In my previous blog I wrote about the basics of getting yourself into the proactive, find a role push that is needed to support a personal marketing campaign and to find those hiring managers before they open a dialog with HR or a Recruitment agent. In times of plenty, and we have plenty of people looking for a role, you have to find another way. Its tough, very tough, an emotional roller coaster in fact that may have you questioning every aspect of yourself. Nothing I can say other than keep marching, even when it seems hopelessness or hopeful, keep marching. The soldier who gives up on the roadside will not get to relax in the bar of a tavern in the distant city.
So, there I was, promoting on LinkedIn, Twitter, Facebook, Paper.li and building a network of connections into all areas of interest and I found a number of small companies in need of some part-time assistance. However, any income I received from my exit point through to the end of the tax year would be taxable at the annual rate. From that I looked at sole proprietor or limited company, and concluded the later can be done simply and cheaply …
1. Forming a Limited Company. In the UK this is done on te Companies House website and costys £18. You need to decide who the directors and who the shareholders are and allocate Ordinary A and Ordinary B shares to them as you think fit. The two types are to enable you to pay out different Dividend Rates. For example you may be the sole Director but your spouse could be a shareholder. Once formed you have 18 months to submit your first annual return, so no need to worry about that for now. The name, and securing a domain for the website is all you need right now, most likely £18 for the company and £13 for the domain.
2. You will need a company bank account. This will need your paperwork from the formation of the company and some forms of ID. Its trivial and it takes a week or so to get in place, online access, a company credit card and you have it all.
3. Ensure you have implemented Statutory bookkeeping. For those in the UK, the Quickfile provides a free online bookkeeping package that is centred around your business current account. YOu can download your statement and then simply, with a click per line, allocate the entry to something defined in the accounts. Things like travel, internet access, etc. Quickfile has recently enhanced to understand VAT so its a full package, although I am not sure it will scale as your business grows.
A cheap, but not free version, is ClearBooks which truly understands double entry bookkeeping, the various VAT rules, etc. and has the means to expand as your business expands. Its clumsier than Quickfile to use as you have actions and reactions, for example you have to raise a purchase entry before you can allocate funds to that, as in pay it.
4. Value Added Tax. This is a debatable item. Credibility is built from having a VAT number and with the UK flat-rate scheme its simply a percentage of revenue gained in a period. The flat-rate is charged to the customer at a different rate than paid to the HMRC providing a small source of income. For this reason I chose to register, however it is time consuming.
5. Customers paying for services. The invoice format is within the bookkeeping packages, however you can also develop your own. When the clients pay you the amount goes into the company current account. That is not money you can draw on unless you a) charge expenses to the business, b) register as PAYE and start PAYE payments and payslips, c) Directors loan it (pay back within 18 months) or d) pay Dividends as per profits recorded.
However, until you start to draw some form of income from the business account or register as PAYE (paying tax as you go each month) you will not incur any income tax. This is actually an effective way of minimising your tax liability and using your severance to buffer you while you build a business.
6. Getting an Accountant. If you are wise and follow the rules outlined on mileage and other business expenditure and you complete an expense claim as if you were employed that you submit and approve to the business then I would say you do not need an accountant. Besides, at this point you have very little revenue going into the business as you need to find customers who have a need for your product or service.
In fact do not register for PAYE until the new tax years starts if you can help it, that is the new tax year starts and you intend to draw a regular, monthly salary. The amount you draw is somewhat irrelevant, but it should be above the personal allowance limit so it appears on the inland revenue radar. As long as you are on their radar all will be fine. That said, the majority of your personal income should come from Dividends, Dividends that you can release early as a Directors Loan.
These details are not to be worried about, simply register for PAYE in the first tax month of the year, decide on an amount per month and use the tools, (in the case of the UK), that are provided by HMRC to calculate deductions. Its actually a simple process, and yes you can let it go to an Accountant but it will be for a fee, a fee you simply may not have yet and if you did I would still recommend you understand how its done.
The next installment will be about getting your Klout score up using social media and making a noise, getting yourself visible to the huge audience in your target market sector and determining what to say to them that keeps you connected.