

[BobBuilds]

Soooo I’m unexpectedly about to have a lot more time on my hands having agreed at work to go onto a 50% job share, so it looks like I’ll get every other week off at home with their current plans for how it’ll work.

Looking at the positives - I’ll still be a PAYE worker so won’t be homeless and now have a lot more time than I’ve ever had before to do “stuff” - so my thinking is to do some things I enjoy and see if i can make money at it.

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc? Does that need to be sorted before you begin or is that the kind of thing that can be figured out a later date once you’ve seen what’s working and what’s not?

[wheelerc]

https://www.gov.uk/working-for-yourself has some pretty decent info.

I'd suggest starting self employed and then moving to Ltd if it works out for you. Of course it depends on many factors such as the type of product you are making and who you are selling to.

[Simpo Two]

BobBuilds said:

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc? Does that need to be sorted before you begin or is that the kind of thing that can be figured out a later date once you’ve seen what’s working and what’s not?

From what you say that's the classic British approach - make something then try to sell it.

First you need to identify your market, and then what you can do to sell to it. Or another way, identify what you're good at then see if you can define a market for it. A business needs (1) something it can sell (2) somebody who wants to buy it. If one is missing, nothing happens.

Absolutely no need to set up a limited company unless you're doing something risky or you're making a profit of £40K+pa.

So the killer questions you need to answer are: what are you going to sell, and how will you find customers to buy it...?

[Frimley111R]

BobBuilds said:

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc?

Yes. Find something and see if you can sell it. Don't waste time and effort on bank accounts etc initially. If it takes off you can do that then.

[deckster]

Frimley111R said:

BobBuilds said:

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc?

Yes. Find something and see if you can sell it. Don't waste time and effort on bank accounts etc initially. If it takes off you can do that then.

Although make sure you keep good records of income & expenditure & put aside maybe half of what you bring in, as you'll need to be able to show some accounts if asked, fill in a tax return and pay tax on your self-employed earnings.

[Frimley111R]

deckster said:

Frimley111R said:

BobBuilds said:

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc?

Yes. Find something and see if you can sell it. Don't waste time and effort on bank accounts etc initially. If it takes off you can do that then.

Although make sure you keep good records of income & expenditure & put aside maybe half of what you bring in, as you'll need to be able to show some accounts if asked, fill in a tax return and pay tax on your self-employed earnings.

Yes, good advice there.

[Simpo Two]

deckster said:

Although make sure you keep good records of income & expenditure & put aside maybe half of what you bring in, as you'll need to be able to show some accounts if asked, fill in a tax return and pay tax on your self-employed earnings.

I guess that's one disadvantage of running a small home business as a sole trader if you'e already on PAYE at 40%. 40% of what you earn making cakes or whatever (less expenses) goes to HMRC, which takes the fun out of it somewhat.

[Bernie_78]

Simpo Two said:

I guess that's one disadvantage of running a small home business as a sole trader if you'e already on PAYE at 40%. 40% of what you earn making cakes or whatever (less expenses) goes to HMRC, which takes the fun out of it somewhat.

What tax would I pay as a ltd co if the day job already is 40%? I guess its a balance of lower tax vs accountancy fees?

[Simpo Two]

Bernie_78 said:

What tax would I pay as a ltd co if the day job already is 40%? I guess its a balance of lower tax vs accountancy fees?

I never incorporated but would guess corporation tax on profits, and dividend tax if you take dividends. And more income tax if you take income. Someone will be along to confirm.

[trickywoo]

Simpo Two said:

Bernie_78 said:

What tax would I pay as a ltd co if the day job already is 40%? I guess its a balance of lower tax vs accountancy fees?

I never incorporated but would guess corporation tax on profits, and dividend tax if you take dividends. And more income tax if you take income. Someone will be along to confirm.

Pretty much this.

There is a good calculator here https://www.itcontracting.com/calculators/dividend...

Not forgetting the company pays 20% first on any profit. Literally make £1 profit and 20p goes to Rishi before you see it.

The only remaining tax benefit from a ltd is company pension contributions where you can put £40k a year in (and write off against tax) regardless of the salary you take out of it.

Obviously depends on your other arrangements though.

[jonsp]

Bernie_78 said:

What tax would I pay as a ltd co if the day job already is 40%? I guess its a balance of lower tax vs accountancy fees?

As a limited company you'd have the choice of paying yourself a salary (PAYE) or dividends or some combination of the two.

Dividends are taxed at a lower rate and you can pay yourself the first £2k tax free (assuming you don't already have dividend income from elsewhere) then >£2.5k basic rate = 7.5% and higher rate = 32.5%. As you said you're doing a job share presumably you're on basic rate so this will be quite a saving vs PAYE. You have to pay corp tax on your profit of course. You can't deduct dividends from profit but you can deduct salary. Despite that you should still be better paying corp tax + income tax on your dividends.

Assuming you stay small you shouldn't need an accountant (apologies to any accountants in the house!) you can form a company for about 20 quid, get something like Sage to keep your records and you won't need an audit year end. You may or may not want an accountant to do your corp tax but you won't have to worry about that for a good while so cross that bridge when you get there.

If you sell to business forming company and registering for VAT from the outset may give you a better image - plus you can reclaim VAT on your spending. Just don't spend the VAT element of your income! If you sell to the public don't register for VAT until you have to - obviously you'd have to put your prices up by 20% so you're losing out vs non VAT registered competition.

With all that said before thinking about this think can I make a product and sell it a profit? Make something, show it to people and say would you buy this for £x? Don't ask your friends because they'll obviously be kind you want unbiased opinions.

Alternative if you form a limited company you'll get a Google adwords voucher through the post. Throw up a little website (Amazon will give you free hosting then use WordPress or similar) and use your adwords voucher to throw some traffic at it. If that's appropriate for your business it's a good free way to test the market.

Edited by jonsp on Friday 4th March 11:48

[Louis Balfour]

BobBuilds said:

Soooo I’m unexpectedly about to have a lot more time on my hands having agreed at work to go onto a 50% job share, so it looks like I’ll get every other week off at home with their current plans for how it’ll work.

Looking at the positives - I’ll still be a PAYE worker so won’t be homeless and now have a lot more time than I’ve ever had before to do “stuff” - so my thinking is to do some things I enjoy and see if i can make money at it.

To run something as a business - is it really as simple as just making/selling things, seeing how it takes off and then thinking about if you should be a sole trader or a ltd company etc? Does that need to be sorted before you begin or is that the kind of thing that can be figured out a later date once you’ve seen what’s working and what’s not?

You should absolutely ignore everything initially, apart from finding something that works. Until you have found that, you haven't got a business. So structure, compliance, paying tax and all of that fun stuff are irrelevant.

Yes, there can be a situation where you set something up and later wish you'd structured it differently. A bank once threatened to bankrupt me personally for a seven-figure sum, because I had for no good reason allowed a sole trader business to grow, rather than incorporate it. I had done nothing wrong, they were pulling out of the sector and wanted their loans back despite repayment not being due. But it was a stressful time, that would have been less stressful had the business been incorporated.

But the main thing remains to find an activity that will enable you to make money at a level that adequately compensates you for your effort. Then work out the detail and be mindful of your personal risk.

[UrbanAchiever]

Make sure you get permission from your employer to do this if your contract has a whole time working clause in it.

If you don't it could potentially lead to dismissal.

I've just dismissed someone for this. He did a number of other things that were in breach of his contract and acted dishonestly. Always best to be up front with these things.

[Douglas Quaid]

Use a spare current account for money in and out. You don’t want the money getting mixed up in your normal account it just makes it all a load more hassle.