Tag Archives: start-ups

HMRC Clamping Down on Hobby Businesses

Second income from hobby or small business

UPDATED 29/03/2016: The government have recently announced some relief for smaller hobby businesses trading online with a new £1,000 tax allowance starting in 2017.

Research released by RBS in January claimed that 1 in 5 UK adults are ‘hidden entrepreneurs’. These are defined as people who are running small businesses in their spare time or who are using their spare time to plan a new business venture. 38% of these people reported that they earned extra money from their hobby.

HM Revenue & Customs have launched a new campaign today aimed at people with this kind of ‘Second Income’. They define ‘Second Incomes’ as people who are employed and are paid wages through PAYE for their main job but who earn extra money from activities such as:

  • consultancy or other services such as public speaking or providing training
  • organising parties and events or providing entertainment
  • activities such as taxi driving, hairdressing, providing fitness training or landscape gardening
  • making and selling craft items
  • buying and selling goods, for example regular market stalls, boot sales etc

What to do if you have this kind of Second Income?

The ‘Second Income’ campaign is one of the regular campaigns that HMRC run targeting different groups (recent ones have targeted eBay sellers and electrician). With these campaigns HMRC offer a kind of amnesty. If you have a second income which you have not been telling HMRC about you can declare it now. You will still have to pay any tax you owe but any potential fines will be reduced (or waived) and HMRC are less likely to take criminal action against you.

If you declare your second income voluntarily they will normally limit the declaration to 6 years. If they find out about your second income without you declaring it then HMRC can go through all of your tax affairs for the last 20 years.

You can notify HMRC of your second income by filling out a form online. If you want to find out more about how the scheme works there is a dedicated Second Incomes page on the main government website.

What to do if you plan to have a ‘Second Income’ in the future?

If you are planning to start a business in your spare time, or earn some money from your hobby, then you need to tell HMRC. The two most common ways to do this are:

Register as a sole trader – this tells HMRC you will be earning some extra money. They will then send you a Self Assessment Tax return to complete at the end of the year where you declare any income and profits. This is a very simple and cheap way to do things but it does mean that you are personally liable for any losses or problems with the business. You can register as a sole trader for free on our website.

Free Sole Trader Registration

Register a company – this is a more complicated option which will involve a lot more paperwork. However it can be a good option if you are starting a business with other people as it gives a formal structure through which you can share ownership and responsibilities. It can also be a good idea if you will be doing large deals or running big events as a limited company will offer some liability protection. If you form a company HMRC will be told automatically and will expect you to complete tax returns each year. You can register a company for free on our website.

Keeping track of your earnings

If you are earning extra money then you need to make sure you are keeping accurate records of your incomings and outgoings. HMRC will expect you to accurately complete tax returns at the end of each year using the records you have kept and can ask to see your information at any point.

If you are only doing a few transactions per month then a simple spreadsheet will be enough to get you going. As you start to get busier then it is worth investing in some specialist bookkeeping software which will let you manage your business finances more smoothly. You can get a free 1 month trial of specialist bookkeeping software by registering on The Company Warehouse website.


Not sure what you need to do?

Our team of business consultants can help. Simply give them a call on 01245 492777 or contact us through our website.

If you are an eBay trader and need to register your business our eBay Trader Company Formation will get your company formed and register your business for VAT. 

Chelmsford’s Future as a Start-up Centre

Chelmsford's New Business Innovation Centre

Chelmsford's New Business Innovation Centre (image from anglia.co.uk)

Our company is based in Chelmsford in Essex. We deal with thousands of start-up companies a year from all over the UK and abroad but we always take a keen interest in what is going on in our local area.

Chelmsford was made a city last year as part of the Queen’s Diamond Jubilee celebrations. Figures from the city council, and based on the opening of new bank accounts, show that there has already been a 32% increase in the number of new businesses starting in Chelmsford over the last 5 years. This is backed up by our own research, based on the number of new limited companies registered at Companies House using a CM1, CM2 or CM3 postcode. Our figures show that the number of limited companies registered in Chelmsford has more than doubled in the last 2 years. Whichever figure you use it certainly indicates a healthy entrepreneurial spirit in the city.

