What takes so long? Starting a company
I promised to tell you about some of the hoops I have been jumping through after I decided to start my own small publishing company. So that you may get an idea of how I spend my time. In case you were wondering.
First off: Starting a company for the first time is not something you just do. It takes some deliberation and a fair bit of quarreling with oneself: Should I do this? Is it the right way to go? Is it safe? What does it even mean to start a company? It sounds so very serious, like something that would take an awful amount of commitment – do I want that? What if I change my mind? What are the alternatives?
A number of company types exist. That my company would be a one-man company was almost a no-brainer. I also knew what I would call it: Monolupa. The domain name already belonged to me.
Even so, there were a number of things to consider before taking the step.
When I started out on this adventure, I had just quit my job, so I was technically unemployed. Or I would be, if I went ahead and asked my unemployment fund (‘A-kasse’) to register me as such. After a short quarantine due to self-inflicted unemployment I would also be eligible to job-seeker’s allowance (‘dagpenge’). That was my safety net.
In the beginning I opted out because I wanted some time to think without anyone expecting me to be looking for a job at the same time. You are allowed to do this. No problem. But only for a while.
You see: Job-seeker’s allowance is calculated on the basis of your income in the previous year. So if you decide to spend a year or more without any income – living off your savings or your spouse’s income or self-sufficiency or whatever – you will not be eligible for any help the next year.
Thus, since I would not have any income at first if I went ahead and started my own publishing company, doing so would imply turning my back on my unemployment insurance. Which is one thing when you are young and healthy and expect to be able to find a job when you need it – but what happens if you become sick, or pregnant, or …? You need to think of stuff like that. You do.
Luckily, I found out that if you are self-employed, you can take out a different kind of sick pay insurance. Doing so is not even expensive, and you do not need to be a member of a regular unemployment fund. Your company does not need to generate any income yet. You just need to
So. Might I be eligible for this?
I obviously met the first requirement. The second part was trickier: What is a one-man company?
As it turns out, there are various ways of being self-employed, and it is far from obvious, which of them is the best fit in the case of an upcoming author/self-publisher with no income at the beginning but an ambition of being as professional about it as humanly possible…
For example, you may only register your company for VAT if you expect to have a turnover of at least 50.000 kr. a year. But it is very unclear if the tax authorities will regard your company as more than a hobby business if you don’t. And it is even harder to get any reliable information as to whether or not other authorities – like the municipality – will regard you as self-employed if the tax authorities don’t.
Oh. And you can only get a company registration number (CVR) if you register for one or more ‘duties’ – the most relevant of which would be (in my case) VAT.
Can you call yourself a self-employed owner of a one-man business without a CVR number? Sure. But who will take your word for it?
I asked, and according to ‘Statens Administration’ (SAM) – who is responsible for the special unemployment insurance for self-employed people – it was up to the municipality to decide whether or not I was sufficiently self-employed to be eligible to benefits in case of sickness or similar. However, the people in the municipality denied having anything to do with this, stating that ‘SAM’ is expected to handle such questions.
And then there was that final requirement: Working at least 18 hours a week. According to ‘SAM’ the municipality might demand that I document my efforts. They could not tell me how. The municipality still denied having anything to do with anything. But they thought it would not be a problem. Most likely.
I spent several days discussing these things with my brother (who knows stuff) and negotiating the details with SAM and the municipality. No-one would commit to anything. In the end I concluded that my best bet was to keep a journal and subscribe to Dropbox/Packrat so that I might at any time be able to produce at least some evidence of my ongoing work.
I suggested this solution to the people in the municipality’s help desk. No-one had any objections. I took out an insurance with SAM. My money was accepted. I hope that means I am insured.
Even so, there was still the question of registering for VAT or not. Apart from
a) the question of whether or not I could claim to hope to have a future income
b) all the general technicality surrounding the question of VAT (train tickets are not subject to VAT, staying for one night at a hotel is – if breakfast is not included in the room price…)
…my research showed that
c) the VAT rules are not the same for authors and publishers!
In particular, authors are exempted from the duty of collecting VAT (as well as the right to get a refund when having expenses that include VAT). Not so for publishers. So what do you do if you are both?
What happens, for example, when you take the train to the other end of the country and stay in a hostel for a few days to conduct a couple of interviews? As a self-employed person, your expenses are tax-deductible. But first you may have the VAT returned. If they are subject to VAT. And if you are a publisher. Not if you are an author.
You may think that the solution, then, is to make a sharp distinction: Be the author on some days and the publisher on other days. This was the first explanation I got from the tax authorities, when I asked.
The author is employed by the publisher, of course. The one conducting the interviews is the author. The author is not subject to VAT. The one selling the book will be the publisher. The publisher is subject to VAT. Not too hard to understand, right?
Well. If you buy a computer, you pay VAT. Since both your publisher-you and your author-you (and possibly your private-you) will be using it, you will only get a partial refund of that money. Only your publisher-you is subject to VAT, after all. How much you may deduct, then, depends on the extend to which your publisher-you is the one using the computer. Being practical about such matters, the tax authorities expect you to calculate this ratio by observing how much of your income is generated by your publisher-you and your author-you respectively.
Plain and simple. Easy to understand. The person earning the money and paying the tax should also be able to deduct the expenses. Right?
If you are both author and publisher in one, then there is no income of any kind until the book is sold. The book is sold by the publisher, so in the eyes of the tax authorities, it is the publisher who has an income. The author was never paid. The income of the publisher will be subject to VAT, so your publisher-you must collect VAT and forward that money to the tax authorities (output VAT). But VAT is supposed to be a zero sum business for everyone but the end customer, so in return for the VAT you collect, your publisher-you should get a refund of the VAT paid when buying goods and services for your company (input VAT).
