Turning your hobby into a business is an exciting step. You love what you do and being able to earn money seems to be the natural next step. But how do you go about it?
Here are my top three tips to get you started:
1.Decide what type of business structure you want.
There are three main types: sole trader, partnerships or limited companies.
There are pros and cons to all types. Sole traders and partnerships are generally good if you are just starting up and don’t plan to make much and are still unsure as to how your business is going to work out. These types of business have less admin costs and it’s only the tax compliance you need to worry about. A limited company is good if you have a long term plan and you know you are going to make a profit in the future. A limited company has more structure and in the long term there will be more tax benefits.
2. Inform HMRC and Companies House
Once you’ve decided your business structure, you need to tell everyone. By this, I mean not just on Facebook, twitter and blogs and all your friends and family but you need to inform HMRC and Companies House.
If you are a sole trader or in a partnership, you need to let HMRC know that you will need a self-assessment tax return and that you will be paying Class 2 tax. You will also need to take into account Class 4 tax when you start making a profit.
If you are a limited company, you need to inform HMRC of self-assessment for yourself personally as a director of the company and then for the company. You need to register for corporation tax, if you have employees, then payroll taxes and if you need or want to register for VAT. These are the main taxes for a company. You also need to register your company with Companies House.
As a limited company, you can register for both HMRC taxes and Companies house at the same time by following this link: https://www.gov.uk/limited-company-formation/register-your-company
For sole traders, you can register here: https://www.tax.service.gov.uk/shortforms/form/CWF1ST?dept-name=CWF1&sub-dep
3. Choose a good accountant
Finally, you need to make sure you choose a good accountant. OK, so you’re thinking, here’s the sales pitch, but hear me out first. To start off with, especially if you are a sole trader, you may be able to do a lot of things by yourself, as there is a lot of information on the internet and to be honest, even the HMRC website and helpline is getting a lot better.
However, there will come a time when you either don’t have the time to do all the tax and accounts or it just starts getting a little complicated or you hear something at the school gate and wonder if it applies to you and wish you had someone with a little more knowledge to talk to, and that’s where accountants step in.
My advice when choosing an accountant is don’t always go for the cheapest one on the block, I’m sure the charges will pile up. As with everything, make sure you get on with them and can build up a good rapport and also see if they are honest with you and let you know where there limitations are and how they will deal with it.
For more information on this or for help with your tax returns, get in touch with Q.A. Accountancy Services.
Originally posted here on 25.8.14