Unsure how to proceed

[m_01928]

I'd like to start this by saying I am 13 years old and run this business on my own. recently (in the last 3ish months) began to resell sneakers and other clothing items and accessories. This started out small, but it's scaling rather fast and I have regular deliveries of shoes. I live with my parents (obviously) and parcels are delivered to us multiple times a week. I am going to have to report Capital gains tax to HMRC via self assessment and am realising now that as minor I do indeed need to pay tax. (But not National Insurance) (Right?) I am using a free app called Scout which acts as a book keeping app to monitor my profits and sales etc. But here's my question:

Should I start a company? I've got a website, an instagram page, an online store etc. I've been doing some research online and I'm not quite sure whether a LTD company or simply being self employed. Or could I do either? I am under the impression that my dad could be a director and I could be a majority shareholder? He isn't keen on that idea though.. Also, how would a company bank account work (I also would like to have one if possible) if I was to have one. Can I legally manage it? What can I do?
Not too sure what to do so any help is much appreciated. Thanks,
Miles

 

[m_01928]

Sorry, let me re iterate. I don't think I have to *pay* tax, simply report it to HMRC as I have done around £1.5k-£2k net profit.

 

[JEREMY HAWKE]

Miles
I dont think you are due any tax payment to the revenue

With the business at this present level it would be best to reman as a sole trader and revisit the Ltd Company plan should the business get significantly busy
Your Dad might not be keen to be a director and I would say that is very wise of him
He may however be willing to be named on a basic business bank account
This would be enough for steady growth at the moment

 

[m_01928]

Miles
I dont think you are due any tax payment to the revenue

With the business at this present level it would be best to reman as a sole trader and revisit the Ltd Company plan should the business get significantly busy
Your Dad might not be keen to be a director and I would say that is very wise of him
He may however be willing to be named on a basic business bank account
This would be enough for steady growth at the moment

Can you tell me more about the business bank account idea? Where would I start with that

 

[Mark T Jones]

First & foremost, well done on getting to where you are, and for recognising that there is a difference between running a business and just selling stuff on Ebay.

On that point, before you go bowling down any official channels, I'd look at the practical & financial realities of running this as business (particularly VAT thresholds etc) - quite often the sparkle & the gains quickly disappear.

Whatever you chose, this is a good foundation for the future.

 

[Ozzy]

Congratulations on showing great initiative and well done for starting your own business as such a young age.

Regards tax, you’ve already had the answer above. I’ll cover the business bank account question.
As you are under the age of 18 you will need a “responsible adult” to be the main named person on the account, they’ll need to open it for you and manage the account for you. That’s the rules I’m afraid, and for now it probably isn’t worth it just yet.

I’d avoid setting up a Limited Company too, at the stage you are at it’s not worth the extra costs and paperwork for you.
Keep doing what you’re doing and well done. ?

 

[Paul Kelly ICHYB]

Well done!

I would go down the bank account route, just because it keeps your monies separate and easily accountable.

I would also speak to an accountant just to get an official low down (if you pay them you have some protection with their advice).

Importantly:

• Keep good records
• Monitor sales so you do not fall foul of VAT registration (which you could take on the chin or manage sales not to go over the limits). Don't let VAT registration be a barrier to growing your business.

 

[Joyous]

I am going to have to report Capital gains tax to HMRC via self assessment and am realising now that as minor I do indeed need to pay tax. (But not National Insurance) (Right?)

Just to clarify, it's income tax and not capital gains tax that you'll have to pay on your trading profits. As others have said there's little point in forming a limited company at this stage. In any case yo have to be at least 16 to be a company director and as your dad is not keen to step in to the role this is a no go.

It sounds as if you're doing most things right already but it may be worth speaking to an accountant to ensure that your bookkeeping is good enough and explain how dealing with HMRC works when the time comes. Many accountants (including me) will give you a free initial consultation.

Finally, well done on starting a business, especially at your age. Sounds like you have a great future ahead of you.

 

[m_01928]

Thanks everyone for the help! I will talk to my parents about a business bank account and decide what I want to do from there; but I was wondering what makes my profits income tax and not capital gains? i was under the impression that buying an asset and selling it for more was CGT? If i'm wrong then please do tell me.

 

[Paul Kelly ICHYB]

makes my profits income tax and not capital gains

Your profits are your earnings, which is income taxable.

 

[Joyous]

I was wondering what makes my profits income tax and not capital gains? i was under the impression that buying an asset and selling it for more was CGT? If i'm wrong then please do tell me.

You're buying and selling trading stock. The shoes and clothes are bought specifically for the purpose of resale and they're in and out of your hands for a short period of time and the process repeated often.

An asset for CGT purposes is typically bought to be held on a long to medium term basis while its value appreciates. Think of things like land, houses, expensive art or company shares. The increase in asset value when you finally sell it is what gives rise to capital gains tax.

 

[m_01928]

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[m_01928]

You're buying and selling trading stock. The shoes and clothes are bought specifically for the purpose of resale and they're in and out of your hands for a short period of time and the process repeated often.

An asset for CGT purposes is typically bought to be held on a long to medium term basis while its value appreciates. Think of things like land, houses, expensive art or company shares. The increase in asset value when you finally sell it is what gives rise to capital gains tax.

Ah i See. Thanks for clarifying, I thought there was some kind of short term CGT that would apply but if it's income then

You're buying and selling trading stock. The shoes and clothes are bought specifically for the purpose of resale and they're in and out of your hands for a short period of time and the process repeated often.

An asset for CGT purposes is typically bought to be held on a long to medium term basis while its value appreciates. Think of things like land, houses, expensive art or company shares. The increase in asset value when you finally sell it is what gives rise to capital gains tax.

Ah i See. Thanks for clarifying, I thought there was some kind of short term CGT that would apply but if it's income then

 

[eteb3]

The purpose of a limited company is usually to limit liability to creditors.

But it would be very, very hard for creditors to sue you, because you’re a minor. So your liability is already limited by law.

 

[WaveJumper]

Well done with what you have achieved so far and it’s nice to see you reaching out for advice, as you are finding there’s a lot more to business than just buying and selling. Putting this in and I use the term loosely a “proper business footing” if you was sitting down with an accountant he may say something like:

”ok you bought and sold some items, made some turnover (loads of dosh) now what about expenses that you might wish to offset against this so your tax burden will be less”

ie: storage of stock, your office (bedroom) electric ….. as you are finding there’s more to this than meats the eye and my serious advice i(f you was my son would be) learn everything you can about running a business (you started this already by asking questions) check with your school can they point you at some learning centres or even mentors that could help. DO you or your parents know someone in business who could help you learn ”the ropes”

The internet is full of advice on running a business whether sole trader or a LTD company, there’s plenty of good advice and wise heads on the UKBF soak it all up and I am pretty sure you will build yourself a very future

Again well done and wishing you the very best