Do you want to set up a business, but don’t know where to start? This is our five-step guide to setting up your own business:
1) Choosing a business structure
Now you’ve decided to go into business you will need to decide whether to register as a sole trader, a limited company or partnership.
Being a sole trader is simpler to set up but you will be personally responsible for the business debts. As a sole trader you will need to register for self-assessment and file a tax return each year.
A partnership is a good way for 2 or more people to run a business together. The partners will share profits and responsibility for any business debts. Each partner will pay tax on their share of the profit.
If you decide to trade as a limited company, its finances are separate from your personal finances. It is important to remember that company money is not your money. With a limited company you will not be personally liable for company debt. There are more rules and regulations to follow as a director of a limited company.
All businesses must register with HMRC. A limited company should register within three months of starting to trade and a sole trader/partnership, as soon as possible but, at the latest, by 5th October in your second year. Penalties can be raised if you fail to register.
2) How to set up a bank account and insurance
No matter what your business structure, you should set up a business bank account.
Banks regularly change the features of their business accounts, so you need to look around and find an account that suits your business needs.
To set up a new business bank account, we would recommend booking an appointment with the bank and checking with them what paperwork they will require before the meeting.
You should also review what insurance you require and set this up before starting to trade. It may be worth speaking to an insurance broker to ensure you have the correct cover in place and to find the best rates.
3) Maintain your records
The way you keep your records is a personal choice but the most common and efficient way is to use accounting software, whether this be cloud based or desk top. HMRC recently changed the rules for any businesses over the VAT threshold. They must register for making tax digital (MTD) and submit VAT returns either via accounting software or a VAT filer.
4) Get your tax right. Should I register for VAT?
You must register for VAT when your VAT taxable turnover (the total of everything sold that isn’t VAT exempt) exceeds the threshold of £85,000.
You can also register voluntarily if you want to. This may be something to consider if the people you work for would prefer you to be VAT registered or if you have expensive set up costs and your customers are in business rather than selling to the public.
VAT is a complex area and if you decide to register, there are several schemes to choose from. For more information use the following link:
5) How to take money from your business.
This depends on your business structure. If you are a sole trader or partnership, you are taxed on the profit that the business makes and you can take money from the business at any time.
A limited company is a different legal entity to the owners/shareholders. An owner takes money from the company by way of dividend (a return on their investment). It is common in small businesses for the owner to also be the director, therefore monies can also be taken via payroll and employee benefits.
It is tax efficient for a director/shareholder to take a small salary, below their personal allowance and the remainder in dividend. The first £2,000 of dividend is tax free, up to the higher rate band is taxed at 7.5% and over the higher rate band, the tax is at 32.5%.
If you would like any further information on the above, please contact us or call 0161 236 7677.