Registered company?

[peteh]

As I have sold a few photographs and had a few published so far,
am I wondering whether I should set up a registered company.
The plus point in this ( I am assuming) is so I can claim Vat back on any equipment purchases I make in the future.
I dont think its costs very much to set up a company so are there any negatives?
(I am guessing there must be some or everyone would have a company set up.)
Like is there limits as to how much profit you need to make a year or can you just plod along breaking even?
More importantly is it fraud if you set up a company and dont sell anything? (Thinking worst case scenario).

Thanks
Pete.

[Tony_InDevon]

Hi Pete,

My simple answer is I find it easier just to let the taxman know I intend to make at least some money from photographs and have a separate personal account for any transactions. Also keep any receipts for kit purchased, processing, travelling, etc to offset against any tax you may incur. This way you only have the tax return to complete each year.

I personally feel it's only worth going down the company route if you think you are going to be able to make a full time living. Banks charge fees for transactions on business accounts, also you will need an accountant and have your accounts audited every year… Plus all the extra paperwork of course.

Others here may prefer the company route & hopefully we will see more replies.

Almost forgot to add that your photographs are your intended products, so you would be trying to sell something just like any other company. Of course if you have all the costs and no sales then you go bust. Tax evasion if you sell and don't tell the tax man is the one to watch out for ;)

Hope this helps for now ... Tony

[bcurrie]

Pete,

I certainly am not acquainted with the laws where you live, so can only talk about them as they pertain to USA.

Any person can start a company and lose as much as they want for as long as they want. There are people here with lots of money who do that just for the tax advantage. Of course, everything has to be on the up and up in all respects. If you never sold anything, then sooner or later our IRS would question if this was just a company set up for you to write off your equipment. But you said you have sold a few and had a few published, so it could be workable. If you were here, the best advice I would be able to give you is to talk to a reputable accountant about the feasibility of doing this. Here a business does not necessary have to be audited, and many small businesses are not and do all the accounting work on their own.

[Andy Bright]

Remember that you'd need to charge your clients 17.5% vat if you're vat registered. I wouldn't go down this route unless you have a big turnover (£25k+) as vat registration will cost you in many other ways.
You have to be vat registered if your turnover is over a certain amount (£28k? or something). I'm not sure this is a viable idea if it's just to get a camera/lens discounted. Even if your company isn't vat registered you will be able to get tax relief on equipment, presuming your profits are of a certain level.
We've got a few accountants on here.... hopefully they can offer some real advice instead of my guesses.
Andy

[robinm]

Being a registered company and being registered for VAT are 2 different things.

If your company turnover is small (<£50K) then you can take advantage of the lower rates of tax on small business profits. You do have to have accounts audited and make returns to companies house. Your expenses will be allowable against tax.

As Andy points out if you are registered for VAT then you have to charge VAT on transactions. This is not a problem if your work (like mine in IT) is for companies because they can offset the VAT they pay, but will be an additional cost to private clients. You have to register for VAT if your turnover is > £56K. If you register for VAT there are quarterly returns to make.

[nigelblake]

Setting up as a limited company is not a viable proposition unless you expect to turn over at least £30k annually from your photography.
The considerations are that you will have to provide fully audited accounts at the end of each year, this will cost around £1500-£2500 depending on accountants fee, you will have to charge VAT on all sales and complete a VAT return every 3 months, you can opt to do this yearly, (but quarterly will mean that you keep your paperwork up to date and not have to face a very big job at the end of the year). The VAT registration threshold is now £56k turnover per year. If you have an accountant to complete the VAT return it will probably cost more than the amount that you can reclaim.

As you will be (by setting it up) a director of the limited company you will therefore also be an employee of the said company, so you will when taking money (earnings) from the business be liable for tax and national insurance on it, you will also have to pay from the company the employers contribution to national insurance, this is quite a bit more than the personal contribution.

Although you can offset the cost of equipment against tax, you can no longer claim the full amount in a single tax year, it will be spread over a number of years and offset against a sliding scale based on depreciation. The equipment is also not technically yours but it is a company asset, the revenue in lieu can therefore take it in the event of non-payment of tax.

By buying equipment through the business you will then have a larger premium to pay on the insurance for it, and you would also be wise to insure your car for business use as your insurers may not pay out on claims because your birding trips could be deemed to be business use.

On top of all this there are some very severe penalties for late payments on VAT returns and filing accounts etc, and there are also many other forms that carry £1000+ fixed penalties if not returned by the due dates.

If you are earning money from the sale of your pictures it is wise to declare it on your usual tax return, keep receipts for costs to offset against the earnings, but unless you can make good money from these sales setting up a company will cost considerably more than you will save.

[peteh]

Thanks very much

I will completely scrub that idea and that tax offsetting sounds a bit confusing so i will just carry on as normal i think.
Thanks again.

Pete.