Electronics side business in the UK - sole trader, limited company, sth else? - Page 1
Forum section: electronics / general

author: nihtila
author_rank: Regular Contributor
timestamp: November 12, 2018, 04:20:55 pm
content: HiI have plans to expand my hobby electronics a bit and start selling assembled boards in the near future. I will first try it out just as myself, a private individual, possibly using Tindie or similar marketplace. If there will be enough interest, I could do it more properly and start a business.I am new to starting a business, especially in the UK (Scotland to be more precise) where I have lived only a couple of years. While there is of course general info available regarding types of businesses (and I do need to read more of that), I would be keen to hear experiences of fellow EEs. The main question is probably is it better off starting a limited company straight away if you expect to have at least some income to cover the overhead? Or is it better to have a 'lighter' business type, or even just do it as a private individual? My initial impression is that starting and running a Ltd in the UK is still much easier and cheaper than in (my home country) Finland, and VAT limit is also 10 times higher.Things to consider are at least the amount of paperwork, overhead, taxes, and later on hopefully profits as well. And scalability in the future if things kick off.Regarding purchases in the possible business, I'd say mostly buying components off Mouser/Digikey and PCBs and assembled boards from China (in which case assembly house would probably do the component procurement as well). I presume I would need a business for example to get a Deferment Account at HMRC and thus avoid at least the extra customs charges by DHL and the likes.Ideas, tips, experiences? I know there are quite some UK hobbyists, bloggers, and vloggers who do small business; how do you do it?Thanks!edit: One thing to consider is also that I am currently full-time employed elsewhere so it will impact some things. While I hope I could work on my own business full-time one day, that is still a long shot.

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: November 12, 2018, 04:46:38 pm
content: Sole trader is definitely easiest paperwork-wise. Probably easiest to start off there and see how it goes.

author: nihtila
author_rank: Regular Contributor
timestamp: November 12, 2018, 10:09:42 pm
content: Quote from: mikeselectricstuff on November 12, 2018, 04:46:38 pmYeah. I guess the downside is that any income is added on top of current income and there is less possibilities to play with that in terms of taxation. Although possibilities for tax deduction I'd assume, don't know much about those here yet.Of course, the first thing is to see how things go and not spend too much time on tax planning etc anyway. Or that paperwork.One big difference between sole trader and ltd is also liability but shouldn't matter too much in the beginning. Better not to sell any mains connected kit

author: MosherIV
author_rank: Super Contributor
timestamp: November 12, 2018, 10:22:43 pm
content: HiSole trader is easier to set up and run. You are not required to have accounts audited each year. The down side of sole trader is that the sole trader is personally liable for any debts.With a Ltd company, only the company is liable for debts. The down side of Ltd companies is that the account MUST be audited by independant accountants each year and the accounts submitted to Companies House each year. The accountants will cost you money. They cost money to set up. It is only worth doing a Ltd company once the company starts to make significant profits. It does protect individuals from company bankruptcy.For both types of companies, look into public liability insurance. Pay attention to cover for liability for inury due to incorrect or poor design/manufacture.HMRC will be interrested in any money being earned no matter what size/type of company.I do not know how the HMRC account type affects import/export duty or DHL fees.Edit: if you are just trying it out, ask HMRC to do self assessment. You can declare any additional income from PAYE. I think they allow you to use the short/simplified form for additional income up tp £50,000

author: bd139
author_rank: Super Contributor
timestamp: November 12, 2018, 10:53:37 pm
content: Always limited if you can. If all goes to shit, the buck stops at te company unless you've done something really really evil or pissed off HMRC. Lots of companies out there with software that does ALL of the paperwork. I still do mine by hand and Excel though. Your accounts don' t need a mandatory audit done; you can submit an exemption with them under £10m or so turnover. I've started, owned, directed, folded I think 7 Limited companies now and one holdings PLC. They're really easy to set up; buy a formation agency pack, fill in some forms, appoint directors and shareholders and done. Register for VAT up front if you can so you can reclaim VAT. Also if you're not registered for VAT your company looks small and dodgy.If you must go sole trader, open a completely separate bank account and don't mix your business and personal spending at all. Keep all receipts. Account properly on a spreadsheet and write ALL your deadlines and filing dates down in a calendar. Get small business liability insurance.Also you'll find some hell. Try getting a VAT invoice out of Chinese suppliers and Amazon

