Setting Up A Side Business

Pross

OK, cycling related but really a business / tax question.

It's a while off and I will say straight away I know I won't make any real money from it but I am working my way through various BC coaching qualifications and I am also thinking about going down the ABCC route. I'm mainly doing this for my own development and enjoyment of the sport but ultimately would like to have a few paying 'clients'.

I know there are a few people on here who run coaching businesses but I'd be keen to here from anyone who does it as a side business whilst continuing with the day job. I want to ensure that when / if I start I do everything by the book and pay tax etc. on any money earned so how have others set up? I was thinking of registering a limited company and working through that but if anyone can provide me with advice on how the business side of things work then I would be happy to here from you. For example, as I'm getting paid a salary from my day job would I be able to only pay myself a dividend from any profit the business makes without paying myself a salary and enjoy the tax efficiency of operating as a limited company? If I ended up paying 40% tax on anything coming is as a result of the salary from my full time job it probably wouldn't be worthwhile.

Also, when setting up a company is there any limit on what work you can invoice through that? As an example, if I set up a coaching business could I (as an example and not something I'm considering) organise sportives through the company or even non cycling related activities such as selling stuff on ebay?

Thanks in advance.

peat

First off, check the terms of your current employment contract.

Mine has a clause that says i cannot be a director in another company if they deem it to be in competition or have a detrimental effect of on my ability to perform my duties blah blah.

Pross

Peat wrote:

First off, check the terms of your current employment contract.

Mine has a clause that says i cannot be a director in another company if they deem it to be in competition or have a detrimental effect of on my ability to perform my duties blah blah.

Yep, I have a clause along those lines but it shouldn't be classed as competition or affect my normal work.

owenlars

A limited company works, you set yourself up as a director and shareholder, claim for legitimate running costs and pay yourself an annual dividend. If you bill less than 75k a year you won't need to charge VAT but you will need to do annual accounts and pay corporation tax on any profit, best to get an accountant.

You should probably also get Professional Indemnity in case you cause anyone any damage.

spen666

you can do any lawful activity you like through the limited company provided the companies articles of association allow for it

Pross

Thanks for the replies. I will be speaking to an accountant I know at some point but just wanted to make sure it would be viable before going any further as losing 50% or more of the little I would make would probably make it not worth pursuing. So would going down the limited company route be the most tax efficient option? From what I can tell if I set up as a sole trader I would basically pay 40% income tax on all profit as my salary is already in the higher rate bracket and I would also have to pay a small amount of NI. I can't find much on how it works if limited and you are a higher level tax payer already - is it still just 20% corporation tax on dividends and could I just pay myself a dividend from the side business rather than any salary?

morstar

I guess in the context of it only ever being a small additional income but something you are passionate about, you shouldn't be too put off by the 40% tax. Presumably you would be riding with clients and therefore the business would be buying cycling equipment for you to use. Potentially worth quite a few quid that you may not need to spend out of your personal finances.
I have just finished a few years self employed as an ice hockey referee. Now different folks had very different views on whether we were earning good money or were basically charitable enterprises by the time you'd taken all costs into consideration. I enjoyed having a bit of pocket money coming in from a hobby and didn't get too hung up on the tax bill. Sure I could have paid less but probably would have paid an accountant more in identifying those savings. If you expect to grow beyond mere pocket money, definitely worth doing properly though.

GiantMike

As above, the question is how much money you're expecting to make. A lot of coaches seem to charge a lot of money which means they're either not very busy or a lot of cyclists are prepared to pay a lot of for coaching! As it's a second job, I think you'd be able to work at the 'more reasonable' end of the market.

That's where I'm planning to work. As I have been part-funded through my BC coaching by my employer, I'll be coaching riders for around £1 per day, which is chicken feed on the grand scheme of things. However, I think that getting a powertap and a decent turbo for power testing would be beneficial and I'd be keen to write off such costs against tax etc.

