Starting out in business – what do I need to think about?

Starting a business is an exciting time.  Getting off to the right start with tax and accounting matters is important but easily overlooked.  In this article we look at some of the main administrative points to consider.  As with many business decisions, there may be tax implications of each route and this article does not consider these and you should seek advice on these matters if you are unsure.

Type of business

You can run your business as an individual (sole trader), in partnership with one or more other people, or as a company.  The best route will depend on many factors and this is a topic we will look at in more detail in a later article.  Once you have made your choice, there are certain tasks to complete in each case.

Setting up as a sole trader

The main task is to let HMRC know you are now self employed for the purposes of self assessment.  You need to do this even if you have previously registered for self assessment.   The deadline for this is 5 October in the year after the tax year in which you started your business.  So if you start business in February 2018, you have until 5 October 2019 to tell HMRC.

If you have never done a tax return before, the first thing you need to do is register online with HMRC, and this will generate a Unique Tax Reference (UTR) number for you as well as set you up on HMRC’s online service.  If you have previously done a tax return and have a UTR, you need to notify HMRC online about your business using form CWF1.

Setting up as a partnership

All individuals in a new partnership will need to follow the same steps as above to register themselves for self assessment.

Additionally, one of the partners will need to become the ‘nominated partner’ with HMRC, and they will be responsible for sending in the partnership’s tax return (as well as their own personal return for their share of the partnership’s profit or loss).  Their first step will be to register the partnership with HMRC.  The deadlines for this are the same as for individuals.

Setting up as a company

A company is a separate legal entity.  The first step in this process is to form the company.  There are a number of considerations at this point – the name of the company, its official address, who the directors will be (it will need at least one), who will own the shares in the company, etc.  These points are covered here in more detail.

Creating or registering the company with Companies House can happen once you have thought about these points.  There is a small fee for doing this yourself online.

Once you have your company set up, the other important thing to do is register it for corporation tax.  You only need to do this once your company starts trading, and then you have three months to inform HMRC.  When you set up your company, HMRC will write to you and confirm the company’s UTR and this will be needed to register for corporation tax.  HMRC will ask you for the date you started to do business (trading) as part of this process.

Keeping records

As a business owner, you must keep proper accounting records.  This will include details of sales you make, expenses you incur (ensuring you can identify what is business and what is personal) plus any obligations you may have for other taxes, such as PAYE or VAT.  If you are a sole trader or simple partnership you will almost certainly find it helpful to have a separate bank account for your business transactions.  As a company, given it is a separate legal entity, a company owned bank account is essential to keep things separate legally.

Employing people

If you need to employ others to help you (or if you set up a company, you need to pay yourself a salary as a director) you will need to register as an employer with HMRC, before the first payday (you can do this up to two months in advance).  There are other legal obligations you need to consider as well, such as right to work, national minimum wage and employers’ liability insurance.  These wider issues are summarised here.

Registering for VAT

Once your sales hit a certain level (currently £85,000) you will need to register for VAT.  You may also register before this point and this will allow you to recover VAT you pay on your costs.  Registering voluntarily will also have an impact on your customers if they are not registered for VAT so this is a decision you will need to consider carefully.

At Jameson Accounting we can help with any of the above topics – from assisting with registration to advising on the tax or accounting considerations in more detail.  We offer a free, no obligation initial discussion.  To arrange a discussion please fill out the contact form or call 07974 825093.