Starting/Owning Your Own Business

[Suspect Device]

Just now, SimonLichtie said:

How do you work that out?!

Are you saying you pay 50% tax on gross income? After you've paid your 50%  tax on gross income, you then still need to pay for all your overheads etc?!

 

Possibly including VAT and working in a job that means you can't claim much back.

Basically you need to remember that the company account is not your money until you take it out as income or dividends. As said by someone previously, if you get a good accountant, they will explain the best way to structure the money you take out to avoid paying more tax than necessary. AVOID, not evade mind you. big difference.

One thing that can be a worry is the bit between invoicing for work and getting  paid. I've been working at a new client company since 7th March and they haven't paid me yet because I put in an invoice which will not be paid until 30th April.

 

[Jacksgranda]

21 hours ago, Granny Danger said:

In my case it’s was not planned.  Got a job in an industry I hadn’t worked in before and the company went bust 6 months later (not my fault!).

So I had limited choices.

Unless you have a very unique skill or incredibly good contacts you should expect a drop in salary in the initial stages.

Also you need a reasonable amount of capital; many small businesses go bust because they run out of money rather than because their unprofitable.  Yes the two can be linked but some folk confuse profit with cash flow.

You should be prepared to work long/longer hours initially.  I did but after 22 years I now only work about 30 hours each week and take many holidays.

Good luck if you decide to go down this route.

 

^^^This

8 hours ago, alta-pete said:

Oh, and half of the gross income (if you are working alone) whichever way you slice it, ends up back with HMRC. Know that from the start and you’ll be fine. Delude yourself and you’re done from day 1.

^^^This

17 minutes ago, statts1976uk said:

A good and trusted accountant is key, unless you are one spend the money and hire one. They might end up paying for themselves by finding savings and loopholes.

They should end up paying for themselves

[Scary Bear]

21 hours ago, Honest_Man#1 said:

I’m fairly sure @Granny Danger has mentioned owning his own business on here before. I like the idea of not working for a company that couldn’t give a f**k about you and being able to actually work for something you care about.

The main thing that makes me nervous is not having a guaranteed income, as it’s nice knowing that the same amount of money will drop into the account at the same time every month.

Anyone else own/owned a business? Is/was it worth it or was the pressure too much?

I am thinking of developing a truly flushable and biodegradable wetwipe for the adult market. I will have this approved by the water supply industry and make my fortune. Are you interested in investing?

[SimonLichtie]

19 minutes ago, Suspect Device said:

 

Possibly including VAT and working in a job that means you can't claim much back.

Basically you need to remember that the company account is not your money until you take it out as income or dividends. As said by someone previously, if you get a good accountant, they will explain the best way to structure the money you take out to avoid paying more tax than necessary. AVOID, not evade mind you. big difference.

One thing that can be a worry is the bit between invoicing for work and getting  paid. I've been working at a new client company since 7th March and they haven't paid me yet because I put in an invoice which will not be paid until 30th April.

 

While I see the point your making the statement 'half of the gross income (if you are working alone) whichever way you slice it, ends up back with HMRC.' is utter shite for the majority of those who are self employed.

Unless you reach the VAT threshold, there is absolutely no way you should be paying anywhere near 50% net income in tax, let alone 50% gross income!!

Your average self employed person (sole trader or company, regardless of taking a wage or paying yourself a dividend) with a turnover of say 50k, and a wage/ dividend to themselves of 30k should be paying under 4k in tax, and this is before all of the deductions for legitimate business expenses which will be claimed back and depending on the business probably result in a significant tax rebate, no?

Even if I'm slightly off in my example, and there are no expenses to claim back against tax, you'd be looking at a 50k turnover (gross), 30k profit/ wage/ dividend (net) and 4k paid in tax.

4k of 50k is not certainly not anywhere close to half of your gross income ending back with HMRC!

While what the boy said may be true for himself (still no idea how it would be 50% of gross, I guess VAT registered would make a big difference but not that big a difference....) but for the vast majority of those self employed in the UK they would be paying absolutely no-where close to that....

Obviously I could be wrong on this; happy for it to be explained why I am if so, I'm sure others will know better than I do...

[Suspect Device]

I don't think he meant exactly 50% but just pointing out that a large amount of what you take in gross has to be kept for tax you pay out later. I know a boy who thought that all the cash he got was his  exactly what he liked with and he got himself into a heap of bother with HMRC when they came looking for their cash.

