Business Baffled!

[Andyjp1]

Hi All,

First of all, thanks for opening my thread, ill try and keep this as limited as possible.

Myself and a good friend have decided to start a business whereby we offer exterior cleaning services to domestic properties (Pressure washing/window cleaning/gutter cleaning etc)

We've gone halves on the tools/equipment.

We've no issue getting customers/doing a good job - We're just not 100% clued up on the finance/business side.

We've both full time employed PAYE jobs and want to do this cleaning as a "side hustle" , we just want some direction as to how to deal with the finance stage/paying taxes/national insurance etc.

So for example.

Customer A - Wants to have her Gutters cleaned out, this costs her £80.
She transfers the monies to a newly set up account of £80.
Customer B - Wants his driveway cleaned, this costs £200, including is this is sand and a chemical treatment which costs us £15.
This again is transferred to our bank account.

We've now got £280 in the bank account from 2 jobs completed, £15 of this is additional materials purchased to do the job whereby we've obtained receipts.

Both me and partner now wish to take £100 each out of the bank for the works completed leaving £80 left.
What do we do with these funds?

We understand that there is 20% or so the tax man will need to have, but how? where? when to we file this?

What's recommended to use to keep a file of works/costs completed?

As it stand's, we wont be paying ourselves a salary, we'd just take money out of each job, leave some in for the business for new tools and also for Tax.

Would we be eligible to claim back vat? on any tools purchased with receipts? We wont be Vat registered ourselves as wont be meeting the high threshold.

Thanks for reading, hope this makes sense.

Andy

 

[Andyjp1]

Also, to add to the above, what If I want to start cleaning windows for a company? Lets say Selected McDonalds and the local chippy?

 

[japancool]

Ouch. Where to begin...

First of all, you need to decide how you are going to structure the business. Both of you as sole traders? A partnership? A limited company?

Each has its advantages and disadvantages. Once you have decided, you need to register the business (or register yourselves as sole traders, if you are going down that route).

Once you do so, HMRC will communicate with you regarding your tax and provide you with a UTR. You will have to submit accounts (or, if sole traders, you fill in a self-assessment tax return) to them each year, and pay your corporation tax.

For keeping track of income and expenses, it's best to use some accounting software, but you'll have to learn to do bookkeeping, or pay someone to do it. If your incomings and outgoings are fairly limited and simple, you could do it on a spreadsheet. Quickbooks and Xero are popular, and some business bank accounts come with free access to FreeAgent.

If many of your clients are businesses, you may wish to register for VAT. You will have to do so if your turnover exceeds £85,000.

You'll also need insurance in case one of you falls off a ladder or you break a customer's windows. @Frank the Insurance guy is your man for that.

Before Wavejumper jumps in to tell you that you need an accoutant... getting an accountant is a good idea if your business grows to any substantial size.

Unfortunately, if you don't know this side of things at all, it's a very broad topic, but ask and we will try to help.

 

[Socio South West]

@Andyjp1 You paint a very simple picture of the business model.

Among other things.....

You have to have a vehicle to get to the jobs so running and depreciation of that.

You have insurance to fund - vital if you are working around customer's houses

You have advertising and marketing to fund: Initial word of mouth soon dries up.

Equipment wears out/breaks down so that has to be funded....

If you are working towards making this a full time business you must start factoring in your NI. Pensions and Income tax

If your business is to sustain, you need to do these things (and several more) BEFORE you start drawing from it. That is what the residual funds go for - but I suggest you will need more than your figures indicate.

Above all - it might be a small business and not much at stake, but make sure you get a clear partnership agreement drawn up between the two of you.

 

[MBE2017]

A lot to cover, best advice is chat to a local accountant, who will explain what you need to do from a record keeping point of view, paying yourselves etc.

Whilst you are not VAT registered, you will not be able to reclaim any VAT, but you do not have to reach the compulsory level to register for VAT, to actually register for VAT.

If you think a lot of larger companies might use you, being VAT registered would be beneficial since they would want a VAT receipt, but some might pay just on a standard invoice.

 

[pentel]

You do both have a £1000 trading allowance. So assuming you are splitting the income ( not profit) and it is less than £2000 in total each year then there is nothing to report.

