As business accountants who help owners every day with starting businesses, we often get asked “When is the best time to start a new business?”.
There are two main considerations to talk about here.
- When is best from a tax perspective
- When is best practically
These points need considering separately whether you intend to trade as a sole trader or a limited company.
Starting a business and your tax year
Here’s a quick reminder of how the tax years work with these two business types. This can impact when is a good (or ‘bad’) time to start your chosen business.
Sole Trader (and Partnerships)
Your accounts year will usually run as per the tax year. So, your accounts will run from 6th April – 5th April the following year. (Some people can run from 1st April – 31st March, as this is also acceptable to HM Revenue & Customs.)
With the new ‘Making Tax Digital system due in April 2024, you can no longer pick a starting date of your choice. It wasn’t a great thing to do anyway, although it was quite fashionable years ago.
Instead, if you start your business mid-way through a year, your first year would be a short one. For example, if you start your business on 1st October 2022, your tax year will only run from 1st October 2022 – 5th April (or 31st March) 2023.
The next year it then runs for the full year, in line with the tax year.
Your company year runs independently from the standard tax year. For example, if you form the company in September 2022, it’s likely your default year will be 1st October 22 – 30th September 2023.
Oddly, your first ‘year’ might be slightly longer than a year if you started trading immediately after you formed it. As a result, you sometimes need to do two corporation tax returns for that first period. Ask your accountant for help and advice on this.
As a side note, you can subsequently change your company year end, although there are consequences to doing so.
With that in mind, is there a best time then?
The short answer is from a tax perspective, ‘Not really but…’.
Sometimes, it can simply be ‘cleaner’ to time a start for the beginning of a tax year. This applies particularly if:
- You are moving from being a sole trader to a limited company
- You are thinking of starting just before a tax year starts, say in the March of a given year
The reasons it can be ‘cleaner’ to do this at the crossover of the tax year is that:
- Your tax allowances reset, making it easier it to plan your tax bill. For example, with a limited company, this start date can help you plan how you will take your money from the company in the most tax efficient way.
- If you are looking to start a self-employed or partnership business close to the end of a tax year, say in March, you will have to complete a tax return for your self-employed/partnership income for just one month. This will have either
- a cost implication (if working with an accountant or tax advisor), or
- a hassle implication(if doing yourself).
In short, if it’s possible to delay starting your new business until early April this can often be a good thing. However, it’s not essential as you can start your business whenever you want.
Extra Limited Company considerations
With a limited company, it’s likely you will need an accountant to help file your annual accounts and corporation tax return. Whether you trade for a month or a year, there is still the same basic filing to do. So, accountancy charges will likely not massively differ just because you had a shorter period of trading.
To get the most out of your investment in an accountant, try to start trading as close to forming your new company as possible. This will give you the most months of trading in that initial accounting ‘year’ per set of accounts.
Practicalities are actually more of a consideration
Once your tax year/accounts considerations have been made, the most important remaining factors are the practical ones! Here are some pointers:
- Is there a ‘best’ time to start generating revenue for your new business? For example, is there a key season by when you need to be operational?
- Is there a time of year when you have some/more downtime to get the set up/prep done? It can be surprising how much time is needed for goals/tasks such as writing your website content, or setting up your book-keeping system…
- Do you have restrictions from your previous employer which prevent you from trading? This is often particularly relevant if you have just left an employed position.
- Do you have the ‘survival cash’ you need? It often takes longer to generate cash than you’d think, and cost more than you budget for! So, it’s key to ensure you’ve saved enough to see you through.
Need some help setting up your new business?
Ask your accountant or book a consultation with us to help you set it up properly from the start. We offer a paid 1 hour, 1-2-1 consultation so you can ask business creation questions of one of our expert team of accountants.
As with all our advice consultations, you don’t have to become a client to book one, and we won’t insist you become one afterwards. (If you like to become a client, that’s different!). To arrange your initial consultation: