Starting a business and not taking a wage

[kenabiss]

Hi,

I am looking to start a business selling items online. I currently earn over £60k in my day job and want a side business (for the moment) in which I do not intend to earn a wage but reinvest back straight back into the business increasing stock and advertising, earning limited profits with the view that in a few years time I will have built enough stock, equity and capital that I would be able to leave my job and run the business full time whilst taking a wage.

I understand that this can be undertaken and that any profits would be subject to corporation tax but wondered if anyone had any experience of doing this for the first few years? Any advice would be greatly appreciated along with guidance on possible pitfalls.

 

[Newchodge]

Hi,

I am looking to start a business selling items online. I currently earn over £60k in my day job and want a side business (for the moment) in which I do not intend to earn a wage but reinvest back straight back into the business increasing stock and advertising, earning limited profits with the view that in a few years time I will have built enough stock, equity and capital that I would be able to leave my job and run the business full time whilst taking a wage.

I understand that this can be undertaken and that any profits would be subject to corporation tax but wondered if anyone had any experience of doing this for the first few years? Any advice would be greatly appreciated along with guidance on possible pitfalls.

You can only do this if you trade through a ltd company. If you trade as a sole trader all business profits are treated as your taxable income.

 

[DontAsk]

You can only do this if you trade through a ltd company. If you trade as a sole trader all business profits are treated as your taxable income.

If all business profits are spent growing the business then there's no profit and no extra taxable income. Same outcome as doing the same through a Ltd.

If there's some profit left over then it will indeed be taxable income but could be used to top-up a personal pension and get all the tax back through tax relief.

If there's a loss whilst growing the business as a sole trader then it can be set against taxable income.

There are plenty of other things to consider when deciding to start as a sole trader or go Ltd from the outset.

 

[Newchodge]

If all business profits are spent growing the business then there's no profit and no extra taxable income.

Yes but only if the re-investment all takes place during the year. The OP is talking about having capital.

 

[Joyous]

I understand that this can be undertaken and that any profits would be subject to corporation tax

Only if you choose to trade as a limited company. If you set up as a sole trader your profits will be subject to income tax. Companies pay corporation tax, human beings pay income tax.

Taking no wages while trying to grow your business is a pretty common strategy especially if you have another source of income. Plus keeping your job allows you to test your business model to see if it's viable.

Finally it's worth mentioning that if you set up as a sole trader any losses you make in the first four years of trading can be offset against your employment income. As this income has already been taxed via PAYE this can generate handy tax refunds.

 

[DontAsk]

Finally it's worth mentioning that if you set up as a sole trader any losses you make in the first four years of trading can be offset against your employment income. As this income has already been taxed via PAYE this can generate handy tax refunds.

Four years is the furthest back you can go to claim against previous years PAYE, if you stop working at the day job.

If you still have a PAYE job (as per the OP) then I do not believe there is any time limit.

 

[kenabiss]

Many thanks for your responses. Some fantastic advice especially around setting off loses against my current income. Thanks again!!

 

[DWS]

Many thanks for your responses. Some fantastic advice especially around setting off loses against my current income. Thanks again!!

Just something to bear in mind, any unsold stock will sit on the balance sheet it will only be accounted for when you sell it not when you buy it, unless of course you use the ‘cash basis’ but then you will not be able to offset any losses against other income.

 

[Darran]

Hi,

I am looking to start a business selling items online. I currently earn over £60k in my day job and want a side business (for the moment) in which I do not intend to earn a wage but reinvest back straight back into the business increasing stock and advertising, earning limited profits with the view that in a few years time I will have built enough stock, equity and capital that I would be able to leave my job and run the business full time whilst taking a wage.

I understand that this can be undertaken and that any profits would be subject to corporation tax but wondered if anyone had any experience of doing this for the first few years? Any advice would be greatly appreciated along with guidance on possible pitfalls.

Hi. Just saw your post from a year ago. I’m now in a similar situation. Was the advice given correct and can you offer any other advice ? I’m on 60k just now and looking to start my own limited company over the next 18 months and not take a wage to build the company before making the transition
Thanks
Darran

 

[Porphyrio]

Hi. Just saw your post from a year ago. I’m now in a similar situation. Was the advice given correct and can you offer any other advice ? I’m on 60k just now and looking to start my own limited company over the next 18 months and not take a wage to build the company before making the transition
Thanks
Darran

Hi Darran

The comments from last year are valid and the same would still be applicable for the current tax year, although I would suggest you get professional advice and understand your future tax position if trading as self-employed or via a company.

Being a director in your own company, you could work for your company without a wage if you plan to build reserves in the early stages, however if you anticipate running losses then as a self-employed you could offset losses sideways against your income as an individual. The company's losses would be available only against the company's future profits.

Note you also have the option to incorporate your business into a Ltd company in the future.

 

[DoolallyTap]

why worry about corporation tax and other issues, get the business moving, sell stuff, create profit and worry about tax when you have some profit.
Side hustles usually do not work, by the time you get back from the day job your enthusiasm for starting in the evening will very quickly dry up.