(and no, it wasn't Craig Whyte)

Edit: I agree that the 50% figure isn't accurate but I'd point out that small businesses get screwed far more than the big business. I paid more corporation tax than Facebook one year for instance. 

[Granny Danger]

The whole VAT thing for small businesses is misleading.  If you are not registered of course you do not need to charge it but equally you cannot claim back input tax.  If you are self employed and the bulk of your costs are labour then there is a definite benefit, otherwise not so much.

There are many companies that should be VAT registered and aren’t and that pisses me off; particularly if they are competitors.

 

[Suspect Device]

VAT is a pain for me because I don't breach the threshold these days but I could if I invoiced for a 5 week month with a lot of hours overtime so I have to stay registered. Since the government changed the flat rate VAT scheme, I can only claim back VAT on business expenditure which I don't have much of. I just become a tax collector for HMRC.

I worked out my tax rate for last year and it was 26% including VAT so nothing like the 50% figure quoted. 

[Jacksgranda]

27 minutes ago, Suspect Device said:

I don't think he meant exactly 50% but just pointing out that a large amount of what you take in gross has to be kept for tax you pay out later. I know a boy who thought that all the cash he got was his  exactly what he liked with and he got himself into a heap of bother with HMRC when they came looking for their cash.

(and no, it wasn't Craig Whyte)

Edit: I agree that the 50% figure isn't accurate but I'd point out that small businesses get screwed far more than the big business. I paid more corporation tax than Facebook one year for instance. 

I used to try to put aside 25% of gross.

[thistledo]

You shouldn't pay 50% of your income to HMRC, if you are, you are doing something wrong or your accountant is. 

I have my own business, but i'm a contractor so it's fairly different to actually running your own business as it's just me. So the best advice I have on offer is find the right accountant, there is a lot they can help with in terms of being tax efficient. 

 

 

[alta-pete]

8 hours ago, SimonLichtie said:

While I see the point your making the statement 'half of the gross income (if you are working alone) whichever way you slice it, ends up back with HMRC.' is utter shite for the majority of those who are self employed.

Unless you reach the VAT threshold, there is absolutely no way you should be paying anywhere near 50% net income in tax, let alone 50% gross income!!

Your average self employed person (sole trader or company, regardless of taking a wage or paying yourself a dividend) with a turnover of say 50k, and a wage/ dividend to themselves of 30k should be paying under 4k in tax, and this is before all of the deductions for legitimate business expenses which will be claimed back and depending on the business probably result in a significant tax rebate, no?

Even if I'm slightly off in my example, and there are no expenses to claim back against tax, you'd be looking at a 50k turnover (gross), 30k profit/ wage/ dividend (net) and 4k paid in tax.

4k of 50k is not certainly not anywhere close to half of your gross income ending back with HMRC!

While what the boy said may be true for himself (still no idea how it would be 50% of gross, I guess VAT registered would make a big difference but not that big a difference....) but for the vast majority of those self employed in the UK they would be paying absolutely no-where close to that....

Obviously I could be wrong on this; happy for it to be explained why I am if so, I'm sure others will know better than I do...

Sorry have caused such a froth and having now worked through it I am out, but not by much.  Trying to keep it simple with round numbers, lets say I turnover £100k gross. I have breached the VAT threshold and have to register for VAT. Customers pay for my time so I dont have any serious amount of input VAT. Net result is that I'm handing HMRC about £14k pa in VAT.

The way I'm set up, I take a modest salary that breaches the thresholds for both PAYE and NIC. Good practice (so I am told) as it keeps me on HMRC's PAYE radar and I make the required NIC contributions to ensure I evenually get my State Pension. I also run my (expensive) car and fuel through the business - which I know is not personally tax efficient but suits me and my circumstances. Thats about £5k pa on PAYE & NIC.

Again, it is my time people pay for so I have no stock purchases and little in the way of deductible valid cost expenses. My business is me, a car, a laptop and a mobile phone.

So after all that, lets say me (the company) has made a £60k profit. Corporation Tax on that at 20% (and, yes I know it is actually 19% for all the pedants out there) is £12k.

Of that £60k profit, I choose to take £40k as dividend. Breaching the 40% higher rate tax threshold by £15k means I pay an extra £6k on the self assessment form the following January.

So, for the £100k gross turnover,

£14k in VAT

£5k PAYE/NIC

£12k Corporation Tax

£6k Self Assesment Income Tax

So £37k (37%) has gone in taxation in one form or another.  You should probably be adding in for some form of contingency in case someone get their sums wrong so 40-something% isnt wildly out.