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: November 12, 2018, 11:16:50 pm
content: Quote from: bd139 on November 12, 2018, 10:53:37 pmChinese co.s have nothing to do with VAT as it's charged on import. DHL or whoever sends you the VAT invoice.

author: bd139
author_rank: Super Contributor
timestamp: November 12, 2018, 11:41:21 pm
content: Depends really. If it turns out to be a drop shipping outfit or misdeclared item on aliexpress etc it's a PITA.

author: PlainName
author_rank: Super Contributor
timestamp: November 13, 2018, 11:12:25 am
content: Drawback with ltd co, especially in the electronics field and if you're reclaiming VAT, is that the company owns everything. If you or your creditors fold the company, you need to buy whatever toys you want to keep from it (and pay VAT on that if appropriate).

author: bd139
author_rank: Super Contributor
timestamp: November 13, 2018, 11:40:42 am
content: Just have a decent deprecation and write off policy. Buy a new scope every 3 years. Write the old one off over 3 years. Throw it in the metaphorical skip.

author: NivagSwerdna
author_rank: Super Contributor
timestamp: November 13, 2018, 11:43:50 am
content: I would find a friendly accountant and ask advice, you really don't want to be on the wrong end of HMRC.I have no experience of sole trader... but I do know the costs of running a Ltd are non-trivial. (expect minimum £1k per year, probably nearer double that depending on complexity)And do do take the advice above of keeping all financial transactions separate... do not use a personal account or credit card... try and get business versions of both of those (extra charges!)

author: IanJ
author_rank: Unknown
timestamp: November 13, 2018, 11:50:47 am
content: Quote from: nihtila on November 12, 2018, 04:20:55 pmIs there an option for you to set yourself up as a contractor rather than staff at your 'day job'......might be worth asking.That's what I do (Aberdeen, Scotland).....and that way I rope my wee electronics biz sales through my limited company as just another source of income for the books.Don't forget to figure in insurances when you set everything up, i.e. liability etc.Ian.

author: AndyC_772
author_rank: Super Contributor
timestamp: November 13, 2018, 12:09:25 pm
content: Quote from: bd139 on November 13, 2018, 11:40:42 amNo need to buy new gear; assets are deemed to depreciate for tax purposes at a fixed rate depending on what they are, so if you want to, you can sell them back to yourself for next to nothing once their value has been written down to zero.

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: November 13, 2018, 12:20:53 pm
content: Quote from: NivagSwerdna on November 13, 2018, 11:43:50 amIf you are a sole trader there is no need for an expensive 'business' account. When I started I nerded one so I could pay in cheques made out to the company name, but cheques are dead so a normal personal account (seperate from your actual personal account) is fine. Ditto credit cards.

author: nihtila
author_rank: Regular Contributor
timestamp: November 13, 2018, 02:12:08 pm
content: Quote from: IanJ on November 13, 2018, 11:50:47 amNot really I think, unless I just quit and offer myself as a contractor then. The company do use contractors but has just recently got rid of most of them (before realising they actually need some and took them back....). It is something I could try when I actually have some of my own business running but not at this point.Thanks all for the replies. Lots of pros and cons for both sole trader and limited company. Currently it sounds sole trader could be better to start with, as I don't know if things will work, but still time to list pros and cons and decide later. I don't think I will (officially) do anything until next tax year (and after Brexit deadline... possibly..). I still have a lot of design, prototyping, and testing to do.

