Starting your own business is easier than it has ever been these days – and the internet continues to produce more ways to indulge your entrepreneurial streak, which means more people are encouraged to get started. But there are some serious pitfalls that we see time and time again, and they can be costly to sort out. That’s why in this post, we’ll be sharing a few tips to get your business going in the right direction, whether your ambitions are through the roof, or you just want a side hustle to make a bit extra. Let’s go straight in, so you can keep these problems at bay.
Make sure you register your business
His Majesty’s Revenue and Customs (HMRC) is the body that administers everything to do with taxes, National Insurance, and so on, and if your business is earning, they need to know about it. There are three main ways you can register your business, and there are reasons to pick each, so make sure you make the best decision:
To set up as a sole trader with HMRC is pretty quick and easy. You’ll need to register for tax, and possibly VAT as well, if that applies to your business.
For a partnership, you’ll need a name for the business, and a nominated partner. This nominated partner will be responsible for keeping records and paying taxes correctly and on time. Again, you’ll register for tax, and VAT if applicable.
To register as a company is a bit more complex. You’ll need to choose directors, and you’ll need to adopt articles of association. You can use a template – there are plenty available – or you can have your accountant assist you. As you set your company up with HMRC, you will also register for corporation tax, and again, VAT if it is applicable to your business.
If you’re at all unsure about which registration is the best one for you, then check with your accountant – they will be able to help you understand the nuances and what is best for your business. It is a really important decision, because changing the way you’re registered in the future can be a time consuming job.
Do you need to trademark your business name?
Choosing a business name is tricky, because there are so many names out there, and it isn’t just identifying your business that it is important for – whether you can get the website and social media handles you want will make a difference too. Trademarking your business name means you won’t end up with others mimicking the identity of your business. If you’re investing money as well as time into your business, applying for a trademark will prevent others trading on your name.
Start your finances as you mean to go on
Creating a great business plan really is just step one. Many people fall into the trap of spending more time marketing their business than they do really doing their admin, and then they end up with huge amounts of work to catch up on, or worse – fines because they didn’t pay their taxes on time. Make sure that isn’t you, by following our tips.
Get a great accountant
While there are tools that can help you to stay on top of your admin, you really do need an accountant on side. If you’re not great with numbers, then you can have your accountant do everything for you, or with the right setup, you can just have them do your tax returns. When you choose your accountant, discuss with them their approach to make sure you are both happy with your arrangements.
Accountants today aren’t just number crunchers though – they offer much, much more value. Good accountants also provide business advice, help to monitor cashflow, keep records up to date, and give you advice about tax. Because they’re so valuable to the success of your business, it is well worth finding one that you can build a rapport with, and that can support your business in the way that you need them to. A few points to help you choose your accountant:
· Make sure you know what services you need before you start your search – it makes it easier to narrow down your search.
· Get a referral, check reviews online, or consult your local Chamber of Commerce.
· Meet with them before retaining them. Make sure you clearly understand their fees, how you’ll pay, how you’ll communicate with them, and whether they have experience in your industry.
· Be completely clear about your requirements, and be open to their recommendations for your business. If you’re going to work together, this will be an important aspect.
· Check their legitimacy – make sure they have the right qualifications, and they should also be happy to give you details of current clients who will be able to vouch for their work.
· Try and find someone you actually like. You may need to chat with your accountant often, and so being able to get along with them – especially if times are tough – will make it a bit easier.
· Make sure you know which system they use. Most accounting companies work with either Xero, Sage or QuickBooks, and if you already have a preferred one, then you need to know if they can work with it.
· Get fees in writing. Depending on the way you work, and how successful your business is, you may need extra time or services, so you need to know what that will cost.
· Set up a review period. A regular meeting with your accountant will help you to keep your business on track, and make sure you don’t end up making a costly mistake.
Because your accountant is going to guide you on all the rest of the things we’re going to talk about, it is most important that you get a really good one.
Keep track of your expenses
Knowing what you’ve spent on your business is really important, because you may be able to offset some of those expenses against your tax return. But keeping track can be a bit of a hassle – and there isn’t an accountant in the country that enjoys getting a shoe box full of receipts to make sense of! Luckily, there are expense trackers now that make logging expenses really easy, and will make sure that you stay on the right side of your accountant.
Expense tracking apps that are popular and widely used by accounting companies include QuickBooks (from £5 per month, free trial available) Xero (from £10 per month, 30 day free trial available) and Sage (£12 per month, 3 month free trial available). You may find others, or create your own templates using Excel or Google Sheets, but these are ones that accountants tend to prefer and recommend, since they are already integrated with their main accounting software.
Work out your bookkeeping arrangements
Your bookkeeping requirements depend on the type of company that you have set up.
