New going alone

[Dixiecat]

Me and my friend are being made redundant in march. We are both on low pay/ low income.
Aside from this, we have an idea to carry on in the same business and get new clients. It will only be us 2 in the business. So can we be sole trader and partner? Is this a thing? As its not going to be a huge profit making enterprise!
So, we have a shared new bank account so we can collect payments/pay for work related things in one place.
Now my other question is if we pay ourselves our 'wages' fortnightly like we're used to, and leave the excess in there (if any!) Where is the paper trail for tax at end of the tax year incase we go over the tax threshold.
We are extremely new to this!
Also does my friend have to her fill her own separate tax return??
Sorry for all the questions ?

 

[Gecko001]

No sole trader plus partner is not a thing, it is a partnership. You both will be in effect be self employed, but will have a partnership agreement. Both of you will have to fill out tax returns. Many businesses operate as partnerships. They usually get a partnership agreement drawn up to spell out how how profits are split up and what happens when one partner gets ill or dies or when one or both of you decide to end the partnership. I would see an accountant for help with the details.

An alternative is sole trader plus employee, but becoming an employer nowadays has a lot of admin. work. You can also set up a Ltd. Company. That provides a good framework within which to work , but can have a few drawbacks such as some of your financial records being made public.

 

[Scalloway]

Now my other question is if we pay ourselves our 'wages' fortnightly like we're used to, and leave the excess in there (if any!) Where is the paper trail for tax at end of the tax year incase we go over the tax threshold.

If you are a sole trader or a partnership your income for tax purposes is the profits from the business. Money you take out is you shifting your own money from one account to another.

You need to keep records if your income and expenditure to allow you to file a self assessment tax return each year and pay the correct tax.

I would recomend having a meeting an accountant at this early stage to avoid hassle in the future.

 

[Newchodge]

Now my other question is if we pay ourselves our 'wages' fortnightly like we're used to, and leave the excess in there (if any!) Where is the paper trail for tax at end of the tax year incase we go over the tax threshold.

It doesn't work like that. As sole traders you do not get wages. All the profit of the business is yours and you will be taxed on it. You can withdraw money every fortnight if you wish but that is nothing to do with HMRC. You will have to complete self assessments whether you are above or below the tax free allowance.

 

[Dixiecat]

Many thanks for replies it's all so helpful

 

[MOIC]

The best advice at this stage is to speak to an accountant, tell them your full plan and let them advise you.

 

[DoolallyTap]

No, don't go and pay for an accountant. You do not need to worry about tax for now.
Just start your business, sell your product, make your profit, take out your drawings and if it works and pays you some money then think about tax implications.
Just get on with whatever it is that creates the income.

 

[Newchodge]

No, don't go and pay for an accountant. You do not need to worry about tax for now.
Just start your business, sell your product, make your profit, take out your drawings and if it works and pays you some money then think about tax implications.
Just get on with whatever it is that creates the income.

As bad advice goes, that has to be in the runnung for really bad.

At the very lest you need to understand how tax woreks for the self employed, which you clearly don't yet. Without knowing that you risk making very expensive mistakes.

 

[Scalloway]

This forum regularly gets posts from people who have gone blundering into self employment seeking advice to extracte them from problems that would not have existed if they had taken some proper advice at the start.

 

[DoolallyTap]

Oh goodness me, what comes first, tax or income. You have to make some money before you pay any tax so concentrating on making the money first has to be the priority. Once that has started to happen you can spend time and effort discovering your liability.

 

[Scalloway]

The OP sounds naive about the ways of business. Somebody like yourself may have the nous to start from scratch and muddle through but not everybody does.

 

[Socio South West]

Agree with @Scalloway and others here - although @DoolallyTap does actually have a point - A lot of newbies in the business world spend far too long worrying about such minor items as the pantone of their logo and not enough working on getting cash flow going.

It's clear that @Dixiecat would benefit from some advice: Hopefully they can find an accountant who will talk to them in layman's terms and not fire streams of monotonous gobbledegook at them. A friendly experienced business head would also give them a few good pointers over a coffee sometime to help them on their way.

One thing - regardless of your relationship at the current time, do make sure you get a proper partnership agreement in place.

 

[MOIC]

Oh goodness me, what comes first, tax or income.

Research, advice and starting correctly.

 

[JEREMY HAWKE]

Oh goodness me, what comes first, tax or income. You have to make some money before you pay any tax so concentrating on making the money first has to be the priority. Once that has started to happen you can spend time and effort discovering your liability.

This reckless attitude will close a fledging business faster than "wasting money " on an accountant .By the time you have got to month 8th your money has been accountanted to the wrong things and your in the s££t especially if you don't know what you are doing .

As opposed to many dreamers lately on here the OP has been straight up with people here and has been offered advice from the professionals.
My advice would be to have a meeting with an accountant
Keep researching your business
Build a good business plan
Understand how much money you will need and how much you will go through
Speak to potential customers
Keep researching and understand small business structure and paying tax when self employed
You may become vat registered and it would be an advantage for you to learn more about this subject
Use this forum read through old threads and ask lots of questions .The answers are sometimes very honest but the members here want to help people they want you to do well

Good luck and welcome to the forum

 

[Dixiecat]

This reckless attitude will close a fledging business faster than "wasting money " on an accountant .By the time you have got to month 8th your money has been accountanted to the wrong things and your in the s££t especially if you don't know what you are doing .