 

[Andyjp1]

You do both have a £1000 trading allowance. So assuming you are splitting the income ( not profit) and it is less than £2000 in total each year then there is nothing to report.

Thank you for your reply, we'd be intending to make than £1000 a year.

 

[pentel]

Thank you for your reply, we'd be intending to make than £1000 a year.

I am sure that is the plan. However things don't always go to plan so why not do the first few jobs, Leave the money in the company / partnership and use that money to pay an accountant to go through your options with you and get your systems in place?

 

[Andyjp1]

Ouch. Where to begin...

First of all, you need to decide how you are going to structure the business. Both of you as sole traders? A partnership? A limited company?

Each has its advantages and disadvantages. Once you have decided, you need to register the business (or register yourselves as sole traders, if you are going down that route).

Once you do so, HMRC will communicate with you regarding your tax and provide you with a UTR. You will have to submit accounts (or, if sole traders, you fill in a self-assessment tax return) to them each year, and pay your corporation tax.

For keeping track of income and expenses, it's best to use some accounting software, but you'll have to learn to do bookkeeping, or pay someone to do it. If your incomings and outgoings are fairly limited and simple, you could do it on a spreadsheet. Quickbooks and Xero are popular, and some business bank accounts come with free access to FreeAgent.

If many of your clients are businesses, you may wish to register for VAT. You will have to do so if your turnover exceeds £85,000.

You'll also need insurance in case one of you falls off a ladder or you break a customer's windows. @Frank the Insurance guy is your man for that.

Before Wavejumper jumps in to tell you that you need an accoutant... getting an accountant is a good idea if your business grows to any substantial size.

Unfortunately, if you don't know this side of things at all, it's a very broad topic, but ask and we will try to help.

Ouch. Where to begin...

First of all, you need to decide how you are going to structure the business. Both of you as sole traders? A partnership? A limited company?

Each has its advantages and disadvantages. Once you have decided, you need to register the business (or register yourselves as sole traders, if you are going down that route).

Once you do so, HMRC will communicate with you regarding your tax and provide you with a UTR. You will have to submit accounts (or, if sole traders, you fill in a self-assessment tax return) to them each year, and pay your corporation tax.

For keeping track of income and expenses, it's best to use some accounting software, but you'll have to learn to do bookkeeping, or pay someone to do it. If your incomings and outgoings are fairly limited and simple, you could do it on a spreadsheet. Quickbooks and Xero are popular, and some business bank accounts come with free access to FreeAgent.

If many of your clients are businesses, you may wish to register for VAT. You will have to do so if your turnover exceeds £85,000.

You'll also need insurance in case one of you falls off a ladder or you break a customer's windows. @Frank the Insurance guy is your man for that.

Before Wavejumper jumps in to tell you that you need an accoutant... getting an accountant is a good idea if your business grows to any substantial size.

Unfortunately, if you don't know this side of things at all, it's a very broad topic, but ask and we will try to help.

Thank you for your reply

It will be a partnership - 50/50.
But... If I do a job alone, i'd expect to take all monies from it.
If he does a job, likewise.
Any larger jobs we action together, we'd split earnings... This is where is gets messy with accounts?

We dont intend to earn over 85,000 - yet

Insurance we are in the middle of sorting.

 

[Andyjp1]

Thanks for the reply.

We're currently using our own Cars (Large) for this until a van is purchased.

Insurance we're sorting now.

With regards to extra funds etc, we'd be taking a cut of profits and leaving some in a bank for things like tools/advertising etc.

We are working towards making this full time but believe we are a long way off this at the moment, just filling up our days off with extra work.

We need to get a partnership agreement drawn up for sure.
@Andyjp1 You paint a very simple picture of the business model.

Among other things.....

You have to have a vehicle to get to the jobs so running and depreciation of that.

You have insurance to fund - vital if you are working around customer's houses

You have advertising and marketing to fund: Initial word of mouth soon dries up.

Equipment wears out/breaks down so that has to be funded....