Agreed, 50% was a bold statement. But if I budget for losing the 50% to HMRC, I've got a safety net. Budgeting on losing 30% and I've got a nasty surprise coming my way...

 

 

 

[Father Ted]

Nine years running my own business. Fed up working for eejits. Took my chance at construction slowdown circa 2009. I've never regretted it, wish I had done it sooner.

Initially, if you can handle the reduced income, after year 2 you will reap the benefits as you become established.

Early days though you need low overheads personally. For example if you have a family, it might prove more difficult. In that case I would suggest doing it part time until you become established, if possible.

If you do go ahead, remember to put cash past to pay HMRC and don't forget to take time off.

[Suspect Device]

Also make sure that you have savings from the good years to tide you over in the bad years. 

I as looking back over my accounts and the turnover varied by an enormous amount so I'm glad I was sensible and didn't blow money on drugs and hookers. Well, not all the money anyway.

[Melanius Mullarkey]

3 minutes ago, Suspect Device said:

Also make sure that you have savings from the good years to tide you over in the bad years. 

I as looking back over my accounts and the turnover varied by an enormous amount so I'm glad I was sensible and didn't blow money on drugs and hookers. Well, not all the money anyway.

What if you run a brothel?

[Jacksgranda]

24 minutes ago, Suspect Device said:

Also make sure that you have savings from the good years to tide you over in the bad years. 

I as looking back over my accounts and the turnover varied by an enormous amount so I'm glad I was sensible and didn't blow money on drugs and hookers. Well, not all the money anyway.

 

20 minutes ago, Melanius Mullarkey said:

What if you run a brothel?

That could be written off as expenses against tax, as they would be business investments.

[Fullerene]

54 minutes ago, Suspect Device said:

Also make sure that you have savings from the good years to tide you over in the bad years. 

I as looking back over my accounts and the turnover varied by an enormous amount so I'm glad I was sensible and didn't blow money on drugs and hookers. Well, not all the money anyway.

I was going to say you sound a bit like George Osborne here but not entirely.

[Granny Danger]

1 hour ago, Suspect Device said:

Also make sure that you have savings from the good years to tide you over in the bad years. 

I as looking back over my accounts and the turnover varied by an enormous amount so I'm glad I was sensible and didn't blow money on drugs and hookers. Well, not all the money anyway.

I’ve encountered a few reasonable sized businesses over the years where the owners milked them during the good times (nothing wrong with that) but we’re very unwilling to put money back in when there was a downturn.

I’ve had to put money back in over the years, particularly after the 2008-09 downturn; but also sometimes as short term loans to deal with cash flow issues.

 

[ICTChris]

32 minutes ago, Granny Danger said:

I’ve encountered a few reasonable sized businesses over the years where the owners milked them during the good times (nothing wrong with that) but we’re very unwilling to put money back in when there was a downturn.

[Cerberus]

Start a new Italian restaurant. Use low fat ingredients and call your Italian fast casual eatery, the Low Cal Calzone Zone.

[Sweet Pete]

On 11/04/2018 at 20:42, Father Ted said:

Nine years running my own business. Fed up working for eejits. Took my chance at construction slowdown circa 2009. I've never regretted it, wish I had done it sooner.

Initially, if you can handle the reduced income, after year 2 you will reap the benefits as you become established.

Early days though you need low overheads personally. For example if you have a family, it might prove more difficult. In that case I would suggest doing it part time until you become established, if possible.

If you do go ahead, remember to put cash past to pay HMRC and don't forget to take time off.
 

That was my experience, young family, scattered income in the early days of becoming established. On some jobs I was making more than when I'd been salaried, other weeks I was quiet. I gave it 6 months and then got an offer to become a subcontractor for a new company doing similar work that was started by a former employer and took that so don't have to self generate work anymore. 

I found that in the early days of being self employed you spend endless amounts of time and your own finite capital chasing and quoting work. That didn't suit my personal circumstances with a newborn and a toddler. My wife described me as a ghost in the house, spending 40 hours a week chasing work on top of the 40 doing work. Also, I found it easy to get sucked into working longer hours and more days with the attitude of "it's for me anyway, I get paid quicker if it's done quicker, make hay while the sun shines".

 

[Guest bernardblack]

Start a new Italian restaurant. Use low fat ingredients and call your Italian fast casual eatery, the Low Cal Calzone Zone.

Ben Wyatt?


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