The city council, Essex County Council and Anglia Ruskin University have joined together on projects to encourage start-ups and entrepreneurs to base new businesses in Chelmsford. The city council already has an Enterprises Service to support start-ups and micro businesses and Anglia Ruskin University have been working with students on their campus in Chelmsford to encourage entrepreneurship. They run a regular series of Start-up Seminars, have an annual pitch competition for new business ideas and offer a range of additional support for students wanting to start their own businesses. This support is going to be greatly expanded with the construction of the new Business Innovation Centre on the university campus.

The Business Innovation Centre is expected to open in 2014 and is a collaboration between the city council, county council and the university. It is going to act as a hub for tech start-ups and early stage companies. The Centre is planned to house 78 businesses and support a further 220 businesses in the local area.

With Chelmsford being only 35 minutes by train from the London’s Tech City and with super fast broadband expanding into Chelmsford the city is in prime position to become a centre for new start-up businesses.

If you are planning on starting your own business you can take advantage of our free company formation and business registration services. Give us a call on 01245 492777 to get free advice on the best way to start-up from our team of Business Consultants.

Why Lord Young is wrong about Sole Traders

Lord Young of GraffamLord Young of Graffam, the government’s Enterprise Advisor has published the latest in his series of reports on encouraging new businesses. This one is entitled, Growing your Business: A report on growing micro businesses. Much of the report makes interesting reading. It continues the government’s recent encouragement of Peer to Peer lending and invoice financing and offers some good case studies. However, all of this is a little undermined by a fairly basic error on page 1.

Much of Lord Young’s report is drawn on statistics from the BIS Business Population Estimates with at least one of the graphs in Lord Young’s report having been lifted directly from the Business Population Estimates.

On page 1 of his new report Lord Young asserts that out of all of the businesses in the UK “3.6 million are sole traders without employees”. On page 3 of the report he asserts that there are “4.8 million firms in the UK today … three quarters of these firms are sole traders”. So he is making two assertions about sole trader:

1) They represent three quarters of all businesses

2) That there are 3.6 million of them with no employees.

Lord Young does not cite a source for the second of these figures but he does for the first, claiming that it comes from “BIS Business Population Estimates for the UK and regions 2012”. If we check this report for ourselves we can see that their figures for the percentage of UK business which are sole traders is 62.7% not the 75% claimed by Lord Young.

It would appear that Lord Young also got his second figure, that there are 3.6 million sole traders without employees, from the same report. Unfortunately he seems to have misread this statistic as well. The BIS statistics state that there are 3,557,255 businesses in the UK with no employees.  However if you read the footnotes you will see that these are made up from “sole proprietorships and partnerships comprising only the selfemployed owner-managers(s), and companies comprising only an employee director”. So the 3.6 million figure Lord Young cites includes lots of people who are not sole traders. To get the figure of just sole traders with no employees you have to look 4 pages further down the same report.

The figure given by the BIS report for the number of sole traders in the UK is 3 million of which 9.9% have employees leaving the number of sole traders with no employees as around 2.7million. This is obviously a substantial difference from the figure of 3.6 million cited by Lord Young.

While I am sure that there is much of value in Lord Young’s work it is a little worrying that he appears to have based his findings on incorrect data.

Free SEO Resources for Start-ups

Having a well designed website which is easy to find is increasingly important for new businesses. If your business is not easy to find online then it will make the job of attracting paying customers much, much harder. While there are lots of businesses out there who will promise to get you to the top of the search engine results for free there is also a wealth of free information on Search Engine Optimisation (SEO) available online. The following are some of the best free resources available on the web:

How search works

If you want to get your website to the top of the search results then it helps if you know how search works. In the UK search is synonymous with Google who have around 90% of the search market. Helpfully they have provided their own video describing the basics of how their search engine works.

SEO for Start-ups

As well as explaining how their search engine works Google are increasingly trying to offer advice on how to get your website to show up in their results. Although this advice inevitably comes around to recommending you buy their advertising much of it is valuable.

