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Is it just me or does the govt make it really hard for small businesses to get off the ground?

I'm sure this is universal but I'm looking at this from a UK perspective.

We all hear about how small businesses power the economy, but I personally find running a small business so difficult that I'm honestly thinking about just chucking it in the bin.

I understand there needs to be a process, and the government being the government, this process will always tend towards being more complicated than it needs to be. However I find the whole thing SO complicated and also extremely demotivating.

SongBox has revenues of about £600 a month just now and it's almost all profit. Lets say £500 is profit. That's a substantial amount to me. However after corporation tax and personal tax, I get to keep less than half of that. Then there is the expense (in both time AND actual money) that goes into filing returns, doing the other companies house stuff etc.

I guess what I'm saying is that until your business is doing "real" money then very small businesses should be given a bit of a break; there should be easier processes and lower levels of tax at the start. I think this would really motivate more people to get into it and keep going with it.

Maybe its just me, I find all the HMRC and Companies House stuff super stressful.

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    I both empathise and disagree. The UK system is the simplest system holistically of any country in the world. Everything is online, taxes minutes, is simple and never changes.

    Taxing dividends after CT is fucking annoying though.

    (follow my adventure at twitter.com/Mqsley)

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    Depends how you are set up. We set up as two founders, so starting a UK Ltd made sense to pump costs into and also for claiming back VAT on costs, but yes it does mean you have administration costs.

    Our main worry at the moment is how leaving the EU affects VAT collection. Previously we used the simply one-stop shop MOSS to put in all our returns for each of the 27 members, but now the UK has left the EU, I still don't properly understand how it works.

    We've had one letter so far from the Irish HMRC saying we need to collect VAT and give it to them on Irish customers, and I'm reading stories of EU based businesses being told the same by UK HMRC, and some just closing the door to UK customers now as a consequence.

    What I do know is if every country - 170 odd - all made you account for sales to their country and collect the tax etc then that would be a massive job for a small business.

    As for taxes the past ten years the UK Goverment has squeezed the taxes on this sector of small businesses and eliminated some of the fixed-rate VAT schemes that benefitted small business and also put the squeeze - tax wise - on dividends.

    So its getting harder and harder to actually make money.

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      Register for VATMOSS in Ireland. Needs to be done by 10th of Feb at the latest. We did ours today.

      Also you may need to amend EU invoices sent to other EU businesses, as the reverse charge scheme no longer applies. They are free of VAT now.

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        That sounds like a good route. We are already doing all the back-end to account for sales in member states, its just how to submit the returns. I'll take a look at the Irish route. Cheers.

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      My understanding is that HMRC will shut down VAT MOSS and you will need to register for a VAT MOSS scheme in an EU member state e.g. Ireland. In theory, once you've registered it shouldn't be more work than previously (assuming their scheme is as easy to use).

      To avoid dealing with VAT MOSS I try to use a Merchant of Record setup instead e.g. Paddle, 2Checkout, Gumroad, FastSpring, PayPro Global

      As for taxes on dividends, I wouldn't be surprised if the April budget brings dividend tax even more inline with PAYE. If so, it could put a lot of people off from making the jump to self employment.

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        Cheers thanks Alex, great tips. I think sadly the same regards dividends tax and will no doubt put people off take a risk if the reward is smaller.

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    I think generally speaking the best way to start out is as a Sole Trader until there's some significant traction. That way you don't have to faff around with Companies House filings or source an accountant. You just simply keep track of your outgoings and incomings and report that on your personal tax return.

    Now that you have incorporated though, I'm surprised that your tax rate is more than 50%. How are you paying yourself? Dividends or PAYE?

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      I'm in Finland and would also second the sole proprietor route. You don't have to pay VAT on under €10k of annual revenue as a sole proprietor.

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      CC @Pandabob So the thing with sole trading is that it doesn't separate you from the company? I'm just concerned that some lunatic for whatever reason was to take some sort of action against SongBox (I don't know how they could) then it would be against me?

      Maybe I misunderstand.

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        Yes, that's correct. Though in the early stages of your business what are you doing that would lead someone to take you to court and, more importantly, win significant sums? It's also worth considering that you can take out professional indemnity insurances as a Sole Trader.

        Anyhow, it's kinda moot as you're now incorporated. But I'd expect that the best set-up for most early stage IH'ers is as a Sole Trader. Another benefit is early on you can also offset business expenses against your personal (i.e full-time job) tax bill.

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          No it’s not moot really as I can “un” incorporate and go sole trader.

          As far what I could be doing to get sued. Well nothing really but songbox does handle people’s music. There could be a reality where some crazy person could hold me accountable for their music being “leaked” or whatever. Hardly realistic but people are people. Also I have at least 2 multi platinum “stars” using the system. There may be more that I don’t know about.

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            You could, but I'd expect it'd be more work to un-incorporate as the assets now belong to Songbox Ltd. You'd need to buy the assets as 'Primer' from Songbox Ltd, then go through the formal winding-up procedure including the preparation of final accounts. You'd need to create new Stripe account for your sole trader business and link that to a sole-trader bank account.

            Bit of a pain really, and that time is probably better invested in your product. If I were where you are, I'd now look to get an accountant to handle and hand-hold you through the Ltd co. processes (annual accounts and confirmation statement) and also offer some tax planning advice.

            As others have said, if the money isn't needed right now it's probably best to keep it within the business (you can still make investments as Songbox Ltd) and then draw down on the dividends when required.

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        No idea about UK law, but over here a sole trader is indeed liable for the company, unlike with an LLC.

  4. 1

    I absolutely share the sentiment, the bewilderment and the pain.
    But believe me, UK is a paradise compared to Germany/Austria and probably many other jurisdictions.

