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I'm a hobbyist electronics engineer and I occasionally sell things that I make (electronic music devices) on eBay. It has snowballed a little bit and I have opened an online shop.

I live in the UK and would like to make this a proper business, so I've looked into setting up as a sole trader. However, it's difficult to figure out what I have to do exactly.

If I'm just selling things that I make, making probably realistically no more than £500 per month, what are the steps that I should take?

My site takes payment from PayPal, and I attempted to connect it with my personal savings account but my bank declined it. Do I need to set up a business account?

It's worth noting as well that I am unlikely to have employees or anything like that - it's really like a second income just for me.

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    Do you mean you tried connecting your PayPal account to your personal savings account, or to your current account? I can see why the bank would decline the former, but not the latter. – trashpanda Feb 19 at 9:37
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£500 a month or £6,000 a year is way above the limit were HMRC doesn't care anymore. And I assume that you have a full-time job as well.

You can start up an LLC quite easily; just go to https://www.gov.uk/government/organisations/companies-house and start from there. (For anyone reading this: There are lots of scammers out there with sites pretending to be Companies House. For example http://www.companyhouse.co.uk will start the company for you, but charge you a bit extra).

Then you just keep track of any single pound of income your company makes, and any single pound of expenses that your company has, and the difference is your profit; that's assuming you don't want to hire yourself as an employee (which doesn't make financial sense if you have a full time job). Every three months or so you tell HMRC how much money that company made (what you got, and how much you spent, and you need receipts for every single pound of expenses), and you pay I think 19% corporation tax on that. Now important: The rest of the money isn't yours, it belongs to your company. You can pay yourself a dividend if you wish, or you can use it as a savings account and pay no taxes until you need the money. So the one thing that you can't do is just take the money.

The obvious alternative is hope that HRMC doesn't care and/or doesn't find out, and do nothing.

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