author: EEVblog
author_rank: Unknown
timestamp: March 10, 2019, 07:57:40 am
content: Quote from: nihtila on November 12, 2018, 04:20:55 pmQuoteNo. Sole trader is MUCH easier.You might even be able to start off by paying zero tax if it's a "hobby" income. Not sure about overseas laws, but here in Australia if you "have no reasonable expectation to make a profit" then it's hobby income and you pay no tax on the profits (up to a certain point)QuoteYou can always easily switch to a company structure later if the business takes off. It will be almost just as easy now as it would be in a year or two's time.QuoteMost people start as a sole trader and work their way up.

author: EEVblog
author_rank: Unknown
timestamp: March 10, 2019, 07:58:32 am
content: Quote from: mikeselectricstuff on November 13, 2018, 12:20:53 pmYes, just get separate accounts to keep the accounting easier

author: EEVblog
author_rank: Unknown
timestamp: March 10, 2019, 07:59:43 am
content: Quote from: NivagSwerdna on November 13, 2018, 11:43:50 amCosts me about AU$5k a year in accounting fees to run my Pty Ltd company.

author: EEVblog
author_rank: Unknown
timestamp: March 10, 2019, 08:00:14 am
content: Quote from: bd139 on November 13, 2018, 11:40:42 amSilly, that's still money out of your pocket.

author: bd139
author_rank: Super Contributor
timestamp: March 10, 2019, 09:30:00 am
content: Not really. You write it off when the warranty/support contract is up, sell it to yourself for pittance and then it goes on eBay. That keeps you with warrantied kit in hand which is required if you rely on it to make money and it skips the disposal overheads.The two key things are service/support and the disparity between the written off cost and the quite frankly insane amount of cash eBay buyers pay for stuff.TCO over time works out better than keeping anything. There are some exceptions to this like long time support and super high value items which are difficult to dispose of.

author: mikeselectricstuff
author_rank: Super Contributor
timestamp: March 10, 2019, 11:58:12 am
content: Quote from: bd139 on March 10, 2019, 09:30:00 amBut you should still be paying tax on profits of selling the kit on ebay, though this might be taken care of by the allowance for capital gains tax.

author: bd139
author_rank: Super Contributor
timestamp: March 10, 2019, 12:08:20 pm
content: If it's a personal sale and under £6k it's not covered by CGT unless it's a selection of potentially fraudulent assets (art, jewelry, antiques).Basically you can do this to HMRC and they're not bothered about it because it's legit.

author: EEVblog
author_rank: Unknown
timestamp: March 10, 2019, 10:44:23 pm
content: Quote from: bd139 on March 10, 2019, 09:30:00 amWhy on earth do you need "warrantied kit" in order to do your job and make money?This is silly big corporate mentality and something that an individual or small company should avoid.There is no practical reason to dispose of a perfectly usable 3 year old scope for example.Doing thiswill cost you money, for what benefit? That money is better spent being reinvested in your business.

author: bd139
author_rank: Super Contributor
timestamp: March 10, 2019, 11:11:25 pm
content: You need it to mitigate tangible delivery risks. I’ve watched two companies go down the toilet after they had simple equipment failures. One strategy was “I’ll just buy another one”. Cue 6 week lead on it. Tools down. Contract breach. Not sustainable for small companies. So many small businesses fail in this way it’s unreal.My brother in law is a fine example of this. He was an ice cream dude. Bought a shonky beaten up van, got it refitted and bought the machine. Skimped on service. So on year two, mid season, his machine packed in and there was a 8 week lead time. By which time it was pissing it down and cold. No business. Didn’t make it through winter. Now working in Aldi. £200/yr service contract could have covered his arse.All of this is however a trade off. If you want to accept the risk or mitigate in some other way that’s fine. Buy two scopes. But make sure you aggregate capital expenditure over time into budget. Plan to replace and charge your clients for it.Note that scopes are fairly generic and fungible so you can get something next day that might poke you in the eye but does the job but some equipment isn’t like that.Optimising for lowest cash flow isn’t necessarily the best way to run something even if it looks like it. At the end of the day the outcome of the business is survival and profit and that’s a reasonable way of balancing risk, profit and survival.

