Having just parted company with my employers I have a few weeks on my hands before I start my new job. In the meantime I have been approached by ex colleagues about developing performance management software for their organisations. I thought to do this I might need to set up a company and also sort out some sort of license for the software - as you can probably guess I am pretty clueless on this having always been a company employee - has anyone on here done anything similar that might help point me in the right direction?
Business startup advice
- Thread starter inz4ne
- Start date
I believe IT in particular is a tricky area in respect of this I think its something like IR35 you want to avoid.
Basically if you set up as a company and are clearly NOT an employee of a company then you can be taxed as a LTD company in your own right.
The happy outcome means you pay 10% corporation tax and get to offset everything again tax (ie buy a nice expensive car for work and offset it against earnings).
Unhappily if you are deemed to be technically an employee of a company albiet not PAYE you will be taxed under IR35 which I think is a total ass raping of the highest order.
Accountant is ultimately who you want to be asking.
You'll also need PI cover to ensure that if you fook up and ruin someones company you have liability cover to ensure your not sued back to the stoneage.
BTW I literally have no basis to this knowledge other than I thought about doing it myself (but not in IT) a year or 2 back and had a read up.
Basically if you set up as a company and are clearly NOT an employee of a company then you can be taxed as a LTD company in your own right.
The happy outcome means you pay 10% corporation tax and get to offset everything again tax (ie buy a nice expensive car for work and offset it against earnings).
Unhappily if you are deemed to be technically an employee of a company albiet not PAYE you will be taxed under IR35 which I think is a total ass raping of the highest order.
Accountant is ultimately who you want to be asking.
You'll also need PI cover to ensure that if you fook up and ruin someones company you have liability cover to ensure your not sued back to the stoneage.
BTW I literally have no basis to this knowledge other than I thought about doing it myself (but not in IT) a year or 2 back and had a read up.
I started my own business when I was 16 and sold it about two years ago (at 22).
I too have just parted with my employer and an pondering about setting something else up in the mean time before I start my next job.
I don't have experience in the IT department but I would imagine if it's similar to your day job you want to be careful you aren't breaching clauses (in terms of information/ competitors etc) from your previous employment.
What I can say is that running my own business was the most satisfying and enjoying time of my life, and although it will be hard work - the reward is literally all yours.
There is plenty of information about on the internet, what's more most information regarding tax etc is available free from hmrc etc themselves, they're actually very helpful.
I too have just parted with my employer and an pondering about setting something else up in the mean time before I start my next job.
I don't have experience in the IT department but I would imagine if it's similar to your day job you want to be careful you aren't breaching clauses (in terms of information/ competitors etc) from your previous employment.
What I can say is that running my own business was the most satisfying and enjoying time of my life, and although it will be hard work - the reward is literally all yours.
There is plenty of information about on the internet, what's more most information regarding tax etc is available free from hmrc etc themselves, they're actually very helpful.
I researched online about the IR35 but my mate works as a self emp contractor and he advised its best to be Limited so you can't personally be held liable (unless you sign personal guarantees ETC) and you get to pay tax like a coorporation rather than a well paid individual.
As regards being tax efficent a LTD company pays I think 10% corporation tax as opposed to the utter bumming that you would take as a high earning employee (40% tax above the upper earning threshold!)
Plus you get all the nice offsets - mobile phone, stationary, car, laptops ETCETC.
Also they way I would look at any 'free advice' is that its free and therefore not that good........no such thing as a free lunch chief - pay an expert a few quid and they'll be fiddling the system for you quicker than you can say "Jimmy Car"
As regards being tax efficent a LTD company pays I think 10% corporation tax as opposed to the utter bumming that you would take as a high earning employee (40% tax above the upper earning threshold!)
Plus you get all the nice offsets - mobile phone, stationary, car, laptops ETCETC.
Also they way I would look at any 'free advice' is that its free and therefore not that good........no such thing as a free lunch chief - pay an expert a few quid and they'll be fiddling the system for you quicker than you can say "Jimmy Car"
Luckily it's not close to my day job - i used to work in IT many years ago and have just used the skills to develop my own support systems on the way - so I think I'm safe there. I have an ex colleague who is interested in joining me who in the past has helped convert my business ideas into software particularly web enabling them so this may be more of an issue for him.
Aside from having an accountant you sound like you already know what your doing - what specifically do you feel you need advice about?
An accountant will usually have some sort of business advisory skill set and will help you to set up the company and your tax affairs etc.
Provided you know what your doing from a legal aspect with licencing of software what else do you think you need advising about?
An accountant will usually have some sort of business advisory skill set and will help you to set up the company and your tax affairs etc.
Provided you know what your doing from a legal aspect with licencing of software what else do you think you need advising about?
inz4ne, I might be able to offer some basic advice, but I have a few questions first.
If you decided to work for yourself does this mean you would/wouldn't be employed (in the traditional sense) by anyone else?
Have your ex colleagues setup or intend to setup a Ltd Company?
If you decided to work on the project your ex colleagues have asked about, would they be the only people you would develop for?
I sold my software company in 2002, I was a sole trader as this is the easiest way to go when you are on your own, it is certainly very tax efficient, but is only really suitable when you are on your own (hence Sole Trader).
If you setup a Ltd Company then you become an Employee of that Company, when the company makes a profit it pays corporation tax on the profits, you would be paid by the company as an employee paying normal tax and NI, (to minimise the amount of tax and NI you can pay yourself the minimum wage) then as the only shareholder you pay yourself a Dividend which is still taxed, but no NI.
If the only people/Company you are working are your ex colleagues then sooner or later the tax man will insist that really you are just an employee of them and they would insist on you being treated for tax and NI on this basis.
