Having had a traumatic year last year I have decided to devise an exit strategy from my full time job and get back a work/life balance. Being ultra cautious this strategy will take another 4 years before I actually hand in my notice. I want to use the 4 years as an experiment to see if I can bring it a small amount of money in from my glass fusing hobby - build up a client base, etc. So far I have managed to sell some of my work in our local art gallery as well as online - although we really are talking very small scale. I'm toying with the idea of becoming VAT registered as I understand that I can claim back VAT on all the major purchases I've bought. However this seems like a really big step and I'm a big worried that I might bite off more than I can chew. :-\
Has anyone started off a business at the same time as being employed who could offer advice?
Hi.
Yes I did silversmithing alongside a full time job for a couple of years before I became full time self employed. I have a good friend who is a bookeeper and she sorts all that side out for me but off the top of my head yes you can definitely register for vat irrespective of earnings. The returns have to be done promptly very quarter or you get fined though so I recommend having someone on board who knows what they are doing. Dont forget you'll also have to pay vat on all income and I'm not sure there's any going back after you register. There's also a different NI for self employed people that you will need to investigate but in the first instance you need to register yourself as self employed (even if you are also in employment) and they should give you details of what else you need to do - if they don't then ask. You need to register as self employed within 3 months of starting up your business or there's another little fine waiting for you so I would probably not mention the previous sales.
Business link do some great start up courses for free to help you get going so I'd look into those too.
I hope that's helpful, if there's anything else I can think of I'll come back.
I'm self-employed as well as full-time employed. So I'm paying class 2 NI contributions. I decided not to go VAT registered at the moment for simplicity, so I pay it on my purchases but don't need to charge it to my customers.
Thanks for the advice. I have a week of before I'm back at work and there is so much to get my head round in a short time so your help is much appreciated. I will try Business Link and see if I can speak to someone.
Sandera, It's not a good idea to become VAT registered unless you have to or the product you are selling is VAT free (not jewellery). If you are VAT registered then you can claim back VAT on your purchases but have to pay VAT on your sales. This effectivly means that the VAT man gets the VAT on the mark up. If you exceed a threshold turnover (£73,000) then you must become VAT registered.
If your turnover increases then you should think about setting up a company. If you are doing well then there is a point where there can be a tax benifit from realising the profits in the company rather than your own income. Check up on the company tax rules. If you set up a company you should consider how you transfer your assets into the company and possibly depreciate them to reduce your taxable profit.
You will probably be better going self employed to start with. Doing your tax return will be complicated, check up what you will need to do first.
Regardless keep all your invoices and record your sales, starting now, just in case the tax man asks.
I would heartily recommend going sole trader (self employed to start with). I set up a Ltd company about 6 years ago for my training business because I had work booked that would pay me a daily rate that mean't I would quickly go into the higher rate tax bracket if I was self employed!. In the end I decided I didn't want to do work for this client as I wasn't happy with their values and never earned very much at all. My accountant always told me that you needed to earn more than £15K to make it worth while being Ltd company and I suspect it would be more now. Although my accountant did a fab job I wish now that I had not gone Ltd and started as a sole. For the bead making I have registered as a sole trader, paying class 2 NIC. It's easy to do, but don't be surprised if you don't hear back from HMRC for a while (sent off my forms two months ago and have only today had a letter from them confirming things!). You must register within 2 months of starting trading (think this is right) and this really means from the date you started selling. Business Link are very helpful and direct.gov is a great site for help and advice. HMRC are always happy to answer questiosn, but don't write to them unless you have to, call them, writing to them seems to take ages to get through the system.
Good luck with your venture, it's great fun (but hard work being self emplyed, and I agree don't go VAT registered unless you have to). :) :)
Business link website has loads oninformation on this and you can also call and speak to an advisor if you're still not sure.
I did all their courses as part of a redundancy package from my old job as I was thinking of going self-employed and can recommend them if you're thinking about it as they will go over all the tax and NI rules and regulations and also advise on advertising and marketing as well.
Thanks for advise. Re registering for VAT - my thinking was that as I've spent so much setting up, e.g. kiln, equipment, glass, workshop and paid so much in VAT then I could claim this back as my VAT outgoings would be so much greater than VAT received on goods. Am I being totally naive?
