Starting up a new online small business - register for vat and companies house?

Hi,

My sister and I are keen to start up a small online business (retail) and its going to be more of a hobby than a big business venture.

I've read up about domain names, web hosts, web builders and editors, copyrights and trademarks, etc ... the thing I am abit confused about is:

1. Do we have to register with Companies House as a requirement? Or is it not neccessery? I can't work out if they are a legal requirement?

2. Although we dont plan to earn big bucks and will likely not make over the tax allowances, do we have to register vat and add vat to out items??

Sorry if this sounds stupid. You see lots of little online stores and myspaces selling items and their prices dont look like they add tax...

Thanks,
Charlene

I should have added - I work fulltime and already pay NI and tax ... so i would not register as self-employed as it would be something on the side, or would I?

You will need to register you business and pay tax on any proofits you make. It may well be worth paying for a bookkeeper for advice as they often save the money spent several times over with the advice they give.

As for VAT, if its a small business, you only need to be registered for VAT if turnover is over around 拢80,000 so I wouldn't worry about it.

Buy a book on start-ups and it will give you all the advice you need.

My advice, don;t ignore payng tax as if you do, they'll come after you and the fines will be impsoing and they'll never leave you alone.

Edit. There are two types of tax. First is VAT which you need no worry about as you will be under the threshhold. The 2nd is income tax which is the tax on your profit. That is, you add up all the money you have made in the year, less any costs (materials, advertising, machinery etc etc) and what is left ois the profit you have made. You then pay tax on this the same as you paying tax on your salary.

You only register with Companies House is you form a limited company but if it is only a partnership with your sister, you will only need to contact the Inland Revenue and Nat.Ins. people. You don't need to register for VAT unless you are over the VAT threshhold (check out Inland Revenue website for limit). However, if you are going to be buying a lot of stuff that carries VAT, it might pay you to register in order to claim the VAT back but bear in mind you will then have to charge VAT on whatever you are selling.

Marky and Lindy have given good answers! VAT needs elaborating. If you are selling to individuals, they will not be able to reclaim VAT. If you are selling to a business, they can.
Scenario 1 - Not registered for VAT
Say your product costs 拢 50.00
Add VAT 拢 8.75
Total cost 拢 58.75
Sale 拢100.00
Profit 拢 41.25
Scenario 2 - Registered VAT - Selling to individuals
Say your product costs 拢 50.00 1
Add VAT 拢 8.75 2
Total cost 拢 58.75 3
Sale 拢 85.10 4
VAT on Sale 拢 14.90 5
Profit 拢 35.10 4-1
VAT to pay 拢 6.15 5-2
VAT to pay 拢 6.15 5-2
Scenario 3 - Registered VAT - Selling to businesses
Say your product costs 拢 50.00 1
Add VAT 拢 8.75 2
Total cost 拢 58.75 3
Sale 拢100.00 4
VAT on Sale 拢 17.50 5
Profit 拢 50.00 4-1
VAT to pay 拢 8.75 5-2

Any help?

Sorry, this looked Ok until I previewed it, Answers doesn't like the table I created!

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You have to notify the tax office within three months of starting up, even if you are maintaining your full time empolyment.

You only need to notify companies house if you are opening a limited company.

You should absolutely not register for VAT until/if you go over the VAT threshold of 62,000 sale in any tax year.