As opposed to many dreamers lately on here the OP has been straight up with people here and has been offered advice from the professionals.
My advice would be to have a meeting with an accountant
Keep researching your business
Build a good business plan
Understand how much money you will need and how much you will go through
Speak to potential customers
Keep researching and understand small business structure and paying tax when self employed
You may become vat registered and it would be an advantage for you to learn more about this subject
Use this forum read through old threads and ask lots of questions .The answers are sometimes very honest but the members here want to help people they want you to do well

Good luck and welcome to the forum

Thankyou

 

[MOIC]

This reckless attitude will close a fledging business faster than "wasting money " on an accountant .By the time you have got to month 8th your money has been accountanted to the wrong things and your in the s££t especially if you don't know what you are doing .

As opposed to many dreamers lately on here the OP has been straight up with people here and has been offered advice from the professionals.
My advice would be to have a meeting with an accountant
Keep researching your business
Build a good business plan
Understand how much money you will need and how much you will go through
Speak to potential customers
Keep researching and understand small business structure and paying tax when self employed
You may become vat registered and it would be an advantage for you to learn more about this subject
Use this forum read through old threads and ask lots of questions .The answers are sometimes very honest but the members here want to help people they want you to do well

Good luck and welcome to the forum

Couldn't agree more!

 

[fantheflames]

These are good questions to ask but it looks like both you and your friend (that you're going into business with) need to understand the difference between self employment, partnership, and limited company. You wouldn't technically pay yourself as there's no payroll for self employment or partnership. You would have a written agreement between that outlines your partnership. On that basis, any money would go straight to you/partner. You would then submit a self assessment tax return to work out taxes. These are easy enough to do on your own, but you may want to speak with an accountant or take a short course to familiarise yourself with this side of business!

 

[BusterBloodvessel]

No, don't go and pay for an accountant. You do not need to worry about tax for now.
Just start your business, sell your product, make your profit, take out your drawings and if it works and pays you some money then think about tax implications.
Just get on with whatever it is that creates the income.

Advice #1: Ignore absolutely everything in the above post.

Advice #2: Ask for recommendations locally (perhaps Facebook etc) of an independent local accountant. Not a big firm who are managing big clients or where you'll be dealing with different people and dictated messages by a PA - someone who is working for themselves and who you will be able to sit down with, have a cup of tea, and tell them what you plan to do. They will give you all the advice you need. It might cost you a few quid (quite possibly not) and it will be worth every penny.

Good luck!

 

[Dixiecat]

These are good questions to ask but it looks like both you and your friend (that you're going into business with) need to understand the difference between self employment, partnership, and limited company. You wouldn't technically pay yourself as there's no payroll for self employment or partnership. You would have a written agreement between that outlines your partnership. On that basis, any money would go straight to you/partner. You would then submit a self assessment tax return to work out taxes. These are easy enough to do on your own, but you may want to speak with an accountant or take a short course to familiarise yourself with this side of business!

We have decided to go into a partnership. We will have to sign an agreement etc apparently .
We've known each other around 10 years and always have been working together as part of a team. Neither of us need to put any money into the business to start it as we already have a customer base and products.

 

[tony84]

When I started out, I left 20% of any income (Income, not profit) in the business.
That meant there was always enough money for the tax man and enough to pay my accountant at the end of the year.

I have never worried about paying the tax man - I have worried about paying myself in the early years.
But you cant just pay yourself a wage. I was always told the first person to get paid is the tax man.

 

[Mark T Jones]

We have decided to go into a partnership. We will have to sign an agreement etc apparently .
We've known each other around 10 years and always have been working together as part of a team. Neither of us need to put any money into the business to start it as we already have a customer base and products.

You don't 'need' to sign a agreement, but you would be foolish not to.

In particular, you need to consider and discuss all of the factors in said agreement

As a general rule, the closer you are personally, the more important the agreement is

 

[DoolallyTap]

Assume that one day you will fall out big time so have an agreement in place to cover this eventuality.

 

[estwig]

I'm firmly in the, crack on make some money first camp!

You're in business, nothing happens until you have some business, pay yourself first, always. Without you there is no business, there isn't any tax to pay without you making money. If it works out and I hope it does, keep half an eye on the fact the taxman will pop up, wanting his pound of flesh.

 

[Newchodge]

I'm firmly in the, crack on make some money first camp!

You're in business, nothing happens until you have some business, pay yourself first, always. Without you there is no business, there isn't any tax to pay without you making money. If it works out and I hope it does, keep half an eye on the fact the taxman will pop up, wanting his pound of flesh.

What about the partnership agreement?

 

[estwig]

What about the partnership agreement?

How can they have a partnership agreement, they don't have a business to partner in!

Make money first!

 

[Newchodge]

How can they have a partnership agreement, they don't have a business to partner in!

Make money first!

