All beginnings are difficult - this also applies in setting up a business. Luckily, there are three special schemes where small businesses have an exception for all things accounting, including registering as VAT exempt. However, the status of a small business is not always helpful, and in some cases it may help to register for VAT even if you’re not obliged to – check out the pros and cons.
If you want to start a business as a secondary trade, there are some important points you need to consider to make sure everything runs smoothly and legitimately. A part-time side business is sometimes referred to as a “side hustle” i.e. forming of a business while still working your day job.
A side business is different to a side job. A side business is run by you as opposed to you working for someone else as an employee.
A study conducted by Henley Business School revealed that almost two-fifths of UK workers have a side hustle and the number is expected to increase to almost half by 2030. These side businesses generated £72 billion for the UK economy in 2017 (3.6% of GDP).
A study by GoDaddy and the Centre for Economics and Business Research (Cebr) found out that 44% of UK side hustles are run by parents, while 20% are run by individuals under the age of 30.
- Why start a side business while being employed elsewhere?
- When does a hobby become a business?
- How to make sure your side business is legally registered
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Why start a side business while being employed elsewhere?
The main reason listed for people starting a side business on top of their full-time job is financial gain. Some also do it to seek a new challenge or to follow their dream.
The survival rate of small businesses is relatively high – as high as 91% after the first year of trading. But it sadly declines from there with just four in ten small businesses still trading after five years. Since the likelihood of failing is a clear threat, many business owners choose to hold onto their full time job so they can test the waters, but also have something to fall back on should anything go wrong.
Make sure your contract allows it
Despite the number of people starting a side business on top of their full-time employment rising by 32% in the last decade, over half of businesses admit they have no policy on employees working on the side. If there is a policy in place, then it’s your responsibility and is therefore of utmost importance to check that your current work contract allows you to work a side job. You risk being fired – or even sued – if you breach your contract. If there’s nothing stated in your contract, then your employer can’t forbid you from starting your side business, but you must make sure it doesn’t affect your current job.
It’s up to you whether you tell your employer that you’re starting a side business. They might worry that your commitment to their company is wavering or that you might use work time to complete tasks for your company. On the other hand, your new business might be beneficial to your employer’s company or even complement it. Many companies have been known to actively encourage employees to pursue a side hustle, since it encourages them to pick up new skills and the company doesn’t have to pay anything towards it.
Weigh up the pros and cons and decide if honesty is the best policy. This article on part-time self-employment gives you more detailed information on coordinating with your employer and other points to bear in mind when it comes to your full-time job.
When does a hobby become a business?
You might think that earning a few pounds here and there by having ads on your blog or by selling on eBay counts as a hobby and therefore this profit doesn’t need to be declared, but it actually does. When you start any business activities, you have to register as self-employed with HM Revenue and Customs (HMRC), but this won’t have any effect on your current job and you will continue to get paid in the same way as before.
How to make sure your side business is legally registered
When starting a side business, you have to make sure you register it properly to avoid any problems with the tax authorities. Here’s a step-by-step guide to make sure you don’t miss anything out:
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Step 1: Register as self-employed with HMRC
The law requires you to register with HMRC as soon as you start receiving money from your business, but it doesn’t hurt to register before then, especially if you expect it to cost quite a bit to set up. After registering, you will pay Class 2 National Insurance contributions, which are £2.75 per week. An extra income of £1,000 or more from a side business will be subject to UK taxation. You have until the 5th of October following the end of the tax year that you started trading to notify HMRC; you could face a fine if you don’t.
Step 2: Decide on your business structure
Most business owners decide between being a sole trader or a limited company. The downside with being a sole trader is that your personal assets will be at risk if your business runs into trouble. It might be worth opting for a limited company to protect your assets if your business doesn’t do as well as you’d hoped.
Step 3: Sort out insurance cover
The type of cover you need depends on the kind of business you’re setting up. It pays to be insured, since you have peace of mind in case of accidents, theft, or legal fees. The Business Insurance Wizard from AXA helps you determine the best insurance for your business.
Step 4: Choose a business name
You have to check that your business name is available and this can be done by checking with Companies House. It also makes sense to check that the website domain is available and buy it straightaway before anyone else snaps it up for their business.
Step 5: Ensure you comply with all regulations
Make sure you adhere to all the necessary regulations e.g. health and safety, data protection, as well as making sure you have any permits you need. The UK government aims to make doing business in the UK fair and effective by making companies comply with these regulations.