I'm currently working on a web app and associated blog, mainly for experience in web design and marketing, but also to hopefully make a bit of extra money on the side.
I work full time so this is an evening and weekend project only. Currently I'm not making any money but am planning to add some advertising (Adsense) to the blog and eventually charge a fee for use of the web app itself.
My question is where do I stand legally in terms of needing to set up a company, declare myself self employed, fill in tax returns, etc?
Do I need to do something now, as soon as I start getting Adsense revenue or only when I'm selling the product? What are my options? What records do I need to keep?
I have to say I wouldn't agree with Zuly. Until the income becomes significant, you can just declare it as part of your personal income. Registering a limited company will create a fair bit of paperwork and reporting requirements. You'll also need to hire an accountant at the end of the year. If you are already a PAYE worker then you can probably just declare this extra income as you would rental or share dividends.
I know adsense income takes a long time to build up so for now I'd shelve this and revisit when you are up to a couple of hundred pounds a month in income. Maybe talk to an accountant then. Your efforts would be much better spent building sales IMHO.
ltd companies are mainly when you need a lot of investment- basically, if your company goes bust you wouldn't want to be liable for it.
Depending on the nature of your business, you might want to consider that you would be personally liable if someone sued you as a sole trader. A ltd company would protect you from being personally liable in that situation too.
if neither of those examples are big considerations for you right now, sticking with being a sole trader would probably suit you best. That way all your earnings are yours and you have way less paperwork.
James, if you're not thinking about forming a proper company (which I myself wouldn't do in your case), you must register as self-employed with Home Revenue and Customs within three months of starting trading/earning any profit.
You will have to pay Class 2 National Insurance contributions at a flat rate of £2.65 a week and Class 4 National Insurance, which is 9% on annual profits between £7,605 and £42,470. However, if your earnings are below £5,595 per year, you might not need to pay any contributions.
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You should go see a chartered accountant and a lawyer. Your questions are entirely specific to your own situation; and the answers will depend on the specifics of your business i.e. expected revenue etc.
Getting a basic understanding of these things doesn't have to be expensive, especially not in Europe. There are government-sponsored entrepreneurship programs, volunteer non-profit entrepreneurship mentoring programs, and government or university sponsored incubators. Look around and see what you can find in your local community.
The main thought I will leave you with is: Maybe you should just abstain from income in order to simplify your legal situation. The main reason to incorporate is to create a separate legal persona, the company, which holds most legal responsibilities and liabilities. The downside are the costs, in setting up a company, but especially in ongoing bookkeeping etc. For a few AdSense pounds a month this simply isn't worth it.