So you’ve decided to take the plunge and start-up your own business, congratulations!
It can often feel nerve-wracking making the decision to go it alone.
Everything you can do in the early days to get yourself set up can feel daunting.
Here, we walk you through of some of the main things to consider when you get started:
1. Decide whether you want to be a Sole Trader, or Limited Company.
Something we that we always cover in our initial meetings for those looking to start up a business. Some of the main points we consider are:
Does your prospective client need you to be limited?
You may be required to be a limited company as a contractor or consultant. Particularly in professional services such as IT consultancy, or if you find work via an agency.
Are there tax savings in forming a Limited Company?
A Limited Company is one of the most tax efficient ways to operate – and be paid – in the UK. This means more money in your pocket, and not the tax man’s.
Is there a liability reason to be a Limited Company?
You may benefit from having your personal assets protected against any potential claim as a Limited Company.
Likewise if you are planning on hiring employees, or performing highly sensitive tasks. It could be good idea to protect yourself personally.
Does your business type justify the cost?
Running a limited company costs more than being a ‘sole trader’. This is due to the regulations and tax law surrounding it.
We compare this cost with potential tax savings to make sure you at least break even.
2. What do you call your business?
There is a lot of marketing information available with suggestions on the ‘do’s and don’ts’ on brand or business names.
From an accounting point of view, the key point, if you are considering a limited company, is that the legal name of the company does not need to be the same as your ‘trading name’.
For example, if your brand name is Mary’s Cakes, you do not need a company called Mary’s Cakes Limited (although this is often a preferred choice).
The main issue when choosing a limited company name is to make sure it’s available! If your preferred name has been taken, we are more than happy to help you with some alternatives.
We would always recommend doing your research (read: google it!) on any potential trading or brand name, to make sure someone else hasn’t already done that!
3. How do you actually form your company?
Well, if you are not going down the limited route this point will not apply… (perhaps skip ahead to point 5).
You can form the company directly with Companies House for a very modest fee.
Our advice would be to get a professional to help you, so you get all of the legally required documentation your company needs in terms of company registers and other documentation.
We can help draw these up and ensure you are legally compliant with the Companies Act.
We can also help choose your ‘SIC code’. This is the code that tells Companies House what type of business you are in.
Want to talk to us about your start-up business? Get in touch.
4. What should I put as my ‘registered office’?
Again, this one is for those pursuing the route of a Limited Company.
When you form a Limited Company, your personal address will be shown on the public record at Companies House.
If you provide a location address/registered office address different to your home address you will circumvent this. This means marketing companies (or worse still, disgruntled customers) know where to find you from a quick google.
As a result, it is normally standard practice to have a registered office address which is not your own. We provide this optional service.
You can, and most do, use your own address on invoices and for correspondence, this will be your ‘trading address’.
5. How do I tell the taxman I am going out on my own?
If you form a limited company, there maybe several taxes you need to register for (Corporation Tax, Payroll schemes etc).
If you are a self-employed/sole trader, you will need to register with HM Revenue & Customs (‘HMRC’) in order to receive a tax return. You can do this quickly and easily online.
We can help you with registration in all these different areas to make sure you get this right, as a wrong date in the wrong box can mean further form filing, or in some case financial penalties!
6. Do I need a separate bank account?
We would always advise yes.
If you are a limited company, you will need a new one as it is legally different from you as an individual.
For a sole trader, it is always preferable to separate business money from personal, not least because it helps ensure certain costs (such as bank charges) are fully tax deductible.
‘Fresh’ new limited companies, will need to have formed the company and be able to provide your ‘Certificate of Incorporation’ to the bank.
They may also ask for a ‘UTR’ (unique tax reference). You can open a bank account without your UTR. Banks do generally prefer to hold this information from the start, however.
This tends to arrive around a week after formation depending on how you form the company.
We have great ties with some of the local banks and are able to help clients with this process. Ready to talk to us? Get in touch.
7. Do I need to be VAT registered?
In short, if you deal with the public, in the early days of business it is often not a benefit to be VAT registered right at the beginning.
If your clients/customers are VAT registered businesses, the reverse is true and it’s often a tax saving from the beginning.
