UK Employee / Side Project Tax Status

Discussions
#1

Hi folks,

I’ll be talking with my accountant about this but wondered how others had approached this.

If you were an employee that ran a money making side project what did you do in terms of tax status.

Did you register with HMRC as a business (sole trader, Partnership or Company) or just declare extra personal income on your self assessment (you did declare that extra income, right! LOL).

just curious and have a feeling the right way would be to register as a sole trader and possibly even register for VAT right from the start offsetting SaaS subs, equipment upgrades, VAT paid etc…

anyway the background to this is that I have a couple of personal projects underway that may make a bit of cash via affiliate links rather product or service than sales so i’m thinking ‘additional personal income’ may just be easier to start with.

thanks in advance

#2

not an accountant etc etc, however…

As far as I see it, you really have two options. Limited Company or declaring extra income, I’d steer clear of LLP and Partnerships as you pay tax on earning up front rather then drawings. Been stung by that one.

Limited Company makes things cleaner, but comes with a burden of admin, accounts etc etc. You could register for VAT - but do you want to unless you have to, i.e hitting the threshold. You also get the limited liability protection if you own a home and stuff.

Declaring extra income is simpler and probably easier if you’re not making much money at the moment. I’ve even heard of people licensing their IP to their ltd company after it has been setup for extra low tax income and things like that (consult someone about this no idea how legit it is). So seems there could be some benefits later.

As for VAT I personally wouldn’t bother with it until you have to for the threshold. Or look at the flat rate scheme if you do a lot of business with other VAT registered companies.

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#3

A surprisingly wide range of digital businesses gets caught in the EU digital VAT laws/VATMOSS. When I looked into it I realised that at that point I’d already be doing most of the work required for UK VAT, so may as well go the whole way and voluntarily register for UK VAT - at least you can claim VAT back on your expenses.

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#4

Thanks for the responses so far, i’ll be chatting with my account in week or two so will follow up with info from that meeting.