New business question!

[Brighton1973]

Firstly hello - new to the forum!

I am about to launch a new business selling digital downloads and had a couple of questions.

I am going to be using PayPal as my main selling tool and was wondering what the protocol is for declaring tax on this income. Does the income only become taxable when it leaves you paypal account and enters your business account?

My second question is this. I have paid the folks who helped me set up the business a 2% cut of net profit each. I will be paying them by cheque once a month. Where do I stand regarding their positions within the company? Are they my 'employees' or simply 'private contractors'... and again where do i stand regarding tax.

Any help would be hugely appreciated.

Warren

PS - Excuse my ignorance please!!

[DavidT]

Hi Warren

I suppose to start - PayPal wouldn't be a sales tool so much but more a tool for merchant (card) facilities.

As far as PayPal goes - it's not treated unlike any other bank account. Income for tax purposes is effectively when it is earnt regardless when it is paid or how it is paid. Usually for your business and taking immediate payment via PayPal, this will be when your income is earnt and seen as taxable.

With the people that have helped you start - is it a Ltd company? Depending on the details, they could be given a share in the company or this could be done as a commission type payment to them... something I'd recommend getting advice on.

David Toohey

(http://www.accountantscircle.co.uk/) (http://www.accountantscircle.co.uk/FindAccountants/FindMeanAccountant/tabid/529/Default.aspx)

[Mantarae]

In addition, they are definitely not your employees. You've simply entered into a contracted agreement to pay them a percentage of profits. If you haven't got any sort of contract in place, make sure you do that to cover details of what the 2% is classed towards, when payments stop, etc. You don't want a lawsuit taking place in 20 years time when your company's worth £5billion, and these guys still want 2% of that stake! ;-)

As mentioned by David, I'd definitely look into offering company shares if that's a viable option.