By DRG Chartered Accountants
DRG Chartered Accountant’s Tax Director, Stephanie Franklin, gives some useful tips for people thinking about setting up a business.
Starting a new business is an exciting time and involves making a wide range of decisions, across all the business functions. For example, how are you going to attract customers? Do you need premises? What sort of tech support do you need in the early stages of the business? At what point will you need to employ people? And do you need funding to get off the ground?
Making good decisions about the financial aspects of your business from the outset is important as it can have long term consequences. Here are some of the common questions that start-ups should ask themselves. However, the needs of every business are very different, so do get in touch with your accountant to discuss your personal circumstances and long term goals.
Q1 Should I trade as a sole trader or set up as a company?
The most appropriate structure will depend on, amongst other things, the nature of your business, the number of business founders, your long-term objectives, your cash flow requirements and your planned exit strategy from the business. The decision whether to set up as a sole trader or limited liability company is important, so do seek professional advice early.
Q2 Do I need to register for VAT?
If your VAT taxable turnover is greater than £85,000 per annum, you will need to register for VAT. You can register voluntarily if you your VAT taxable turnover is less than this amount. If your VAT taxable turnover is less then £150,000 per annum, you could register for the VAT Flat Rate Scheme, whereby you pay a fixed rate of VAT to HMRC. Once you have registered, you will receive your VAT registration number and the date must submit your first VAT return and payment.
Q3 What sorts of records should I keep?
It is important to keep good financial records from the outset. This will help you keep track of your cash-flow and flag up any issues early. Please talk to your accountant about the most appropriate accountancy package to best suit your business requirements.
Irrespective of your chosen business structure, you should record:
- All sales made and all income received by the business
- All payroll and non–payroll expenses paid and incurred by the business
- Assets owned by company/business
- Company/business debts and liabilities
- Company/business loans
- All goods bought during the course of the financial year.
- Year-end inventory on hand
- Cash book with all receipts and payments made by the business/company
And don’t forget to keep all financial records and calculations that you needed to prepare your self-assessment tax returns or annual accounts etc. We would advise that you should keep all these record for at least 6 years – and these could include receipts, petty cash books, orders, delivery notes, invoices, till rolls etc.
Q4 What do I need to submit to HMRC and Companies House every year?
The annual reporting requirements will vary according to your chosen business structure. As a sole trader, you are required each year to complete a self-assessment tax return, pay income tax on your business profits and pay national insurance. A limited liability company must, prepare statutory annual accounts, complete a company tax return and send to Companies House a confirmation certificate each year.
Q5 What sort of costs can I claim as business expenses?
This does depend whether you are operating as a sole trader or have set up as a company.
Allowable expenses for a sole trader include your office costs, staff costs including subcontractor costs, stock and raw materials, bank charges, advertising and marketing costs including your website, training courses etc.
If you are operating as a company, there are different rules for what you have to report and pay depending on the different types of expenses of benefits provided. You will need report any expenses or benefits you provide to employees and you may also have to pay tax and National Insurance on them.
The area of business expenses is complex – so do talk to your accountant to clarify exactly which costs can be claimed as business expenses and your reporting requirements.
Q6 How do I pay myself?
If you have set up as a sole trader, you need to keep a record of any sums that you pay yourself and complete a Self-Assessment Tax return each year. If you are a shareholder of the company, you may pay yourself via dividends or a salary.
Q7 What about employing other people?
If you employ people, you will usually have to operate a PAYE (pay as you earn) system to make monthly employment tax payments to HMRC on behalf of employees. Each month, before you pay your staff, you will need to inform HMRC of each employee’s payments and deductions, any new employees, when an employee’s circumstances change, etc. You will have to pay HMRC on a monthly basis, unless you are a small employer, who expects to pay HMRC less than £1,500 a month, when you may pay on a quarterly basis.
Q8 Are there any government schemes that I should investigate?
Many young businesses look at the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), share ownership schemes for employees (EMI) and Research and Development tax credits. Do discuss these with your accountant to see if any of these schemes might be advantageous to your business over the next few years.
Q9 As I grow, how do I get my business ready for additional funding?
Many businesses will need access to additional funding, at some point, to achieve their growth plans. Potential investors will want to see a robust business plan, with a detailed strategy on how your will achieve your growth objectives, realistic cash flow requirements and a proof of strong financial systems. By being aware of the requirements of investors from the outset, will help you ensure that your business is funding-ready.
DRG Chartered Accountants works with many fast growing businesses, across a range of business sectors including ecommerce and food and beverage. Please do get in touch, for a complimentary meeting, to discuss setting up a new business and your long term goals.