    I don't mind paying high taxes from eventual profits.

    But paying all the rent seekers (tax consultants, notaries, lawyers etc) to navigate a made up but very real legal local minefield, and battling bureaucrats in a kafkaesk nightmare, before even getting a business off the ground - this will come to haunt our European backwaters, I guarantee it.

    Because one thing is certain, the jurisdictions are in a competition to attract global small business entrepreneurs, even if they don't realise it yet.

  5. 1

    Relatable:D Yep, govt makes it super hard to start!

  6. 1

    Perhaps you can claim your big expenses like rent as a business expense?

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    Don't come to Germany mate we love the paperwork lel

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      I saw a reddit once comparing amount of laws between countries. Germany won 😅

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        Lol. Doesn't surprise me we also have like the most road signs and other useless things we "win" in.

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    I appreciate that your post is probably a much needed rant, and a rant that I've had myself more than once.

    It's frustrating, and most of this stuff I try to find someone I can pay to do it for me. In Sweden there are various services that'll do my reporting in an automated way... or if you prefer to email or call a human, a finance agency focused on small biz. Ask around and see what services other people are using—most people I know found their finance person through recommendations (including me!).

    One welcome addition to the small biz ecosystem in Sweden has been Pocketlaw, a subscription service that offers all the basic legal stuff to small biz.

    Maybe there are more productized service vendors like this in the UK aimed at small biz?

    In my opinion it's totally worth spending the money to have someone who knows their stuff help me with reporting and various tax questions. What I do (consulting) is dead simple from a reporting standpoint so I end up paying for roughly 1 hour per month.

    In parallell, I'll suggest website builders to people who want a website rather than learning how to code. That is unless they really want to code.

    As for keeping as much of the money as possible... yeah you will probably need to find out about your tax brackets and so on. The money I've spent on reporting services and tax advice has been totally worth it. They tell me what I need to know for my situation. The reduced stress and ease of mind is great, and I've also saved money in the long run by following their advice (which is super obvious to them since they deal with those questions all day long).

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    HMRC and tax is very stressful indeed.. I have an LTD for my consulting work and although the business model there is very simple, it can still be stressful to deal with the paperwork.

    How come you are paying such high tax though? My total tax paid ends up being around 30-40% of my income, depending on how much I've had to withdraw from my company that year. I haven't been able to make any money from my projects yet, but when I do, my plan is to create a LTD and then keep profits in there while I'm still consulting.

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      I already have a day job in one of the higher tax brackets, so even dividends are taxed highly.

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        As others have said, if you don't need the income right you could pay the corporation tax and leave the profit in the company account. I did this for 3 years while working full-time and running a side-project. I then went freelance and was able to extract the company profits as dividends without paying additional tax (back when UK dividend rates were more generous).

        Alternatively, it sounds like you could pay yourself more efficiently through PAYE. You'll pay 40% income tax but if you keep the salary under 9.5k a year there will be no employer or employee NI to pay.

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          Yeah this is good advice. I’m glad I started this thread now.

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        Yeah, I understand. I'm buying a flat this year, and although I'm very grateful that I can, I'm going to have to withdraw pretty much all of the money in my company right now as dividends. The corresponding tax year is going to be brutal..

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          Immediately put that tax money aside and forget about it. I didn’t do that and lived to regret it (living to regret it).

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            That is very good advice :) I will as soon as I replenish my company bank account!

  10. 1

    I feel you. With my Ltd company, we're spending more in account filling with HMRC Company House than what we pay in hosting...

  11. 1

    Its like that in most places. Imagine that the SEC laws were written in the 1930's. Its a terrible terrible thing to try to get around operating a small business in alot of jurisdictions. I believe they make it hard on purpose...

    Thankfully, blockchain and WEB3 is on the verge of solving this problem completely by allowing us to digitally incorporate and start small businesses with a startup cost under 1K$.

    I am personally actively working on a platform for helping others self-incubate their ideas and businesses. There are others out there also working hard on finding solutions for mainstream to be able to do business effortleslly without the hassles.

    Goodluck!

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      Whatever you do will just suddenly become regulated dude.

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        Regulation isn't necessarily a bad thing. It's the unreasonable abuse of authority that we are trying to fight. Good laws that are business-friendly is a good type of regulation. There are few jurisdictions that are becoming havens for certain types of communities. It's not all bad :)

  12. 1

    It's a pain, but I think it is mostly universal. Just each country a company is started in comes with it's own challenges. I hate it too, for me it's the worst part of running a business.

    When starting small the paperwork is always a pain and the tax benefits aren't great if you already have a day job.

    In the UK you are mostly taxed on profit, it would be nice if there was a lower rate of tax, the key at this stage is to keep your profit as low as possible to avoid tax. Spend money on things you need. Equipment and tech can legitametly all be bought through the company.

    You may also just be better off keeping any profits in the company rather than taking it out. Let it build up for a rainy day.

  13. 1

    I'm with you about this.
    It just happens that you live in a high-tax country. You can optimize your taxes by incorporating abroad and living abroad.
    However, if living abroad in not an option, then you could consider at least strting your company somewhere else. There are some tax-friendly jurisdictions around the world that online businesses can use (it varies from business to business).

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    This comment was deleted 9 days ago.

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      To be fair, you can get an UG running in Germany without the 25k to still get the limited liability.

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        This comment was deleted 9 days ago.

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          Of course. Just wanted to point out that you can get limited liability without putting aside 25k in one go.

          Regardless, doesn't make the paperwork in DE any less of a headache.

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            This comment was deleted 9 days ago.

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