Quote from: Sandera on September 05, 2011, 03:46:57 PM
Thanks for advise. Re registering for VAT - my thinking was that as I've spent so much setting up, e.g. kiln, equipment, glass, workshop and paid so much in VAT then I could claim this back as my VAT outgoings would be so much greater than VAT received on goods. Am I being totally naive?
No, but do you want to be charging VAT on your goods that you sell? :) You also need to do quarterly VAT returns if registered. :)
This needs some careful consideration. Although I've sold some items in the local via the local art gallery I haven't gone in to collect my money yet. I will need to speak to the gallery owner to see whether he has charged VAT in which case I assume that the evidence can be used to satisfy VAT return? The other way I was going to sell was via ebay and I think there is a way of registering for VAT there as well. It really feels like a minefield. I think I need to start out simple, go on the free workshops and go from there.
I wouldn't advise going VAT registered unless you have to.
Yes, you can claim back the vat on purchases and your equip etc. But thinking forward, it also means you will need to basically be giving away 20 percent of every sale you make, forever, in your business before you can even start thinking about covering your own overheads and profits.
So if you are planning on your business working out to be profitable in the longer term, you would end up paying more vat on your sales year in year out than you found yourself reclaiming in the early days.
If you realistically see your turnover exceeding the VAT threshold in the next couple of years, it might be worth just going registered from the get-go. But very few artisans manage that to be frank. For most of us, its a bit of a struggle scraping a living from our work let alone getting to that sort of turnovers.
Afterall - the bulk of the price on things like beads, glass jewellery etc tends to be your labour, not the materials. So what you would end up claiming back wouldn't be so much compared to what you would then need to add on to all your prices.
Emma
Quote from: Sandera on September 05, 2011, 03:46:57 PM
Thanks for advise. Re registering for VAT - my thinking was that as I've spent so much setting up, e.g. kiln, equipment, glass, workshop and paid so much in VAT then I could claim this back as my VAT outgoings would be so much greater than VAT received on goods. Am I being totally naive?
Probably - because it's OK at the set up stage but then once you start selling there is a disadvantage as described by several posts above plus you'd have the trauma of a quarterly VAT return to complete even if trade was minimal. I am VAT registered in my consultancy business but not in my bead business as the turnover just doesn't warrant it and as Emma states the major cost is your own labour which is non-VATable.
Kazx
Quote from: Sandera on September 05, 2011, 04:06:30 PM
This needs some careful consideration. Although I've sold some items in the local via the local art gallery I haven't gone in to collect my money yet. I will need to speak to the gallery owner to see whether he has charged VAT in which case I assume that the evidence can be used to satisfy VAT return?
I think you'll find that you have to pay VAT on your sales to the gallery, if you're VAT registered - regardless of whether he charges VAT on his sales or not... not sure about that one though.
Regards NI contributions, I *think* if you are employed and earning over a certain amount so that work are paying a portion of your NI as well as you are yourself out your wages, you don't need to be paying the self-employed class contributions as well?
There is a seller on Etsy, Netherlands I think, who charges VAT on their beads, so I assume they have registered for this. I simply won't purchase her beads, lovely as they are, since this inflates the cost so much - I would then have to pass that cost on to my customers, and I very much doubt if they would swallow it. I think you have to consider the effect it would have on your sales, and whether or not you may lose custom.
I'm definitely getting the impression that becoming VAT registered has it's problems and so will put that idea to one side for now. I'm going to see how I get on now I've registered as self employed as I'm going to have to learn so many new things anyway. The irony is I only expect to sell about a £1000 worth of stuff a year and I won't start to make a profit for about 4 years!!
Sue I think that's very naive of that seller! They can claim back what they've spent out on VAT so to hike the prices up so far is silly - you have to take a view on these things and make the price reasonable.
I'm slightly concerned that I've been ill-advised in registering for VAT now, the refunds have been very helpful up to now in terms of cash-flow but I'm also wondering how much I'm going to end up paying out once I'm selling more (positive thinking!!). I probably can't back out now though so no point worrying about it.