Beginners Guides and Tutorials

Once you have got a grasp of the basics through the videos above there are a number of good guides to SEO which will give you more depth of the different area you need to consider.

The SEOMoz Beginners Guide to SEO offers a very detailed overview of search engine optimisation over ten chapters covering tools, researching and measuring your progress.

The SEO Journal’s SEO 101 Resources offers their own fifteen chapter guide to SEO as well as links to a wealth of other online resources.

If you would like more help with search engine optimisation and getting your website found we can offer a range of tools, reports and advice tailored to your specific business needs. Our Business Consultants can talk you through these options.

What is in the Chancellor’s Autumn Statement for Start-ups?

The Autumn Statement for start-upsThere has been a lot of lobbying from the different business organisations in the run up to the Autumn Statement calling for a variety of methods to help small businesses. The government has been very keen to promote start-up business as a way of generating growth however a number of the initiatives they have launched have met with a lukewarm response. Funding for Lending appears to be floundering while the take-up for the government’s start-up loans has reportedly been very slow.

So let’s take a look at what new initiatives are in the Autumn Statement to help start-ups:

  • The Annual Investment Allowance limit is being raised from £25,000 to £250,000. This is a tax break aimed at encouraging businesses to invest in equipment and machinery.
  • The government has re-announced their small business bank with£1 billion in funding, although there is still no date on when it will launch or detail on how it will work.
  • There are promises of more investment in infrastructure and a new version of the regional growth funds which could indirectly benefit start-ups.
  • There will be a 1% cut in the main rate of corporation tax and the capital gains exemption will be increased by 1%, both of which could be of benefit to start-ups and entrepreneurs.
  • Increased support for UKTI to promote exports and a £1.5 billion loan fund for the purchase of exports.
  • £10 million in funding for Local Enterprise Partnerships which have been trialled in selected cities.
  • The controversial plan to allow employees to swap employment rights for equity is going ahead.
  • The Small Business Rates Relief programme is being extended for another 12 months.
  • The simplified tax regime for sole traders is being extended from businesses with a turnover of £72,000 up to the VAT threshold of £77,000.

So while there are no standout measures aimed at start-up businesses there are quite a few measures which will help around the edges. The simplification of some tax measures and the reduction in some tax rates might help some business. Likewise the extension of the Business Rates relief is likely to have an impact for a lot of start-ups.

The measures with the potential to have a really big impact on start-ups, the small business bank and the ramping up of infrastructure investment, both seem a way off. We are promised a speech by Vince Cable later this month with more details of support for businesses so hopefully we will get more details then.

Barclays: The First 5 Years of a Start-Up Business

A new infographic produced by Barclays shows what life is like for UK start-up businesses in their first five years. The infographic reflects findings in a recent survey by Hiscox, showing that entrepreneurs are generally happy and satisfied with their business life. The Barclays infographic shows 71% of small business owners are more optimistic and 81% are happier than when they worked for someone else.

Barclays start-up inforgraphic

The Start-up Britain Bus Tour

Startup Britain Bus Start-up Britain have been going from strength to strength this year. Their online marketplace is now full of offers and they have been running a shop in Kingston-on-Thames featuring a range of start-ups. They have also been heavily involved in promoting Start-up Loans through their close ties with the government.

To spread their message even further Start-up Britain have embarked on a nationwide bus tour visiting universities and colleges. Last week we went along to their stop at Anglia Ruskin University in Cambridge to see what they had on offer.

The idea behind taking the start-up bus to universities and colleges is to promote entrepreneurship as a career option for young people. With the bus tour coming only a few weeks after the government’s start-up loans were launched this is an excellent opportunity to inspire young people and then give them practical help and support. Particularly popular at the Cambridge stop of the tour were representatives from Foundation East who are one of the organisations distributing the government start-up funding in our region. Along with representatives from the Federation of Small Businesses and the University they were on hand to give advice to the students on how to start their own business and how to get funding.

Startup Britain Bus Side

The start-up tour has a number of big name sponsors and although most of them were not able to send representatives to Cambridge their offers and information as being passed onto the students. They were also able to use the laptops provided by Dell to register new .co domains.