If you're going to make proper money you'll be able to offset proper money against expenses; phone calls, equipment etc.

Gizmodo

I'm not an expert but I don't see why you need to pay yourself a salary. If for some reason you do, then you could pay yourself minimum wage for 3 hours a week or something, 40% of that won't be much anyway. You could also pay an "assistant" a salary - perhaps a wife, partner, parent, anyone who is earning less so paying less tax. The rest you then take in dividends.

And don't forget that anything you buy, clothing, car, petrol, bikes, parts, tools, new computer - is all for the business and can therefore be offset against income which means your tax bill should be tiny or even non existent.

My sister in law is a self employed child minder, she paid no tax in the first couple of years and now pays only a couple of hundred pounds a year because even part of their mortgage can be offset against the business.

Before anyone starts the "you should pay your full tax", remember the self employed have no right to sick pay, no holiday pay, etc. My brother is a builder and they are all now self employed contractors - he broke his leg a few weeks ago so has no income at all for at least 14 weeks if not more. So if you're self employed, you have to put something away every week to help you through the lean times, basically taxing yourself.

Phil_D

What you need to do, rather than taking advice from dodgy sounding people (person?) on the internet that you don't know, is take professional advice.

Open the yellow pages, find an accountant with a tax specialisation and go see them. Explain your circumstances and what you want, and they will use the benefit of their experience and professional qualifications to advise you on the best way forward.

Pross

Phil_D wrote:

What you need to do, rather than taking advice from dodgy sounding people (person?) on the internet that you don't know, is take professional advice.

Open the yellow pages, find an accountant with a tax specialisation and go see them. Explain your circumstances and what you want, and they will use the benefit of their experience and professional qualifications to advise you on the best way forward.

I'll be doing that, just interested to hear from anyone who has already done something similar before setting out on looking into things officially.

marcusjb

Phil_D wrote:

What you need to do, rather than taking advice from dodgy sounding people (person?) on the internet that you don't know, is take professional advice.

Open the yellow pages, find an accountant with a tax specialisation and go see them. Explain your circumstances and what you want, and they will use the benefit of their experience and professional qualifications to advise you on the best way forward.

Basically this.

I can tell you how I structure my company and how I pay myself from it etc. - but my circumstances and company are totally different from yours, so it's not going to help.

You'll almost certainly need a numbers person anyway, so start the relationship and let them help you get setup in the most appropriate manner.

Pross

Gizmodo wrote:

And don't forget that anything you buy, clothing, car, petrol, bikes, parts, tools, new computer - is all for the business and can therefore be offset against income which means your tax bill should be tiny or even non existent.

Unfortunately that isn't quite true, for example you can claim tax back on clothing and even cleaning the clothing but only if it is something you require for work but which couldn't be used out of work i.e. a works uniform or protective clothing.

Phil_D

Pross wrote:

Gizmodo wrote:

And don't forget that anything you buy, clothing, car, petrol, bikes, parts, tools, new computer - is all for the business and can therefore be offset against income which means your tax bill should be tiny or even non existent.

Unfortunately that isn't quite true, for example you can claim tax back on clothing and even cleaning the clothing but only if it is something you require for work but which couldn't be used out of work i.e. a works uniform or protective clothing.

That isn't quite true either. If he is carrying on a trade that requires him to ride a bicyle, then the cost of the cycle clothing (and cleaning) for example will be deductible if he can demonstrate, or make a reasonable sounding argument, that the clothing is not used for private purposes. It does not matter if it could be used outside of work. The important factor is whether it is or not.

morstar

Phil_D wrote:

Pross wrote:

Gizmodo wrote:

And don't forget that anything you buy, clothing, car, petrol, bikes, parts, tools, new computer - is all for the business and can therefore be offset against income which means your tax bill should be tiny or even non existent.

Unfortunately that isn't quite true, for example you can claim tax back on clothing and even cleaning the clothing but only if it is something you require for work but which couldn't be used out of work i.e. a works uniform or protective clothing.