If you are working towards making this a full time business you must start factoring in your NI. Pensions and Income tax

If your business is to sustain, you need to do these things (and several more) BEFORE you start drawing from it. That is what the residual funds go for - but I suggest you will need more than your figures indicate.

Above all - it might be a small business and not much at stake, but make sure you get a clear partnership agreement drawn up between the two of you.

 

[Andyjp1]

I am sure that is the plan. However things don't always go to plan so why not do the first few jobs, Leave the money in the company / partnership and use that money to pay an accountant to go through your options with you and get your systems in place?

Sounds like good advice to me

 

[DWS]

As mentioned above with a partnership getting an Accountant and a partnership agreement in place should be a must, also remember you will be taxed on profits not only what you withdraw from the business, so if this pushes you into the higher rate bracket with your PAYE then you will be taxed at 40%

 

[brucegreig]

Not sure that all of the original poster's questions were answered, so here goes:

We've now got £280 in the bank account from 2 jobs completed, £15 of this is additional materials purchased to do the job whereby we've obtained receipts.

--> I think you will have £265 in your bank account. £280 in, less the £15 you spent on materials. In accounting terms, you have revenue of £280, costs of £15 and profit of £265

Both me and partner now wish to take £100 each out of the bank for the works completed leaving £80 left.
What do we do with these funds?

--> It doesn't matter where you move the money. You pay tax on the profit (which is £265), whether you actually move it into your personal account or leave it in the business account.

We understand that there is 20% or so the tax man will need to have, but how? where? when to we file this?

--> The actual tax rate depends on how much you earn in total (including from your PAYE job). Google "UK Income Tax and National Insurance rates" to find the different rates. You need to tell HMRC that you are trading (Google "Notify HMRC that I am self employed") and they will then ask you to complete a tax return each year. They will calculate the tax you need to pay based on the amounts you tell them (broadly speaking: revenue, expenses, profit, as above) and tell you when to pay it (usually half in January, half in July of each year - but you can also ask HMRC to adjust your PAYE tax code so they actually collect the tax from your side hustle through your payslip.)

What's recommended to use to keep a file of works/costs completed?

--> There are lots of online services for this ("online accounting software") like Xero / Kashflow / Freeagent.

Would we be eligible to claim back vat? on any tools purchased with receipts? We wont be Vat registered ourselves as wont be meeting the high threshold.

--> This was answered above by others, but just for further clarity: If you have revenue above £85k you must register for VAT. You can voluntarily register below that threshold if you want to. Once you register, you must charge your customers VAT and you can reclaim any VAT which you pay on expenses. So if your customers are themselves VAT registered (i.e. they are businesses, not members of the public) then it makes sense for you to register voluntarily. They don't mind that you add VAT (because they claim it back) and you get to claim back the VAT on your chemicals, tools, etc.

 

[IanSuth]

I did a degree that included accounting - the yr1 accounting text book started with a guy going to clean windows, then getting a ladder etc etc

It showed exactly how you add each transaction to your accounts - it might be worth going to your local library (or charity book shop) and looking for a simple accounting text book (an introduction to or dummy's guide kind of thing)

If nothing else it will make your conversations with the accountant easier as you will understand the concepts they have to work to

 

[SBC Marketing]

The most advisable course of action for you is to seek out a reputable local accountant who provides free consultations and obtain guidance from them. If feasible, consider consulting with three different accounting firms, compare their recommendations, and then make an informed decision. They will also offer insights into the most suitable legal structure for your side hustle. It's important to note that you cannot reclaim Value Added Tax (VAT) unless your business is registered for VAT."

 

[ahr56]

Hi All,

First of all, thanks for opening my thread, ill try and keep this as limited as possible.

Myself and a good friend have decided to start a business whereby we offer exterior cleaning services to domestic properties (Pressure washing/window cleaning/gutter cleaning etc)

We've gone halves on the tools/equipment.

We've no issue getting customers/doing a good job - We're just not 100% clued up on the finance/business side.

We've both full time employed PAYE jobs and want to do this cleaning as a "side hustle" , we just want some direction as to how to deal with the finance stage/paying taxes/national insurance etc.

So for example.