Despite it being a cold day at least 50 students turned up at the bus in the time that we were there and all of them left with a goody bag including a book by one of the founders of Start-up Britain, Emma Jones, on how to start and run their own business. There seemed to be a really good atmosphere around the bus and the students who were there were enthusiastic about the possibility of embarking on a career as an entrepreneur.

What the Hell is a CDFI?

In a speech today the Business Secretary Vince Cable praised the work of CDFIs and the CDFI referral scheme currently being run by the British Bankers Association. He did, reportedly, qualify his praise somewhat by stating that “nobody knows what the hell you do”.

Vince Cable quoted on Twitter

CDFI stands for Community Development Finance Institution. They are typically foundations, charities, government agencies or small local banks. Their aim is to lend money to people who cannot get finance from the mainstream banks. Often they focus their activities on disadvantaged communities or sections of society. They will often lend money to people with little or no security and in amounts too small for the mainstream banks to consider commercially viable. According to figures from the Community Development Finance Association (CDFA) CDFIs lent £23 million to 1500 businesses in 2010/2011. This resulted in the creation of 712 new businesses and 2168 new jobs. 55% of this money went to new start-up businesses. 46% of these businesses were Sole Traders and 36% were ‘micro-businesses’ with less than 10 employees.

Business loans from CDFIs

The purpose of Vince Cable’s speech today was to announce a joint venture between the government, The Co-operative Bank and Unity Bank which will channel £60 million of funding towards CDFIs. The CDFIs will then forward the money onto small businesses in their local areas. If you want to take advantage of CDFI funding for small businesses and start-ups the CDFA provide a Finance Finding service.

What is the Seed Enterprise Investment Scheme?

One of the biggesSeed investment schemet problems for new start-up companies is raising their initial seed capital, the money which they need to get going and test their ideas. For this reason the government has adapted the existing Enterprise Investment Scheme to create the Seed Enterprise Investment Scheme (SEIS).

SEIS is a fairly simple scheme. The idea is that if someone invests in a new start-up they can claim back 50% of their investment against their tax bill. So, for instance, if someone invested £10,000 in a start-up company they can reduce their end of year tax bill by £5,000. On top of the tax write off associated with the original investment there can also be additional Capital Gains savings if the investment is cashed in.  As well as their tax saving they have also made an investment in a small business which will hopefully generate a profit for them. So this is good for the new business, they are getting investment, and good for the investor who gets cheap shares and cuts their tax bill.

As you would expect there are some restrictions on this scheme. To start with it only applies to deals done after April 2012. The company being invested in must be less than two years old, have less than 25 employees and have assets of less than £200,000. The investor can take a maximum stake of 30% in a company but can invest in as many companies as they like as long as they do not put in more than £100,000 per year.

As the scheme has only been running for a few months there is little reliable data available on what impact SEIS is having in terms of encouraging investment. It is unlikely that any real data will be available until HMRC do an analysis at the end of the tax year. However SEIS has generated a lot of interest from organisations involved in supporting start-up businesses. SEID EIS Platform and Seedrs are two of the online services which are encouraging investors to use the SEIS scheme and actively trying to match them to businesses looking for funding.

The HMRC website has a basic introduction to the SEIS scheme. As they point out is always a good idea to seek some professional advice before engaging in investments regardless of whether you are giving or receiving the money. In particular it is worth speaking to a qualified accountant where complex tax arrangements such as the Seed Enterprise Investment Scheme are involved.

The Expectation and the Reality of Funding a UK Start-up

In a recent study published by GEM lack of funding was cited as the major stumbling block by 50.6% of people who were thinking about starting their own business. The unwillingness of banks to lend to new and small businesses has been well documented in the media. The government and a whole host of entrepreneurs are currently engaged in trying to solve this issue. Alternative funding sources such as invoice factoring and peer to peer lending are being backed by the government while crowd funding is one of the hot topics of the day.

However the GEM report also indicated that borrowing money from banks or crowd funding start-up capital are not the only options available. It also shows that the expectations about where people think they will get funding do not always match the reality.