Starting a Business - Part 1

Posted by Phil Murray 09 December 2015 09:30 AM

Anyone who has ever set up their own business will tell you about the excitement, the sense of achievement and the feelings of self worth that you experience when you make that first sale or win that first client. While setting up a new business can be an extremely exciting time, there are a number of dangers and pitfalls which we here at Harlands would be more than happy to help you avoid.

In this first article in a series about business start ups, we will provide you with an overview of some of the regulations facing business start ups but we recommend that, in order to ensure that your start up is avoiding the many hazards on the road to business, you get in touch with a member of the Harlands Team.

According to The Report on Small Firms 2010 – 2015, written by the Prime Minister’s Advisor on Enterprise Lord Young, we are living in the ‘Golden Age’ for small businesses. With 2.5 million small firms in the UK, SMEs account for 48% of employment and 33% of private sector turnover. They are then, an asset to our economy which is why we are passionate about helping start up businesses get off the ground and begin to grow.

Thinking Things Through

No matter how passionate you are about your new business venture, it is likely that there is a little voice in the back of your mind which keeps scaring you about the risk of business failure despite considerable effort and financial input. However, spending time thinking through your plans will minimise the risk of failure and help you keep those negative thoughts at bay.

Think carefully about ceasing to be someone else’s employee. Yes you will have the freedom to work on your own business, the enjoyment of being your own boss and the ability to make decisions which until now, have often been made for you, but there are more important things to consider.

  • The certainty of quantity and regularity of income disappears.
  • Despite an uncertain income, fixed outgoings remain.
  • No more company pensions.
  • The possibility of losing out on holidays.
  • Employee benefits disappear.
  • Stresses on yourself, your family and your friends.

Step 1: Selecting a legal entity for your new business

One of the first major decisions you will have to make as you start your new business, is the form of legal entity it will take. To a large degree, this decision may be dictated by the way you have organised your operations and whether you intend to work on your own or in conjunction with others.

There are four basic forms of business organisation, each has its own benefits and drawbacks and is treated differently for legal and tax purposes.

  1. Sole Proprietorship

Typically, this is a business owned and operated by one individual. The owner has possession of the business assets and is directly responsible for the debts and other liabilities incurred by the business. Aside from licences or permits, a sole partnership does not require any specific legal organisation, nor does it have any rules under which it must function.

  1. Partnership

With a partnership, two or more individuals join together to run the business enterprise. Each of the individual partners has ownership of partnership assets and responsibility for liabilities. Unlike a sole proprietorship, a partnership is a legal entity recognised under the law and as such, has rights and responsibilities in and of itself.

  1. Limited Liability Partnership

The Limited Liability Partnership (LLP) offers limited liability to its members but, like a traditional partnership, is tax transparent and offers flexibility in terms of its internal organisation.

An LLP is a separate legal entity from its members and therefore, may enter into contracts and deeds, sue and be sued and grant floating charges over its assets in its own name.

  1. Limited Company

A limited company is a separate legal entity that exists under the authority granted by statute. A limited company has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file tax returns and pay taxes on the income it derives from its operations.

 

Step 2: Registering with the Tax Authorities

A significant task for the new business owner is ensuring that the business is properly complying with the extensive tax and information requirements imposed by the various authorities.

H M Revenue & Customs

It is necessary to notify HMRC of your business’ existence by completing forms CT41G (companies) or CWF1 (sole traders/partnerships).

H M Revenue & Customs – NI Contributions Office

Depending on the level of profit, sole traders and partners have a liability to Class II NIC which is payable by either a quarterly or monthly direct debit.

H M Revenue & Customs – VAT

You should decide whether it is beneficial to be VAT registered from the outset. We would be more than happy to talk you through the pros and cons of being VAT registered but for now, it is important to know that if you want to register for VAT, form VAT 1 needs to be completed and if you are a partnership, VAT 2 needs to be completed with details of all the partners.

Important dates to remember

There are many important dates to remember when running your own business and, while some of these dates may vary if your year end is anything other than 31 December, the list below will give you an idea of some of the more significant dates for your diary.

Date

Return

Annual Events

 

19 April

Final RTI submission due

6 July

Submission of form P11D reporting benefits in kind

19 July

Payment of Class 1A NICs

30 September

Payment of corporation tax for accounts prepared for the calendar year (9 months after the end of the accounting period)

November/December

Year-end tax planning

31 December

Submission of corporation tax return for accounts prepared for the calendar year (12 months after the end of the accounting period)

Quarterly Events

 

14 April

Forms CT61 to be submitted – tax deducted/received on interest payments

14 July

14 October

14 January

Quarterly

VAT returns (although these can be monthly or annually)

Monthly Events

 

19th

Payment of payroll taxes (under certain circumstances – quarterly)

 

What’s next?

We know that in this first post, we have given you a lot of information which we hope will help guide you into making the right decisions for you and your start up.

Most operators of a new and growing business have a flair for the environment in which their business operates. They may be a great salesperson, mechanic, inventor or artist but more often then not they don’t like to keep the books. Part two of our Start a Business section will provide you with an insight into our world of accounting and bookkeeping.  Luckily, here at Harlands Accountants, we love all the accounting and bookkeeping jobs you hate!

 

Topics: Business Start Up