Zeldadog - It's my understanding that you'd also have to pay NI - I think it's class2 - as well as the employed NI, but if you are earning under a certain amount in your business you can apply for a certificate of exemption, which they should explain to you when you register as self employed but you do have to prompt some of them. It's all very silly, they don't always mention it, but you can get fined if you don't do it - one arm doesn't talk to the other...
Quote from: Zeldazog on September 06, 2011, 10:56:55 PM
Regards NI contributions, I *think* if you are employed and earning over a certain amount so that work are paying a portion of your NI as well as you are yourself out your wages, you don't need to be paying the self-employed class contributions as well?
No, you have to pay Class 2 contributions even if you're employed full time with your employer paying NI. It's something like £2.50-£2.70 a week, I forget exactly! I've got a monthly direct debit for it.
(ETA: Crosspost!)
Kat & Heather, its probably me getting it all mixed up - I can remember someone on a course saying something about it, but thinking about it further, I think I am getting it confused with when he was talking about the potential benefits of being a company - probably the company paying the NI contributions for you as an employee or something - I'll shut up now!
I read somewhere that if you expect to earn less than circa £5000 that you don't have to pay the NI (although you can do it voluntarily? I've just got a big pack of information through the post from Business Link so will have a look at that and see what they say.
We were registered for VAT when we sold dog equipement at shows & though our shop. It was worth it as we bought in a lot of stuff that we didn't make ourselves . Feeds, Beds,Chews, Shampoos ETC. However if your turnover is only going to be £1000pa or so there is no point at all in registering as the claw back from your kiln etc will never outway the additional costs of adding VAT to your mark up. Also do you really want to complete quarterly returns that carry a fine if not sent in even if the return is nil.
As others have said, Self Employed Yes. VAT No No No.
Quote from: Sandera on September 07, 2011, 04:45:53 PM
I read somewhere that if you expect to earn less than circa £5000 that you don't have to pay the NI (although you can do it voluntarily? I've just got a big pack of information through the post from Business Link so will have a look at that and see what they say.
Here is a excerpt from a recent email from my accountant.
Re the self employment, you need to register within 3 months of starting, always a difficult one to pin down a precise date but you could say 1st May, 1st June etc whatever's appropriate [Dates for me of course as I made my first sale in June]. You can opt out of paying the class 2 NIC if your profits are likely to be less than £5000 a year or so. CWF1 form is needed to register and CF10 to opt out of class 2 if appropriate. The forms are very simple and you can download them from the HMRC website but do let me know if you need any assistance with themRe the NIC you want to think carefully about this. As a woman (at the moment) you need to have paid 30 years contribution to qualify for state pension, so if you have less than this and want to opt out it's a bit tricky. I decided to go for the class 2 (and I do have 30 years :o - how did that happen), it isn't that much. The forms were easy to find and deal with but it did take ages (as I think I have mentioned) to get anything back from HMRC
Quote from: Zeldazog on September 06, 2011, 10:56:55 PM
Quote from: Sandera on September 05, 2011, 04:06:30 PM
This needs some careful consideration. Although I've sold some items in the local via the local art gallery I haven't gone in to collect my money yet. I will need to speak to the gallery owner to see whether he has charged VAT in which case I assume that the evidence can be used to satisfy VAT return?
I think you'll find that you have to pay VAT on your sales to the gallery, if you're VAT registered - regardless of whether he charges VAT on his sales or not... not sure about that one though.
Regards NI contributions, I *think* if you are employed and earning over a certain amount so that work are paying a portion of your NI as well as you are yourself out your wages, you don't need to be paying the self-employed class contributions as well?
You won't need to charge VAT to the gallery if you're not VAT registered - it just means that the gallery won't be able to claim VAT back on the goods that they purchase from you as none was paid in the first place. They will, however, have to add VAT onto the prices at which they sell any of your beads/jewellery. Personally, I wouldn't go VAT registered since it will either add extra cost to your own personal sales or erode your income. Good luck with your escape plan though. Think my escape plan is going to take about 10 years :(
I've got a class 2 exemption because of low earnings, but I also pay class 1 though my main job so my pension is protected. If I went back to being just self employed again I'd pay the class 2 to protect my pension. Having said that, depending on your age, ask for a pensions statement, you might have already paid enough to qualify for the state pension.