What constitutes a business and should I start one?

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First of all the facts.

Buying to sell or making to sell constitutes running a business.

A business seller has an obligation to offer greater protection to buyers who purchase fixed price items.

You need to register your business with HMRC within 3 months of starting your business.

Your business is deemed to be started from the day you start buying/making to sell.

If you do not register within the 3 month period you may face a £100? fine.

This is dependant on your profits exceeding the NIC class 2 level which stands at around £5000? for your first year of trading.

As a business you may be able to get a lot of financial help in the form of grants.

If you run your business as a sole trader any losses your business makes (You are not expected by the government to make a profit in your first year of trading) can be offset against any PAYE that you pay for that financial year.
This means you would be entitled to a tax rebate.

This may well drop your income to a level whereby you are also entitled to an increase in benefits such as Working Tax Credit, Child Tax Credit, Council Tax Benefit etc...

For many new businesses these benefits are the difference to being able to continue running your business and going under.

The government make it extremely simple to register as self employed (It can all be done in a couple of mins on the phone) and if your turnover is less than £15,000 for the tax year then your tax return is a very simple 3 line form.

Now for my opinion

Running a business is extremely stressful, very hard work, requires a certain degree of organisation and a lot of record keeping.

It is very easy to take your eye off the ball and forget about trying to make a profit when thinking/worrying about whether or not you have entered the right figures into the right columns and concerns about what actually constitutes a legitimate expense.

I would heartily recommend a trip over to the business forum and have a really good read up on the posts by TalkInPeace and have a good read of her "Me" page.

Business forum

TiP's Me page

Remember that your cost of sales are the cost of your sold stock, the cost of listing and PayPal fees, the cost of your Internet connection, any wages paid out to family, cost of packaging, posting, equipment such as P.C., Digital Camera (Purchased specifically for the business but who will ever know?) and you can incorporate your car or petrol expenses for business use plus a whole lot more.

Once all these costs have been removed from your turnover if there is anything left then this is your profit that you will have to pay tax on (if your earnings have reached the required level).

If there is a negative amount left then you have made a loss and this will come off your total income for the tax year.

Purely fictitious example.

£20,000 salary on PAYE with a £5,000 tax allowance means you will pay 25% tax on £15,000 prorated monthly

Business makes a £5,000 loss for the tax year this means that your income for the year is

£15,000 and you pay tax on £10,000.

This means you have paid tax on £5,000 you have not earned and you reclaim this at the end of the year and you make sure that you get the extra WTC etc benefits.

File your tax return online before the deadline and it is all automatically calculated for you.

Think carefully before starting a business. It is extremely rewarding as well as stressful but is not suited to everyone.
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