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UK Tax man and PayPal

Discussion in 'Business & Tax Advice' started by Saulyx, Sep 28, 2012.

  1. Saulyx

    Saulyx Junior Member

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    Hi everyone, so here's the story/questions.

    For several years now I've been doing freelancing, however the numbers were not big as I was still in education. However over last year and a bit, everything picked up, went into five figures with invoices issued for a lot of the payments.

    No tax paid yet tho, getting rather scared of tax man coming after me and would rather set up a company and take care of things!

    Even tho I did business studies some years back, I have no idea how to do what when it comes to legal side and best set up for me.

    So here are the questions:

    1. Can tax man track paypal payments? I've got a personal paypal account that has money coming in and going at all times, can they track this? I also have a paypal card so I try to keep minimal numbers in my bank account, but already went into 5 figures over last year.
    2. Whats the difference between VAT and TAX? I just don't get it, seems like the same sort of a thing?
    3. Could anyone recommend a good set up for me? What company type should I register to avoid too much taxing?
    4. How can I claim back VAT? I know that you have to register for something, but can I claim back from anything then? OR just things related to my business(web development)? Should I register my business in a more broad category, e.g. web development and printing, so that I could claim on petrol and that sort of expenses?
    5. I've heard about grants for young people starting a business, anyone could point me in right direction?
    6. Now I have a pile of invoices, what happens if I open a company? Do I have to shift them somehow? Do I have to pay tax on them(as that will make me go tits up)?
    7. A lot of people said to me that you get the first year of opening company tax free, how does that work?

    Anyone that could help would be my hero, seriously lost in all of this!!! :)
     
  2. phracktl

    phracktl Regular Member

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    Heres a try:
    1. Everything is traceable. Especially banks. Especially in the UK. Banks and Government are really two sides of the same coin. Paypal will work with relevant authorities at their request as part of money laundering regulations. That said, tax is a numbers game: if your trying to wiggle out of big annual numbers they'll find you eventually. Small fish, like you, can slip through the net, as there are so many of them, there aren't enough tax officers to cope. Time is on their side though, not yours...and by default with HMRC the burden of proof is with you...

    2. VAT is charged to all your customers on all goods and services you provide, as you pay it those provided to you. Other taxes are paid on income (individual) or net profits (company). As an individual, from your total earned income from your business activity take allowable expenses and expenditures, and you have net profit. This is taxable above ~£7k pa: ie,0% tax on all earnings up to £7k, then 11% on earnings above that (till the higher limit). You also have mandatory national insurance contributions of 11% to consider. Same for companies - but they have a flat tax rate, a wider set of allowable expenses and perks and can pay in dividends, salaries, private pensions contributions, give loans etc. As to best structures - you'd need good advice you paid for...but a company is the way to go if you grow.

    3. If your UK resident you are liable for tax on income as it arises - ie on any income from anywhere in the world. (Even as a parent you are limited in what you can gift to your children without tax implications. Thats the law. Life is another thing!). My advice - its only based on opinion, not authoritative and base don what you wrote. Register as self-employed - you give the impression you havent. You're not turning over enough to start a company (yet). You can consider investing in ISA/SIPPs...to try to defer taxation till much later and build investments (although Im dubious about ISA's etc and think theyre just there to prop up the financial industry with fees. The best investment you could make regardless is in yourself and your business, no?) The disadvantages of liability for company and personal taxation (google that) as well as other costs and reporting requirements make it more worthwhile for substantialy higher turnovers. If you want to go that route, consider UK LLP's (a bit like US side LLC's). Sorry I cant link as im a newbie here.

    4. You can claim back VAT, if you register with HMRC and turn over above ~£70k pa. Its the difference between the VAT you charge and the VAT you pay. Prepare your accounts for inspection beforehand.

    5. There are, but i dont know them. Try business link

    6. Keep your invoices and all paperwork actually in good order. You should keep them for 5-7 years. If you "lose them in an accident" you'll have to go with their estimates (they are never wrong, remember).

    7. Same for a company and an individual self-employed. Its not tax free - you need to - and should for your sake - maintain proper accounts and then you will submit company accounts at its year end, and submit personal self-assessment for January each year. Self-assessment, you see. Its an honesty system and the burden is on you. Your honesty is in question - not theirs.

    You could probably fly 'under the radar' for years. But they'll get you when your 50 or so... and you've been converting cash into assets without visible means (visible to them)..then they can say its proceeds of crime. You see, its their money, not yours - thats why their name is on it :)

    If you really want to 'reduce your tax liabilities then consider leaving UK and become a non-resident citizen (its not always so straightforward however). Then you're only liable for tax on UK income. But where to go?

    good luck
     
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