I don't mean to make it sound so complicated, as it isn't really, I would recommend being a sole trader whilst you see how it goes, all you do is contact your local tax office and tell them you are now self employed, they will take your details and your will start being billed for NI (I can't remember which one, but it's not much money) and then you fill in a tax return every year, (I use software to do mine, it's really easy).
If you decided to work for yourself does this mean you would/wouldn't be employed (in the traditional sense) by anyone else?
Have your ex colleagues setup or intend to setup a Ltd Company?
If you decided to work on the project your ex colleagues have asked about, would they be the only people you would develop for?
I sold my software company in 2002, I was a sole trader as this is the easiest way to go when you are on your own, it is certainly very tax efficient, but is only really suitable when you are on your own (hence Sole Trader).
If you setup a Ltd Company then you become an Employee of that Company, when the company makes a profit it pays corporation tax on the profits, you would be paid by the company as an employee paying normal tax and NI, (to minimise the amount of tax and NI you can pay yourself the minimum wage) then as the only shareholder you pay yourself a Dividend which is still taxed, but no NI.
If the only people/Company you are working are your ex colleagues then sooner or later the tax man will insist that really you are just an employee of them and they would insist on you being treated for tax and NI on this basis.
I don't mean to make it sound so complicated, as it isn't really, I would recommend being a sole trader whilst you see how it goes, all you do is contact your local tax office and tell them you are now self employed, they will take your details and your will start being billed for NI (I can't remember which one, but it's not much money) and then you fill in a tax return every year, (I use software to do mine, it's really easy).
Aside from having an accountant you sound like you already know what your doing - what specifically do you feel you need advice about?
Asides setting up a trading vehicle then it would be about Software licensing - signed/accepted many - read none. Is there a good model to use - what do all those app developers use?
Asides setting up a trading vehicle then it would be about Software licensing - signed/accepted many - read none. Is there a good model to use - what do all those app developers use?
Thanks for the replies.
If you decided to work for yourself does this mean you would/wouldn't be employed (in the traditional sense) by anyone else?
>No I would still have a traditional full time job
Have your ex colleagues setup or intend to setup a Ltd Company?
>I haven't discussed arrangements with the technical guy - I'd prefer him in as a co owner or partner. I'd be stumping up the start-up costs and he would do the initial work unpaid for his share. I could pay him a fee instead but I want real commitment and buy-in.
If you decided to work on the project your ex colleagues have asked about, would they be the only people you would develop for?
>Target markets are small public sector orgs - town councils, quango housing co and leisure trusts. I also think a lite version would work as a personal business productivity tool so no it wouldn't just be to colleagues
If you decided to work for yourself does this mean you would/wouldn't be employed (in the traditional sense) by anyone else?
>No I would still have a traditional full time job
Have your ex colleagues setup or intend to setup a Ltd Company?
>I haven't discussed arrangements with the technical guy - I'd prefer him in as a co owner or partner. I'd be stumping up the start-up costs and he would do the initial work unpaid for his share. I could pay him a fee instead but I want real commitment and buy-in.
If you decided to work on the project your ex colleagues have asked about, would they be the only people you would develop for?
>Target markets are small public sector orgs - town councils, quango housing co and leisure trusts. I also think a lite version would work as a personal business productivity tool so no it wouldn't just be to colleagues
Few wrong figures being bandied around here, but the general advice looks good related to the options
I've been running my business initially as a sole trader for several years and then Ltd company for the last few. It's an artform sidestepping IR35, setting salaries correctly to minimise tax, using home as an office and extracting profit as tax free dividends.
I'm not going to post advice other than get a decent business advisor, not just accountant and they will work wonders for you and save you way more than the fees they charge..
I've been running my business initially as a sole trader for several years and then Ltd company for the last few. It's an artform sidestepping IR35, setting salaries correctly to minimise tax, using home as an office and extracting profit as tax free dividends.
I'm not going to post advice other than get a decent business advisor, not just accountant and they will work wonders for you and save you way more than the fees they charge..
lacroupade
Veteran
cj10jeeper said:
Ditto that.
Oh and be careful about relying too much on friendships....try and keep your business dealing on a professional basis and avoid 'favours' like the plague.
Agreed with the friendship aspect.lacroupade said:cj10jeeper said:
Ditto that.
Oh and be careful about relying too much on friendships....try and keep your business dealing on a professional basis and avoid 'favours' like the plague.
Speaking from experience twice with good friends I can honestly say "nothing sinks a ship like a partnership".
To to add why I won't give specific advice:
You can claim for use of your home as an office. Get it wrong and you end up paying business rates on your home and capital gains tax on a percentage of value on eventual sale.
You can put a company car on the business, but get it wrong and you'll pay way more in BIK (benefit in kind)
Sole trader may seem nice but get it wrong and your home and everything is at risk. Ltd company removes that but can be more onerous.
Taxation is a minefield between personal and corporate and an art form for true advisors to get it right.
And finally to echo the friends piece - don't. I ran another business that after a year we decided to cease trading it. One wanted to bankrupt it and walk, the other keep it going purely to support a US immigration application....not pretty at the time.
You can claim for use of your home as an office. Get it wrong and you end up paying business rates on your home and capital gains tax on a percentage of value on eventual sale.
You can put a company car on the business, but get it wrong and you'll pay way more in BIK (benefit in kind)
Sole trader may seem nice but get it wrong and your home and everything is at risk. Ltd company removes that but can be more onerous.
Taxation is a minefield between personal and corporate and an art form for true advisors to get it right.
And finally to echo the friends piece - don't. I ran another business that after a year we decided to cease trading it. One wanted to bankrupt it and walk, the other keep it going purely to support a US immigration application....not pretty at the time.