Hi all,
I'm after a bit of advice. I'm shortly going to be launching a small jewellery idea on Kickstarter and I'm trying to get some advice on how to manage the tax. The base products are initially being made in the US. The plan at the minute is to ship them over to the UK for final finishing (laser engraving) before we ship them out to people. My concern is that I'm going to get hammered for tax all over the place - once when I bring the base products into the UK and once again when I ship them to customers. I'm not sure where the bulk of our customers are going to be yet - US or UK - but the US market is obviously significantly larger than the UK and so we might expect more orders from there and so I'm wondering whether I should get the finishing done in the US instead and use my contacts there to ship the goods direct in the US.
I am utterly hopeless though when it comes to working out tax implications and the like so I'm wondering if the collective wisdom of TZ can be brought to bear!
If I went down my original planned route am I right in saying that I'd have import taxes to pay on the base product coming in to the UK? And that VAT would apply for any sales in the UK but not for exports to other parts of the world? Alternatively if I had them manufactured and finished in the US and then shipped from there then only local US taxes would apply - correct? Although individual countries might apply their own local import tax - yes? How would I manage the money coming in from Kickstarter - there's presumably tax implications on that as well. And if I'm paying my supplier in the US more for the shipment and the likes are there any 'gotchas' there that I've not considered?
Initially we're not aiming for this to be a massive business - maybe £10K maximum. I'm planning on a sensible - i.e. not too high, but sufficient to make it worthwhile - profit margin so trying to avoid that getting gobbled up by tax implications I've not thought through properly. And it could potentially grow. Once it grows I can hire an accountant to do the legwork for me but in the meantime it's a bit of a hobby business and so I'll have limited time to sort the details so I'm trying to work out my best route to limit paperwork and limit the possibility of the tax man knocking on the door too hard!
If I'm being completely dumb then I am more than happy to take that on the chin! What do you think guys? What's my best route?
cheers in advance,
Simon
Get professional advice. It's a complex matter but it would only take a competent tax accountant an hour to sit with you and detail all the options. You may be able to get a cheap rate / introductory consultation.Originally Posted by Jestermedia
It's well worth paying a small amount up front to ensure you don't get stung badly down the line.
Good luck with the venture :)
Using my professional head the best bet is to get a decent accountant to help you set things up correct from the start, its a lot bigger pain in the arse to deal with this stuff down the line.
Trying to avoid paying tax without really knowing what your trying to avoid is a lot harder than you would think, just take it on the chin a set it up legit.
Fair point.
I'll have to find the keys to unlock my wallet. And clear the guard dogs out of the way. And disable the mines. And remember the combination......
And then, I'll have to swallow my miserly tendencies and employ a professional.
Cheers guys, it is the advice I expected to receive - and thanks for setting me on the right road!
cheers,
Simon McScrooge
Firstly I would echo the advice above that you should see an accountant to make sure you know what to do and how to do it.
As far as your original outline goes, the issues are roughly as follows:
1) Any imports from the US are subject to 20% VAT on clearing into the UK. You can deal with it on your own VAT clearing account, but you will probably have to put a guarantee in place from a bank (costs), or the courier can do it for you, but they charge a lot relatively speaking for the privilege of using their account.
2) There may also be duty to pay depending on what the goods are.
3) If you register the business for VAT, the VAT can of course be claimed back. You will of course then have to account for the VAT on sales. (UK and EU unless you are selling to other EU VAT registered businesses).
4) If you do not register for VAT your costs will all be inflated, but you don't have to deal with the accounting part until you hit the mandatory threshold for registration (can't off the top of my head recall what it currently is).
5) Any profits are taxable as personal income unless you incorporate the business, and you will have to declare and pay that as a self employed person.
I don't know how kickstarter works, but I'm guessing it's an investment thing so there will not be any tax to pay on the money raised. I guess it will entitle investors to some sort of return at some point though? Is it really the appropriate way of financing what you are aiming for? Doesn't really sound very fair to ask others to finance a "hobby business" as you describe it.
If you get the finishing done in the US and ship within the US, you are likely to also have to register your business there since you now have a US domestic business. So US tax to pay on the US sales etc.
Overall, however, taxes shouldn't scare you from doing business. Essentially you only tax on your profits, so just aim to maximise those.
And get professional advice :)
I agree with all the advice given below, and....
I would register for VAT, it's easy enough and from the business model you have stated would be to your advantage.
And I would also recommend when you start the business to run it from the beginning with a good accounting software package - Sage Accounts is a good idea.
Ring the VAT office but provided you register for VAT and you are selling to consumers (B2B has different rules about the place of supply) you will pay VAT on the way in but then charge VAT on the way out so effectively you only have to send the revenue the difference (the Value you Added) although there will be a cash flow issue as you will either pay the VAT when you receive the goods or at the end of quarter but will only collect the VAT back when you sell the finished product.
VAT office will help as they just want you to pay the correct VAT.
As an aside, a DHL import account is very cheap.
I import goods (boxes around 30kg each) from the US and they are delivered next day from the US with customs cleared, VAT paid etc.
The shipping rates were cheaper than my US supplier was able to get with USPS, and the handling fee is just ~£10
You need to ask them about a 96 import account, to get the correct product.
Some good advice already but a couple of other things to consider:
Dont forget when you import into the UK you pay not out the duty applicable to that type of product, plus of course the shipping charges, but also as a final insult you are charged VAT on the lot (i.e. on the imported goods AND the shipping)
And if you are doing business in the US make sure you have full liability insurance in place - not all insurers cover you to do business in the US due to the punitive damages they risk having to cover.
Posting Permissions
Reply With Quote