One thing that often surprises people is how quickly a side project on eBay or Amazon Marketplace can turn into a serious business.
If your online retail project takes off, here’s what you need to do to first stay compliant, and second keep that growth going!
As soon as you start generating income through a side business, you will need to declare it on an annual tax return, even if you’ve never completed one previously.
The tax year runs from 6 April to 5 April every year, and the tax return is due by the following 31 January (along with any tax due). Make sure you are keeping records.
You will probably be running your side business on a self-employed basis and, if so, a personal tax return is all that is required. However, as growth accelerates, you may wish to consider a limited company structure.
This involves registering with Companies House and HMRC and submitting some extra documents each year: a confirmation statement and set of accounts to Companies House, and a corporation tax return to HMRC. But don’t worry, we can handle that for you.
Despite the extra admin, the limited company structure offers a growing company a number of benefits. These include more control over how and when you are taxed, and some extra protection from personal liability should things go wrong.
Do you need to register for VAT?
If you are selling to individuals rather than businesses, you will probably want to put off registering for VAT for as long as possible.
This is because it will make your prices 20% higher and, unless you absorb some or all of this in your margins, will reduce your competitiveness. If you are selling to VAT-registered businesses, they can claim back the VAT, so it isn’t such an issue.
However, there is a point when you have no choice but to register for VAT, and that point is when your annual turnover reaches £85,000, or will do so within 30 days. First of all: Congratulations! That’s a great achievement for a side business!
But after the back patting, talk to us and we can advise you on which VAT scheme to choose, get you set up with HMRC, and manage your quarterly (or possibly annual) VAT returns. Depending on the scheme, you will probably be able to claim back any VAT-chargeable costs yourself.
Xero to hero
As your business scales on your chosen eCommerce platforms, you will need to ensure that your finance records do too.
Xero is the perfect tool for this. It is an intuitive and cost-effective accounting package which plugs into your business bank account to make reconciling incomings and outgoings effortless, as well as all the other admin bits you need to do.
It’s not just your bank account that Xero plugs in to. It has integrations with a host of other platforms, including (relevant for eCommerce businesses) payment services companies. So it could join a lot of dots for you, saving you valuable time as your business grows.
Want a hand getting started? Just talk to us.
Beyond the finances
Of course, we have focused on the finance aspects of your growing eCommerce business.
But there will be a host of other decisions to make at this exciting time for you – from marketing to making that first hire.
As an eCommerce business, you’ll already know the power of web solutions, so look there to see where you can get competitive advantage.
We ourselves are online-only accountants, specialising in eCommerce businesses. If you would like to make us your first port of call for accounting advice, we are here to help.