Setting up a business is a big step, and like all big steps you’re likely to be excited and frightened in equal measure. Chances are you’ve already done the fun bit of checking out if your business idea is feasible, writing a business plan and working out setup costs.
But have you considered, what we like to call, the nitty-gritty aspects of setting up a business? The things you need to understand (and get right) in order to build your business, but aspects that don’t necessarily fill you with excitement!
We take a look at the 4 things our clients ask us most about setting up a business.
1. Choosing the right business structure
Finding the right business structure, that works for both you and your business is one of the key decisions you’ll have to make. Many people set up a Limited company, as it helps you come across as credible and professional, and your personal assets are not at risk if something goes wrong.
However, when you first start out, becoming a sole trader is also a good choice. Easy and cheap to set up, fewer statutory filings, and as you are the business, any profits (after tax and NICs) are yours to keep!
It doesn’t really matter which option you choose, just as long as you make sure it fits with your business growth goals and personal circumstances. Always think long-term, as while changing business structure isn’t hard, it will take time and energy away from running your business.
If you’re still unsure, we’ve put together a list of all the different business structures available along with a breakdown of their advantages and disadvantages. Read it now.
2. Understanding PAYE
As soon as you have any employees in your company (even if you’re only employing yourself as a director of a limited company), you need to register as an employer with HMRC. This allows HMRC to collect Income Tax and National Insurance from employment.
The only exception to this is if none of your employees are paid £118 or more a week, get expenses and benefits, have another job or get a pension. But remember you must still keep payroll records.
Your first step is to register as an employer, which you can do on the HMRC website. Make sure you register before the first payday, as it can take up to 5 days to get your employer PAYE reference number. Then, you must set up a payroll system. HMRC provides free payroll software that allows you to perform most payroll tasks, including working out the tax and National Insurance for your employees and sending this information to HMRC. It’s only for businesses with fewer than 10 employees, so if you have more, we’re happy to advise on other available software or run payroll for you.
3. Registering for VAT
The good news is you don’t need to register for VAT unless you have an income which is more than the VAT threshold (currently, £85,000). This can be useful when you first start out in business, as potentially you’ll be able to offer your services or goods at a lower price than your VAT registered competitors. It also means you won’t have to worry about submitting quarterly VAT returns or working out how to claim back VAT on purchases.
However, if you know you need to make a lot of purchases, especially high-ticket items, then it might be worth voluntarily registering for VAT, so that you can claim the VAT back.
If you think this might apply to you, take a look at our blog on the other advantages and disadvantages of voluntarily registering for VAT.
4. Managing your books
Unless you’re an accountant, the most onerous job for most people is managing their books, but, get it right from the start, and you’ll wonder what all the fuss was about.
And our top piece of advice – get online! With Making Tax Digital focused on making tax administration more effective and efficient for taxpayers, you need to make sure your accounting records are kept up-to-date and the simplest way of doing that is by using online accounting software. Not only does it make reporting to HMRC for tasks such as VAT and monthly payroll a lot easier, but also gives your accountant immediate access to your bookkeeping data making it a cinch to prepare the relevant returns.
Some of the packages our clients use include:
We are happy to talk through your needs and help you select one that works for you.
We know that none of the above is very exciting, but it is essential to consider if you want a successful business. If you need any help getting started, or want someone to take some of the burden away, then give us a call. We offer a full range of accountancy services including bookkeeping, VAT returns, statutory accounts, running payroll and offering business advice to start-ups.