If you are planning on setting up a business then we’d like to say, well done! Running a business is hard work but it can be very rewarding, and there is huge amount of satisfaction in getting your product or service to market and making a success of your enterprise.
But having made that decision, there are a number of considerations that we – as accountants, lawyers, and business advisers – can help you with.
You must make sure you are compliant with commercial law and, importantly, that you are financially astute with cashflow, so that you can trade. Around 60 per cent of businesses fail in their first three years in the UK – so, let us help you to ensure you’re not in that statistic.
Here are we talking about company structure. You have various options, such as limited company, partnership, or sole trader. Before you decide, ask yourself a few questions, such as do you want to employ people, and are you working alone or with other founders?
A sole trader – here you operate the business alone and take all the decisions. Your personal finances are legally tied up in the business, which means while you can keep the profits, you are also liable to any debts and taxes. You’ll pay your taxes via the self-assessment system.
A partnership – if you are setting up the business with other people, you might consider a partnership. Here, you will share the management, profits, and liabilities of the business between you.
A limited company – with a limited company, unlike in a partnership or sole trader structure, the personal assets of the shareholders or owners are protected from the company’s debts and liabilities. The business must be registered with Companies House and is a separate legal entity.
A limited liability partnership – a mix of a limited company and traditional partnership. Income tax is paid via self-assessment but the financial risks of the company are limited.
Whatever structure you decide to adopt, you still have the option to change. For example, many business owners start out as sole traders, but as their enterprise becomes more complex, and they look to employ people, they transition to a limited company.
There’s no avoiding paying taxes, whatever business structure you opt for.
Typically, sole traders or those in a partnership pay Income Tax and National Insurance on the profits, through the self-assessment system.
If you run a limited company, the business will be liable to Corporation Tax and you must complete a company tax return. Your personal earnings from the company are then subject to income tax and will depend if you take dividends, salary or a mix of both. This will come down to tax planning which we can help with.
For any entity/structure, once turnover hits £90,000, you will also need to register for, and pay, VAT, passing on the VAT to your customers.
There can be startup costs associated with a new business, so you might want to explore funding options to cover these.
Common types of funding include bank/building society loans, which you repay with interest. As with any loan, there is a qualification process, and it is essential to ensure you can make the repayments.
You might look to investment funding, from private/angel investors. Typically, they would expect a percentage of the profits, or equity in the business. You might also look at crowdfunding, where the investors are spread among a number of people.
Depending on what you do, or where you are located, there are government grants or funding streams available – you can find details of some of these here. Again, there will be qualifying criteria and do ensure you read the small print about what is expected of you. There can be tax liabilities associated with grants, which we – as tax experts – can guide you through.
At Optimum, our expert team work with business owners at every stage of their business, from startup to exit planning. We work closely alongside you, guiding you through set up, managing your business cashflow and finances, and tax planning and filing returns. We don’t use technical jargon and our aim is to ensure you understand your business finances and we are here to hold you hand as much as you want us to.
We work across Swindon, Wiltshire, Cheltenham, and Gloucestershire, and the wider area. Please get in touch to find out more.
