Doing consultancy work and the Tax situation?

[Flyback]

Hi,
The Tax laws are pretty much the same in all countries, so discussing for uk will be same for many other countries i think.

A friend has been contacted by a B2B consultancy who wish to join him up with clients who want to ask him about his electronics technology.
They say they will just need his "bank details" to pay him.
But please confirm that this is not the case?...he will in fact need to formally set himself up with the inland revenue (tax services) as either a "sole trader" or as a "limited company".

If he just accepts money into his bank account then the tax office will fine him heavily?

Which is best, "sole trader" or "limited company"?

 

[Nigel Goodwin]

There's no problem 'just accepting money in your bank', as long as you declare it and pay tax on it. If you're working as 'self employed' then it's up to you to sort out tax, national insurance etc. If you're also working as a paid employee elsewhere?, then just declaring the extra income to the tax office means your tax code will alter accordingly, and you will pay more tax in your PAYE.

If you're going fully 'self employed' then you need to get an accountant, and discuss what would be best in your exact circumstances - but VERY roughly, if you're a sole trader and go bust, you're personally responsible for all debts, if you set up a limited company, then the company is responsible for debts, not you personally.

Edit: corrected typo

 

[ronsimpson]

(from the USA side of the pond)
I agree with Nigel.
Here we have LLC "Limited Lability Company". It has a tax ID number. Usually LLC is for smaller companies but have seen them at 50 million. From the outside the size of a LLC is not easy to see. I set up a website that makes the company look like it is larger than it is. I work with some large companies that want me to have a WWW with email. (not gmail) They want me to register with the state. With this done they feel I am not a one man shop.

Start with LLC and Tax number, if that is all you need for now. Work on more if you need to.

Now save all your receipts. I charge the company for 50% of the internet costs, one phone, travel if it is not normal drive to work. Some people charge the company for part of the heat and electricity. I do not charge the company for part of the house. That opens up problems when you move. Most hardware and computer costs are charged to the company. Printer supplies. The point of this is pay for your printer ink with pre-taxed money.

 

[Ian Rogers]

You can trade as a business in the UK without a VAT number... But as Nigel said you'll need to send a Self tax report before the 31st of Jan each year on how much you have sold. The forms are daunting but do able.
I have a limited company.. I set it up with 100 Uk pounds and as a limited company, that is your liability.
But doing VAT every 3 months is a pain in the harris.. But you claim back against your sales. so life's a bit easier. And yes! I have an accountant, and he piggin good.

 

[ronsimpson]

Tax: On the US side you need to guess what your taxes are and pay 4 times a year. It is scarry the first time. At tax time you make up the difference. It would be like looking at every paycheck and paying each month, but only 4 times. Use the internet for help.

 

[schmitt trigger]

Indeed, in the US you use form 1040ES to pay quarterly estimated taxes.
But I second the fact that, if you’re new on this issue, to get yourself a good accountant.

An accountant will find the allowable deductions or conditions to meet those deductions that you weren’t aware of, and avoid deductions that will eventually get you in trouble.
After you learn the ropes, you can do it yourself.

 

[Nigel Goodwin]

You can trade as a business in the UK without a VAT number... But as Nigel said you'll need to send a Self tax report before the 31st of Jan each year on how much you have sold. The forms are daunting but do able.
I have a limited company.. I set it up with 100 Uk pounds and as a limited company, that is your liability.
But doing VAT every 3 months is a pain in the harris.. But you claim back against your sales. so life's a bit easier. And yes! I have an accountant, and he piggin good.

To expand a bit further, to be able to be VAT registered you have to exceed a certain turnover, and there's a higher level where you HAVE to be VAT registered - in between those two levels there's a grey area, where you can choose to be VAT registered or not.

It's a pretty contentious point, to register or not - some do, some don't