So here is a question: What happens when your publisher-you collects VAT from the people buying a book – but is not eligible for a refund of the VAT paid by your author-you when producing that very same book?
Well. Going into details with this fascinating subject will probably drive everyone away from this blog for good, so I will leave it to you to think about it. If you are into such things. Let me just say, that in case you ever want to hear a tax collector sweat on the phone, this is a good place to start.
In the end, the tax collector, to whom I spoke, took a few days to think and then called me back to say that she had discussed the matter with a particularly knowledgeable colleague. Together, they had concluded that I would have to drop the distinction between my author-me and my publisher-me. I had to. They could find no other way to make the zero sum game be a zero sum game.
I really wish I had it in writing. I don’t. I just plotted it down in my diary (along with the full name of said tax collector) and hope very much that no-one will blame me for trusting the advice I received. I suppose, I shouldn’t rely on this, but…
Even if you don’t have an income yet, you can still deduct the expenses of your one-man company. If you are married to someone who does have an income. In that case, you deduct your expenses from the income of your household. This is a neat detail.
Of course, once you get to actually have an income, you will have to pay taxes. And since the expenses have already been deducted, you cannot do it again. Goes without saying.
Do you know what kind of documentation is required of a one-man company? Do you know how to make a budget and annual accounts? Do you know what it means to follow ‘standard practice’?
If you do, then you know a lot more than I did when I started out.
So I read a book. Asked around. Checked what it might cost to hire a qualified auditor. Decided against it. I could do this myself. I can. Or hire someone when the tax authorities make a demand that I can’t fulfill on my own. In the meantime, I am very careful to document all expenses and keep the receipts. I even went back and had one shop produce a new receipt pertaining to my purchase of a dictaphone a few months earlier.
I also spent some serious time making a budget. I did my best to figure out how much I would have to spend on my project – paying for necessary software, traveling expenses, insurance, help for editing and proofreading and graphical design, printing, marketing, etc. – and how much I might expect to earn when eventually selling my book.
Of course, in many cases the answer was “that depends” (say, do I require the printer to produce a small or large number of copies of the book, and what kind of paper and binding should he use?) So I needed to try to get an overview of all of these variables. Estimating things takes a lot of time when there are many variables and you are serious about it.
Then there were the practicalities. When you own a company, you need to have a ‘digital mailbox’ known to the authorities. It cannot be just your ordinary mailbox. You need a special one that requires you to sign in with your ‘Easy ID’ (NemID). Not your personal ID, but the one belonging to you as an employee of your company. So you need to create one of those. You also need to register a bank account as your company’s ‘Easy Account’ (NemKonto).
When your company is a small one-man business, you are allowed to register your personal bank account as the bank account of your company as well. Sweet. But first, you need to give your bank a copy of your registration certificate (CVR) and last year’s tax return.
Of course, they don’t tell you that on any of the main websites pertaining to these matters. When you register for a CVR, you get an email stating your new CVR number. You are also told to go to your bank and have a bank account registered for your company. Now. You may not mark your company as fully created, you are told, until you have done this.
So you go to your bank, where the banker tells you to go home and wait until you get your physical registration certificate. Then come back. Oh, and last year’s tax return, if you please.
Never mind the fact that last year’s tax return has absolutely nothing to do with the company that you are about to start. At least the banker couldn’t explain the demand to me. He just had to have it. So I let him have it. Sure. Why not. My bank is allowed to know how much I earned in 2012. I guess.
Then I waited. For 10 days. Nothing happened. Finally I went back to my bank and had them find the letter in which they told me that my bank account had been registered as the bank account of my company. It had been printed and all. They had been just about to actually send it to me. So they said. Oh well.
Then I went home and clicked the button, announcing that I had done my part, and that my company was now fully created.
A company should have a website. It just should. So I made one. Myself. I think it is quite nice. Simple. No-nonsense. Even kind of elegant…
I spent some time fighting with the DNS settings. Too late I realized that my US web host was not approved of by the authorities watching over Danish domain names (those that end with .dk such as mine). It took some hacking to make it work. GratisDNS is my friend. Their homepage is not particularly user-friendly, but they don’t charge you anything for helping you help yourself. That counts for a lot.
I also spent some time finding the right images. (Don’t forget: When you have a company, you may only use pictures that are licensed for commercial use). And choosing the right font…
To be on the safe side, I also created a Facebook page for my company, but I am keeping that one a secret for now. So please don’t tell anyone.
I want a logo as well. I will get around to that one day.
I have learned how to report VAT. I need to do it every 3 months. I pay provisional tax in the hope that I will actually have an income when my book is ready. One of these days I will be filling in my annual tax return for 2013. I have all the receipts, so there should be nothing to worry about.
A couple of weeks ago I received a mail stating that I had received a mail (sic!) in my ‘digital mailbox’. So I went ahead and logged in with my ‘NemID’ and read that mail, too. It was a letter to let me know that – being the owner of a company – I would be expected to pay a special garbage tax. Unless I could convince the authorities that I don’t have to.
So I spent an hour or two reading about the rules and writing a small application stating that my company does not generate any garbage. Now I am eagerly anticipating the response.
But I am sure you get the picture. Starting a company does take some time. Personally, I find that it was time well spent. I have learned plenty to make up for it.
But that, of course, is a matter of temperament.
Something about the process of finding and interviewing a lot of interesting people.