Does anyone on here run their own business, and/or have experience of setting one up from scratch?
I’ve managed startups, but never really got much involved with the admin side. Trying to do it for the first time and it’s an absolute headfuck.
Thought it might be an idea to have a rolling thread where anyone running or trying to set up a business could ask things they’re struggling with and those who know what they’re doing can offer bits of advice, offer moral support, etc.
Anyone? Even if (like me) you’re just at the idea stage and have no idea what you’re doing.
hallo - over the years i’ve owned/done admin for a business that was already set up (ltd), then later set one up from scratch with the mrs (llp), and am about to set up another for something else (ltd). i learned most of it on the fly/from friends so i might not always know the right stuff but will deffo help if i can.
I technically do run my own business but it’s not like, a business. I’m self-employed, in a different country with different rules, but have been at it for a few years so will be bound to have some relevant experience for someone on here.
Once you’re at a point where you’re happy with a business plan and starting to trade I would definitely have a chat with an accountant. A couple of hours and a few quid at the start can save you all sorts of heartache in a year’s time.
I’ve got a hundred questions. Obviously I’m doing as much online research as I can. To start with:
I was self-employed (as a contractor) for the first time for the tax year 20/21. I’ve got until October to register and end of next January to settle up.
I’ve just found out about something called ‘Payments on Account’, which basically means that as well as paying my 20/21 tax bill in one lump sum, I have to pay 50% of my projected 21/22 tax at the same time, and the other 50% by end of July '22.
That’s a bullshit system. I can see why they do it, but it’s a cost I wasn’t expecting. Also, I’m going from being self-employed as a contractor for an established business (20/21), so effectively salaried, to starting my own business (21/22 onwards) where I won’t take a salary as such but will hopefully turnover a profit. I don’t know if this business will turn over £1 or £100k, so pre-paying a year’s tax based on a previous job seems mad to me.
To complicate things further, I’m going to be working alongside running this business, so I’ll be employed and self-employed, so it doesn’t make sense to pre-pay my 21/22 tax and then pay PAYE on my day job.
Has anyone got any experience of this sort of thing?
Dunno about the UK but in Sweden you can do a preliminary tax declaration in this situation in which you can fill in your projected income as zero if you like in order to avoid pre-paying taxes
Once you’re up and running with a regular income it makes sense to pre-pay your tax in monthly installments rather than living off it and having a whopping bill you can’t pay …but that will obv depend on how you want to manage your liquidity
From my experience I would say that it’s absolutely worthwhile during a period of parallel employment & contracting - especially when you’re just getting your own business started - to declare that you don’t expect to make any first year profit if HMRC allow you to do that
Deffo make an appointment with an accountant or business/tax advisor as a matter of priority I’d say
There is a form here called an SA303, whereby you advise of a likely reduction to your self-employed earnings for the following year, but I think it’s more for cases like where, as an example, a businesses sales are expected to drop, and apparently they’re quite strict and knock back a lot of claims.
One option would be to register your business as a ltd company.
I’ve had the same shock of payments on account. I mulled over asking for a reduction- apparently it’s quite often that they let it through, but effectively fine you if you underguess how much you’ll be bringing in. In the end I took the hit and was tbh gutted to do so.
These days I still operate as a sole trader and am at least more aware to understand when I’ll be taking that hit (if you bring in under a certain amount in a year they remove POA) and when I won’t
But yes, the other route to avoid that altogether would be to register the new setup as a ltd company, which fully ringfences it from your sole earnings
Edit: that would then mean essentially filing not to pay POA Because you’ve ceased trading as a sole trader altogether
I ran a limited company for three years and then set up a new limited company with friends. The advantage of limited companies is that they protect you and your assets (mortgage, etc) in the event that someone takes issue with work that you do and tries to sue you. Also, if you have a partner, they can receive dividends as a shareholder, effectively lowering your combined tax burden. This was often viewed as a benefit that sort of compensated for the risks of being self employed, though all these benefits have been eroded over time (increases in taxes on dividends, closer scrutiny of shareholders, payment on account). An online accountant with an invoicing and inclusive tax calculation package will typically charge £50-£100 per month to provide you with invoice and accounting software, and they will then roll the annual self assessment into the package (meaning they can sort out the non-PAYE element and make sure you’re not overtaxed).
I had the same issue with POA having worked on some very lucrative contracts one year but having no such contract for the following year (and therefore no continuity of earnings). I wrote to HMRC and filled in a form, and they allowed deferral of the POA (which ended up being the right move, and there was no penalty in this case).
Key things for self employment are making sure your accounts are organised, making sure you have the right insurances to operate legally and protect yourself and then making the tax system work for you (legitimately).
You wont have to do that. The POA is based on the additional self assessment tax (e.g the self employed bit of your income that hasnt already been taxed)
Ive not heard of reductions being denied tbh, interest can be charged if reduced too far though. Also by the time their due youre also 10/12th of the way through the tax year they relate to so may be able to tell whether they are gonna apply or not