author: AndyC_772
author_rank: Super Contributor
timestamp: March 11, 2019, 07:19:27 am
content: A warranty doesn't miraculously speed up repairs, though. If a part breaks and is out of stock, you have to wait for the manufacturer to make a new one whether you're paying for it or not. Back up your data, and know what you have that's unique.I generally go with the 'have a spare' approach, which has served me well. Often a job will come along which justifies the purchase of a second instrument anyway, whether it's a faster scope, a better soldering iron or a higher voltage PSU - and that equipment either then becomes the spare once the job is done, or takes over everyday duty and allows something older to retire.

author: bd139
author_rank: Super Contributor
timestamp: March 11, 2019, 08:52:02 am
content: Warranty gets you a new one without paying for it. Usually quickly if it’s a respectable manufacturer. Then there’s a service contract on top of that. The whole thing is about being able to time constrain it. Apple is a fine example. Basic warranty usually gets you fast service. AppleCare gets you same/next day service.

author: AndyC_772
author_rank: Super Contributor
timestamp: March 11, 2019, 09:25:29 am
content: You can't seriously put Apple and "not paying for it" in the same post...Maybe there are instances where having a warranty in place will get a unique, indispensible, one-of-a-kind piece of kit up and running faster than without.For general-purpose gear, though, I really don't see the need unless you simply can't afford to replace something, or pay for a major repair if it breaks.Place a lot of bets, and you can be sure the house will win.

author: bd139
author_rank: Super Contributor
timestamp: March 11, 2019, 10:10:54 am
content: Without buying a new one. Last two Apple problems I had they swapped the hardware out, in the apple store, on the day. If you have AppleCare, they will send you a new device out, then you put the old one in the box and send it back. Typical example is TCO is about £42/month over 2 years which is nothing for same/next day replacements and the entire lifeline for my business. Add business internet connection with SLA, land line, that's about an hour of income a month on all business comms, fully redundant with known downtime metrics. Then you can plan around that if you need to.Like I said, if it's totally fungible then perhaps it's not worth it. For example if you run your outfit on a DS1054Z you can probably afford to chuck it in the trash if it goes wrong after the warranty is up and buy another one from Telonic.Another typical example. You can't walk into a retail outfit and buy a decent laptop these days. Nor can you usually get a decent one next day. However you can get NBD swap with Lenovo on support. Or buy two. I bought two.No bets made. Make yourself a business risk register and rank them. Pick the top item once a month and fix it. This goes a long way when things go pear shaped. I've been running Ltd for 22 years now and have carefully analysed many business risks and eliminated them. This is all part of continuous improvement which should be part of your quality mission. The smallest of companies benefit from this.

author: OwO
author_rank: Super Contributor
timestamp: March 11, 2019, 10:17:46 am
content: I just think if your business can't survive a couple weeks/months of downtime of any particular kit then you have bigger problems to worry about. It's not a good idea if your survival depends on all your equipment manufacturers being able to service warranty within days. Also what do people even have in their lab that can't be replaced on short notice with any generic off the shelf one?

author: bd139
author_rank: Super Contributor
timestamp: March 11, 2019, 10:25:19 am
content: You're 100% right but a lot of people don't realise if that is the case or not until it's way past too late. Most small businesses don't do any sort of risk modelling and amble around in ignorant bliss with their fingers in their ears going la la la la la while scraping it every month on credit accounts.Dave made a very good point about investing in your business and good tools and support that covers them for repair or replace allow you to continue to do what you do. I'm not saying that's the only way but it's the one that tends to come up with the lowest TCO and sudden expenditure requirements at any time and helps manage cash flow and mitigate risks.