That isn't quite true either. If he is carrying on a trade that requires him to ride a bicyle, then the cost of the cycle clothing (and cleaning) for example will be deductible if he can demonstrate, or make a reasonable sounding argument, that the clothing is not used for private purposes. It does not matter if it could be used outside of work. The important factor is whether it is or not.

Into uninformed opinion here admittedly, but...
If his cycling coach business requires him to maintain a level of fitness himself, isn't a significant part of his business maintaining his own personal fitness and therefore any cycling activity is arguably part of his business?

Phil_D

morstar wrote:

Phil_D wrote:

Pross wrote:

Gizmodo wrote:

And don't forget that anything you buy, clothing, car, petrol, bikes, parts, tools, new computer - is all for the business and can therefore be offset against income which means your tax bill should be tiny or even non existent.

Unfortunately that isn't quite true, for example you can claim tax back on clothing and even cleaning the clothing but only if it is something you require for work but which couldn't be used out of work i.e. a works uniform or protective clothing.

That isn't quite true either. If he is carrying on a trade that requires him to ride a bicyle, then the cost of the cycle clothing (and cleaning) for example will be deductible if he can demonstrate, or make a reasonable sounding argument, that the clothing is not used for private purposes. It does not matter if it could be used outside of work. The important factor is whether it is or not.

Into uninformed opinion here admittedly, but...
If his cycling coach business requires him to maintain a level of fitness himself, isn't a significant part of his business maintaining his own personal fitness and therefore any cycling activity is arguably part of his business?

No. Expenditure must be wholly and exclusively for the purposes of the trade. Paying for clothing that is necessary for him to carry out the duties required of his trade would meet this test. Keeping a good overall level of fitness, whilst arguably necessary for the trade, is not wholly for the trade. It has a dual purpose. One of the other purposes being his general wellbeing which transfers across into his personal life. It enables him to live longer, which isn't a business purpose.

simonhead

What you may be able to do is get a couple of sets of really top end custom kit made up that can be then distributed to your employees (you) and used as advertising both whilst working and not working.

Phil_D

simonhead wrote:

What you may be able to do is get a couple of sets of really top end custom kit made up that can be then distributed to your employees (you) and used as advertising both whilst working and not working.

A new bike is capital expenditure so as long as the business owns it, they will get a 100% Annual Investment Allowance (so long as nobody can prove it is ridden outside of work).

marcusjb

My experiences, unless you're a multi national, those who come up with the more and more elaborate schemes for justifying purchases as legitimate business expenses are the ones that HMRC take more and more interest in each year.

We all want to minimise our tax contributions - but don't take the piss. Play the game, but don't take it to extremes. That way, the tax man largely leaves you alone to get on with running your business.

Pross

To be honest I wouldn't even enter the minefield of spurious claims for tax write offs. As a coach under BC rules you cannot coach people whilst riding yourself so that rules out any claims for bikes and clothing. Potentially I could claim tax back on something like a turbo trainer and power meter that was used exclusively for testing clients etc. but my main query is just to ensure I am set up in such a way that any payments I make to myself from the business attract the minimum amounts of tax / NI payable without breaching any rules or entering grey areas, after all I already pay a fair bit of tax in my full time job.

I'll be speaking to the accountant who deals with the company my wife works for as soon as I get a chance but it was really whether anyone on here runs a side business of any sort whilst also being in full time employment to get a feel for whether they get hammered by HMRC to the point that it isn't worthwhile. I suppose one big possible benefit would be to legitimately employ my 16 year old to assist me (i.e. actually have her working on admin stuff for me) and she could then pay for all her horse expenses etc. that we currently pay for?

Phil_D

Pross wrote:

I suppose one big possible benefit would be to legitimately employ my 16 year old to assist me (i.e. actually have her working on admin stuff for me) and she could then pay for all her horse expenses etc. that we currently pay for?

You've got the hang of it already