They are starting the business as a partnership. First line of first post.

 

[estwig]

They are starting the business as a partnership. First line of first post.

I believe a question was asked, not a statement of intent.

You are so argumentative and pedantic. I'm having a good start to the week, a happy bunny here, please take your pedantry elsewhere.

 

[fantheflames]

We have decided to go into a partnership. We will have to sign an agreement etc apparently .
We've known each other around 10 years and always have been working together as part of a team. Neither of us need to put any money into the business to start it as we already have a customer base and products.

That's great! It does seem like you both have a good understanding - remember, make sure expectations are clear from the beginning and your line of communication is always intact. Friendships can break down in business - no matter how long you've been friends, so remember to always do things so you have an agreement in place.

Excellent news about not having to put money into the business to start with. Having customers and products already in place is amazing. Let us know how you get on, and feel free to leave me a message. New business should always be an exciting time, no matter how much legality you need to do!

 

[DoolallyTap]

Everything you need to know about tax on earnings as a partnership is available free online so there is no need to pay an accountant for this information,.
Get on with selling your product, make some money, (don't spend it all) and worry about tax later.

 

[Scalloway]

Everything you need to know about tax on earnings as a partnership is available free online so there is no need to pay an accountant for this information,.

But does the OP know what they are looking for, what are reputable sources and how to interpret what they find?

 

[Mark T Jones]

I'm firmly in the, crack on make some money first camp!

You're in business, nothing happens until you have some business, pay yourself first, always. Without you there is no business, there isn't any tax to pay without you making money. If it works out and I hope it does, keep half an eye on the fact the taxman will pop up, wanting his pound of flesh.

If it was a sole trader I'd be inclined to agree

Partnerships can get messy very quickly (you might argue, the earlier the better) These people should at least be having detailed, noted discussions about duties, responsibilities and outcomes, whether or not they choose to document them.

 

[estwig]

If it was a sole trader I'd be inclined to agree

Partnerships can get messy very quickly (you might argue, the earlier the better) These people should at least be having detailed, noted discussions about duties, responsibilities and outcomes, whether or not they choose to document them.

You're absolutely right, they can get very messy indeed.

A sensible discussion is what is needed at an early stage, not legal papers, contracts and other such stuff, adults talking is the answer.

I have several 'partnerships' with builders, kitchen guys, double glazing guys and so on. A sensible discussion has been had with all of these, everyone knows what is expected of them, from a certain set of circumstances. This was all laid out well in advance, without anything more than a handshake.

 

[Mark T Jones]

Everything you need to know about tax on earnings as a partnership is available free online so there is no need to pay an accountant for this information,.
Get on with selling your product, make some money, (don't spend it all) and worry about tax later.

Given that the UK famously has the most complex tax regime I the world, I'd suggest that 'getting it free online' has to qualify as dangerous advice

 

[DoolallyTap]

Gov.UK is the Government website which does

Given that the UK famously has the most complex tax regime I the world, I'd suggest that 'getting it free online' has to qualify as dangerous advice

GOV.UK is the Government website which tells you everything and is probably not dangerous advise, and it's free.
GOV.UK

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Part ofSet up as self-employed (a 'sole trader'): step by step

Working for yourself​

If you start working for yourself, you’re classed as a sole trader. This means you’re self-employed - even if you have not yet told HM Revenue and Customs (HMRC).
This guide is also available in Welsh (Cymraeg).

Running a business​

You’re probably self-employed if you:

• run your business for yourself and take responsibility for its success or failure
• have several customers at the same time
• can decide how, where and when you do your work
• can hire other people at your own expense to help you or to do the work for you
• provide the main items of equipment to do your work
• are responsible for finishing any unsatisfactory work in your own time
• charge an agreed fixed price for your work
• sell goods or services to make a profit

Many of these also apply if you own a limited company but you’re not classed as self-employed by HMRC. Instead you’re both an owner and employee of your company.
You can be both employed and self-employed at the same time, for example if you work for an employer during the day and run your own business in the evenings.
You can check whether you’re self-employed:

• online using the check employment status for tax tool
• by phone

Selling goods or services​

You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be trading if you:

• sell regularly to make a profit
• make items to sell for profit
• sell items on a regular basis, either online, at car boot sales or through classified adverts
• earn commission from selling goods for other people
• are paid for a service you provide

If you only occasionally sell items or rent out property (for example through auction websites or short-term rental apps), check if you need to tell HMRC about this income.
Contact HMRC for advice if you’re not sure whether you’re trading.

Registering as self-employed​

If you’re self-employed, you may need to set up as a sole trader.

Other ways to work for yourself​

There are other business structures apart from being a sole trader. For example, you can:

• become a partner in a business partnership
• set up your own limited company

Get help with your business​

You can get help with setting up or growing your business, for example with funding your idea.

Part ofSet up as self-employed (a 'sole t​

 

[Scalloway]

I am currently engaged in another thread with a UKBF member who is trying to go it alone without an accountant. I am reminded of the time when I was a young fellow trying to service my own car. It can be done but the time and hassle involved made me realise that I was far better handing the job over to somebody who did it for a living and could do it quickly and correctly.