Registering a company

Snags

Also, if you're finding it horribly confusing at this stage, go get proper advice from someone you can actually talk to. You'll want to find a decent accountant (because if you don't the difference between sole trader and Ltd Co then you'll definitely need someone to help you with all the returns!), and you'll also need to register for self-assessment because your personal income will become a bit more complicated when there's a day job plus another one.

Forum Wisdom is better than Internet Wisdom, but ultimately you'll benefit from having someone local you can talk to, even if it costs, to hold your hand. A decent accountant is a good start, but there may also still be free/funded advice services - years ago there used to be all sorts of stuff, and I worked for company delivering it, but political whims change, and new brooms come in so I suspect it's a very different picture now.

In the Sole Trader/Ltd debate it really does boil down to the nature of what you'll be doing, what the risks are, and how much debt/exposure to being sued to oblivion you may have. If you're taking on debt, or in a litigious field, Ltd Co on paper provides you with some protection but for a small Ltd Co that protection can very often evaporate, as there are now all sorts of ways it can be overridden so that the director(s) become personally liable.

A very short summary is:

• Sole Trader
  There is no legal distinction between "you" and "your business".  Any bank account will be "PC_Dave trading as Big Shot Enterprises", and any money the business owes, you owe, any assets you own can be used to pay those business debts.
  
  Set against this, from a tax viewpoint you can put yourself on a lower rate of NI contributions, and you just have to submit a self-assessment return each year.  For accounting, you record all the business out-goings, all the income, and your personal tax bill goes up by the difference (in simple terms).
  
  
• Limited Company
  The business is a legal person in its own right. In theory your liability for business debts is limited to the nominal value of your shareholding (probably £1 if you just issue a single share to yourself).
  
  In practice loans, overdrafts etc. will require personal guarantees from Directors. Also, if the business FUBARs with a client/customer and you're found to have been negligent, or some other thing, the limited liability is bypassed. So there's a limit to the limited liability
  
  You will have to make an annual return to companies house which states who the company officers are, what the issued share capital is, who the shareholders are etc.
  
  You will need to keep formal documentation of board meetings and an AGM at the business's registered address and these are technically open to inspection by anyone who asks (by arrangement).
  
  You will need to submit business accounts to Companies House which have to be prepared in a particular way within 9 months of your financial year end.  Bonus - in the first year of trading you can have your Accounting Reference Date (ARD - financial year end) pushed back six months to give you an 18-month trading period before you have to submit accounts, thus extending the period before you have to pay Corporation Tax.
  
  If you draw a salary you will need to complete PAYE/payroll and associated returns.
  
  If you take payment by dividends (more tax efficient) you'll still get tucked up on some additional tax, although less than PAYE.
  
  You will also need to complete a self-assessment tax return, because your personal income has just got more complex than one single source of PAYE
  
  

Assuming you can do all of the day-to-day accounting yourself and just get an accountant to do your annual accounts from those figures, and submission to Companies House you should allow £900-£1500 a year for accountants fees.  There's a fee for doing the annual return, too (£13 off the top of my head).

If your turnover goes over a threshold (currently £85k) then you need to register for VAT, which means you can reclaim VAT on your purchases but must charge it (and remit back to HMRC) on your supplies (sales).  Unless you're trading on VAT exempt items, of course.  (True for ST or Ltd Co).

Depending on your marketplace you may want to voluntarily register for VAT anyway (lowers your expenses, makes you look a bit bigger than you might be) or you may want to avoid it at all costs - basically it depends on whether you're selling to consumers (avoid it, just makes you 20% more expensive) or businesses (should be neutral, maybe beneficial).

If you're going to employ people then you will also need to look into your obligations to provide a workplace pension, whether you're a Ltd Co or a Sole Trader.

Get some proper advice from a real person. Preferably one you a) trust and b) can beat to death if it goes wrong

PC_Dave

Awesome, thank you @Snags ;