Escape plan

[Sandera]

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?

[tinker]

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.

[Kalorlo]

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.

[Sandera]

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.

[stuwaudby]

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.

[Lotti]

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).

[Lynnybobs]

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.

[Sandera]

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?

[Lotti]

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. 

[Sandera]

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.

[ejralph]

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

[Kaz]

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

[Zeldazog]

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?

[awrylemming]

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.

[Sandera]

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!!