You have made the decision to become your own boss. As a new business owner, you will have many things to consider. Often, the accounting and finance elements are overlooked even though they are vitally important.
We have set out 5 factors to consider when starting your new business.
The three most common structures for any new business are a sole trader, partnership or a limited company. There are advantages and disadvantages to all three. For a full review of which structure your business requires contact us here.
Sole trader – we register yourself as a sole trader with HMRC and you will complete annual self-assessment tax returns based on your profit or loss every year.
Partnership – we register yourself, your partner and a partnership for self-assessment and complete annual accounts for the partnership. The profits or loss for the partnership is split between the partners.
Additionally, a partnership agreement will need to be agreed between the partners which defines their roles and split of profits or loss.
Limited Company – a limited company is a separate legal entity in itself which will require separate registration for tax.
You can learn more about incorporating a limited company in our article here.
REGISTERING FOR TAXES
Sole traders and partnerships will register with HMRC for self assessment and complete their self assessment tax return on an annual basis.
You will also have to register for self assessment if you are a director of a limited company.
Limited companies will register for corporation tax with HMRC.
However, there are other taxes which could be relevant to you and your new business.
VAT – in most cases if your turnover is over £85,000 you will need to register for VAT. There are many different schemes which your business could register for. Also, if your business is involved in import or export to and from the EU you will have to submit extra returns.
PAYE – if you employ people you will need to administer payroll only a monthly or weekly basis
Pension – if you are an employer you will need to register for auto enrollment and make pension contributions on behalf of your employees.
CIS – if your new business is involved in the construction industry and you are subcontracting work to contractors you will need to register for the construction industry scheme
TAX RELIEFS AVAILABLE
The UK government seeks to encourage entrepreneurship with a range of grants and tax reliefs for businesses. The main two which we can help with are SEIS/EIS and R&D tax relief.
Seed Enterprise Investment Scheme and Enterprise Investment Scheme (SEIS/EIS) is a relief for individuals who invest in start ups.
Money is invested by individuals in start ups and is exchanged for shares in the business. Importantly, the investment attracts income tax relief on purchase and capital gains tax relief on disposal of the shares in your business for the individual.
As a result, if you can offer SEIS/EIS relief to investors it makes your company much more attractive.
Providing you qualify, we can register your business with HMRC and help administer the scheme when required.
Research and Development (R&D) tax relief comes in the form of a reduction in corporation tax payable or in some cases a tax credit paid straight to the tax payer. If your start up is incurring R&D qualifying expenditure you may qualify for this relief.
For further information please see our R&D article here.
CASH FLOW AND FORECASTING
Interestingly, most new businesses fail because they run out of cash. Accurate and timely financial management information can help businesses make informed decisions for the future.
We are a certified partner of Xero. Xero allows users (with the help of their accountant) to maintain up to date financial information to see how their business is doing on a daily basis.
To learn more about how Xero can help you please read our article about cloud accounting.
Most of the time investment in your start up will come at a cost.
You could choose to obtain a loan from a bank, financial institution or crowdfunding. The loans will have to be repaid over a period of time with interest being charged. Often lenders can also charge a fee for setting up the loan.
Alternatively, if you operate as a limited company, you can offer equity in your company in exchange for investment. Unlike a loan there will be no financial cost, however you will be giving away a slice of your business to the investor.
A business plan will help attract investors or secure funding from banks. We have experience in preparing business plans for new businesses.