Customer A - Wants to have her Gutters cleaned out, this costs her £80.
She transfers the monies to a newly set up account of £80.
Customer B - Wants his driveway cleaned, this costs £200, including is this is sand and a chemical treatment which costs us £15.
This again is transferred to our bank account.

We've now got £280 in the bank account from 2 jobs completed, £15 of this is additional materials purchased to do the job whereby we've obtained receipts.

Both me and partner now wish to take £100 each out of the bank for the works completed leaving £80 left.
What do we do with these funds?

We understand that there is 20% or so the tax man will need to have, but how? where? when to we file this?

What's recommended to use to keep a file of works/costs completed?

As it stand's, we wont be paying ourselves a salary, we'd just take money out of each job, leave some in for the business for new tools and also for Tax.

Would we be eligible to claim back vat? on any tools purchased with receipts? We wont be Vat registered ourselves as wont be meeting the high threshold.

Thanks for reading, hope this makes sense.

Andy

Ignore the naysayers. Plenty on this site.
If it were up to those who frequent this site, nobody would ever start a business.

I'm happy for you to PM me and I'll give some practical advice - I used to work for an accounting firm.

 

[japancool]

I'm happy for you to PM me and I'll give some practical advice - I used to work for an accounting firm.

The one that you started working for in May?

 

[ahr56]

The one that you started working for in May?

I have worked in accounting since 2017.

 

[Mark T Jones]

Ignore the naysayers. Plenty on this site.
If it were up to those who frequent this site, nobody would ever start a business.

I'm happy for you to PM me and I'll give some practical advice - I used to work for an accounting firm.

Why not give practical advice on here? That's the essence of a forum.

 

[ahr56]

Why not give practical advice on here? That's the essence of a forum.

Because very many of the regulars are energy suckers and naysayers.

 

[Chris Ashdown]

So
You have £1000 each personal allowance to start experimenting with before you have to do anything, after that you have register

There are lots of simple cash based software that is simple to use have a look at one of the market leaders https://quickbooks.intuit.com/uk/?dclid=COmy9bK4zYEDFXdBpAQdS8IJ_g

You will need a business bank account and in most cases the bank will provide some guide to starting a business for free, including a spreadsheet and how to do a cashflow projection

Talk to a insurance broker to make sure you have the correct insurance

To start you may find a Bookkeeper who will do your books and PAYE, NI etc at a lot less than a full accountant, look in local papers or visit library

Keep a full record of each job and have a duplicate record book with job description and name and address of each customer, give one copy as a invoice / paid sheet of the duplicate to your customers

Window cleaning these days you need water filtration, the long poles and a water tank and hose to reach all windows, ladders are old hat these days google search "window cleaning equipment"

Good luck

 

[DoolallyTap]

On this site you will always get a huge mix of assorted advise and points of view. People are very clever with 'if I were you what I would do'.
Here's my 10p worth. You say - we have no issue getting customers, well, go and get some, do the work bank the money and see how it goes for a couple of months.
Leave the money in the bank.
You said you want to be partners!! what do you mean - Both of you as sole traders? A partnership? A limited company? then you said if you do a job you keep all the proceeds and if your partner does a job he keeps all the proceeds, how soon will it be before you fall out??
Who paid for the equipment you purchased? 50/50 or otherwise? what if your partner uses the equipment for his own job, will he pay you a fee for using your half of the equipment, some partnership that would be!
And, all those who say get a bookkeeper, get an accountant, get a legal document, spend loads before earning anything. yes, eventually perhaps a couple of months down the line. But first get some business, get some money in, see if it works, decide the structure, partnership/ltd.
A 50/50 partnership may not work, are you both leaders or is one of you a stronger leader than the other?
Have you written a business plan and a P&L forecast?
and more and more and more!!

 

[eteb3]

So
You have £1000 each personal allowance to start experimenting with before you have to do anything, after that you have register

This is a partnership. £1000 trading allowance doesn’t apply:

BIM86032 - TMIA - Exclusions: Income from connected partnerships - HMRC internal manual - GOV.UK

www.gov.uk

On OP’s info, it’s a partnership already, and default provisions of the Partnership Act (1890!) apply to them right now.