How Can You Get Bonded To Start a Home Based Computer Business?

Correction: Sorry, I have just realised you are referring to US corporation law, I'm afraid I'm based in the UK and am unsure of the exact protocol for American business...

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Crash course in UK businesses...

A person who is a sole trader (aka. self employed) is not incorporated.

There is no NEED to incorporate in this sort of situation, apart from financial protection for the owner.

When you incorporate, you separate your own legal identity from that of the business. In other words, if you were to be sued, as a sole trader you would have unlimited liability for any debts the business incurs. If you were incorporated, the business has it's own legal identity, therefore your liability towards the business is limited to any resources you have put into the company (eg. capital that you have invested to provide cash flow etc...

The only trouble is that when you incorporate there's significantly more legal requirements on you. You must file an Annual Return yearly (a summary of the business, essentially), submit accounts (for a small business these can just be abbreviated accounts, but it still means you need to have a detailed set of accounts kept to do so). If nothing has transpired in the year you can file dormant accounts. There are also costs of incorporation, and forms that must be sent to Companies House.

It would be far better for the type of work you are proposing to start as self employed. You would probably need to pay Self Employed national insurance contributions (NICs) (see the HMRC website for details: http://www.hmrc.gov.uk/working/intro/selfemployed.... There are two types for the self employed, Class 2 and Class 4. Class 2 national insurance is at a flat rate of £2.50 a week, but if your earnings are below £5,315 per year (2011-12) you probably won't need to pay this. The amount of Class 4 National Insurance contributions you have to pay for any tax year is based on your profits for that year. You pay 9 per cent on annual profits between £7,225 and £42,475 (2011-12) and 2 per cent on any profit over that amount.

For tax purposes, you consider your yearly income from your business, and your yearly expenditure (parts you purchase on behalf of clients, the cost of your travel etc). You take the net result - your profit, and that counts as your trading income. This is then taxed as if it were employment income from a job. You first deduct your yearly personal allowance from the profit figure, and then tax it at 20% or if your yearly earnings exceed the threshold, 40%. You will need to let HMRC know you will need to file a tax return at the end of the financial year (which runs from the start of April to the end of April the following year).

You'll probably want to operate a cash accounting system rather than accruals accounting if you do your own accounts as it is simpler, and works on the basis of when amounts are actually paid and received. Bear in mind as a business you need to keep all your financial records for several years. Have a read of this link at HMRC about keeping records for tax purposes: http://www.hmrc.gov.uk/sa/rec-keep-self-emp.htm

In relation to protecting yourself, you will need Public Liability Insurance as a legal requirement.

I hope this is of some help, perhaps a bit of overkill for your question but some free financial advice should things progress well for your business! Kind regards,

AJ

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