We can help run through a few scenarios and advise on the best course of action, as each business situation is different.
We will also discuss what you need to include on your invoices if you are VAT registered.
8. Get Paid.
Ah, the most important question once you have the structure of your start-up business sorted!
Many businesses will send out invoices on completion of a period of work.
If this is you, you need to think about payment terms (i.e. will you allow people to pay later, say 14 days from receiving the invoice).
You can now take advantage of tech-enabled solutions at low cost from card machines that vary in transaction fees (such as Paypal and iZettle), to excellent direct debit tools (such as GoCardless).
If you are a more ‘cash based’ business, such as a shop, then you will need to consider a till system.
HMRC are rolling out Making Tax Digital in stages, so where possible consider digital-first to ensure you are ‘future proof’.
Regardless of what you do, make sure your invoices/till receipts are numbered and uniquely identified. Some people do not like the idea of issuing INV-001 for the first time, so feel free to do INV-0100, 0101 etc!
If you are a limited company, invoices should have a note of the companies legal name, registered office address and company number. These are often shown in small print at the bottom.
As electronic payment is the norm in the world now, displaying your bank details for electronic payment on your invoices is advisable. Just remind those clients/customers to include your invoice/receipt number as a reference on their banking when they pay you!
Trust us, this is so important.
9. How do I keep my books and records?
This one again is a wide topic for discussion, but in general these days we would recommend using some book-keeping software. In fact, specifically the two market leaders, Xero or Quickbooks Online.
Combine these with some other fancy technology, such as the receipt picture taking app, ‘Receipt Bank’ you can save yourself some serious time in book-keeping.
As a minimum, you need to keep all your business receipts, invoices and anything related to your business for around 7 years.
The software solutions will eventually be a must, as HMRC launch their ‘Making Tax Digital’ initiative from April 2019. There will be a need in the future under these plans to transmit income and expenses data digitally each quarter, so choosing software now will get you ready for this.
In this area, we really are experts and can chat through various ways, customised to your business, to help you keep your books easily. In many cases, we provide cost effective book-keeping services to clients, or a mix of client book-keeping and us reviewing and reconciling.
10. Do I need a website?
Well… what do you do when you want a product or service?
Chances are, you type it in google, or pop on social media. With this in mind, it is a good idea. Luckily for you, there are some great low cost ways to do this (Weebly, Squarespace etc). For something more custom or complex, we have some great professional connections that could help.
We always think an email address of yourname@yourbusiness.co.uk etc looks better than @btinternet, @gmail etc. Luckily, you can get these ‘domain registrations’ and emails from very low cost, such as Google Suite at around £3 a month.
In terms of social media, all these can normally be set up for free. You can even manage them with some automation, with tools such as Hootsuite. ‘Social selling’ is all the rage, for good reasons.
11. How do I pay myself?
Arguably the most important bit, as if you aren’t looking to pay yourself, why are you thinking about starting a business?!
Self employed sole traders can simply draw money from their accounts. Our advice would always be to plan for future tax by saving a percentage of the money you draw, or leaving enough in the account for later. As a rough figure, around 25% would be a reasonable provision. Without getting into tax too heavily, if you make a healthy profit in the first year you can have a higher tax figure to pay that year than subsequent years, due to the way self employed sole traders pay tax.
If you are a limited company, you need to figure out HOW you will pay yourself. You may have heard the term ‘salary’ or ‘dividend’. Both are ways of paying yourself, and often the most efficient thing is a mix of the two. Both require legal paperwork and/or reports to be submitted to HMRC to make them official.
This is one of the biggest benefits of having a reliable and experienced accountant on your team, as this is where some serious money can be saved if you are being paid from a limited company.
From your point of view, you will still just be transferring money to your personal account, but if the paperwork isn’t there, that money will be owed back to the company.
| —————————————————————————————————————- |
If you are thinking of starting a business and would like to chat any of these points through, please call or email us and we will book you in at our office to meet with one of the team.
As an added bonus, we make a great tea or coffee…
Call us: 02392 240040
Email us: info@heelanassociates.co.uk