Sole traders need to log income and expenditure, and at the end of their financial year, expenses are deducted from the income to determine the profits. The amount of profit that has been made will determine the amount of tax that is to be paid.
Limited companies and partnerships are more complicated. They require more detailed records, paying of dividends, and your accounts to be filed with Companies House. The main requirements are:
· Tracking income and expenditure
· Filing of a self-assessment tax return, based on the income made from the business
· If you’re VAT-registered, you will need to complete VAT returns and payments every quarter
· If you employ staff, you’ll need to calculate income tax and national insurance for them. This is called PAYE
If you’re old-school, your bookkeeping can be done on paper, but ultimately it will need to be put into your accountancy package, and so it is worth just getting to grips with it right away. The most efficient way to do your bookkeeping is directly within your accountancy package – QuickBooks, Xero and Sage. Depending on the setup you’re working with, your package can do so much more for you, or make it easier for your accountant to finalise your figures. Things like automatically calculate your profits, calculate asset depreciation, tackle PAYE and national insurance for your employees, take care of calculating corporation tax, VAT, self-assessment income tax… and so many more! This makes it pretty clear why you will want one, as well as making it easier for your accountant to spot if there are any mistakes to pick up.
If you don’t want to have to think about bookkeeping, your accountant should be able to do that for you, or recommend a bookkeeper.
Set up your payroll
You’re likely to be setting out as just one person, but if you plan to scale your business – even if it is off in the future – then it is worth figuring out how you’re going to pay employees. You can find out more about payroll on this page, but the basic steps are:
· Record pay for each employee, including any bonuses or tips
· Calculate any deductions required such as tax and National Insurance
· Calculate the National Insurance contributions that you, as the employer will need to pay on any earnings above £183 a week
· Produce payslips and make sure they are received by the employee
· Report pay and any deductions to HMRC in a Full Payment Submission (FPS)
For any employees that earn less than £120 a week, you simply need to record and report their pay, unless they work in another job, or receive a pension.
Making sure you pay your employees on time, every time, is easier when payroll is run through your accounting system – and your accountant will be able to help you get this right.
Understand your tax responsibilities
How much you pay in tax will depend on how your business is set up. Taking advice from your accountant is always advised when you’re just starting out, since HMRC apply large fines when taxes aren’t paid correctly. There are four main taxes you’ll need to be concerned with – Income Tax, National Insurance, Corporation Tax, and VAT.
Income Tax
The majority of employees and business owners will need to pay Income Tax. The personal tax allowance is £12,500, and anyone earning above that amount, under the age of 75, will need to pay it.
· Company employees will pay their Income Tax through Pay As You Earn (PAYE) once they earn more than £12,500, and anyone who works for more than one company may need to pay sooner
· Sole traders pay Income Tax based on the profit the business makes, once it earns more than £12,500
· Anyone that is self-employed or that has a higher income may need to pay through doing Self-Assessment, and they will need to complete a tax return each year
· Owners of limited companies may need to pay Income Tax based on salary or dividends drawn from the company
National Insurance
Technically not a tax, but the fact that National Insurance isn’t an option is why we’re including it here. It must be paid once an employee earns more than £183 per week.
· Self employed should make National Insurance contributions once profits reach £6475 per year
· Sole traders need to pay two types of National Insurance:
o Class 2 NI is paid weekly, and is currently £3.00 per week
o Class 4 NI is paid when profits are more than £8,632 but less than £50,000, and are 9% of profits. If profits are above £50,000, then you pay 2% on profits above that amount
o The exception to this is if you’re under the Small Profits Threshold, which is £6,725
· Limited companies where you’re paid a salary, you will pay Class 1 National Insurance to HMRC – this is set at 12% of earnings between £8,632 and £50,000, and an additional 2% for earnings over £50,000
· For limited companies where you’re a director that draw dividends, you pay based on your annual earnings – read more here
If you haven’t paid National Insurance contributions as you launch your business, make sure that you plan ahead so that you don’t miss out on a full pension when you reach retirement age. That’s something else to put on your to-do list too – plan for your retirement! In the meantime, make sure you get your National Insurance contributions right, by checking with your accountant.
Corporation Tax
If you’ve set up as a limited company, you’re going to be paying Corporation Tax on your profits – and unfortunately, you’ll pay it as soon as you start earning. However, the amount that you pay depends on how much you earn, so it will be in proportion with your profits. Find out more about Corporation Tax here, and always check with your accountant.
Sole traders, you can relax about this one, as you won’t pay Corporation Tax.
VAT
VAT is value-added tax, and we all pay it on pretty much everything we buy in the UK. While we’re all paying it when we do our weekly supermarket shop, that isn’t where it ends. Some businesses will need to register for, and collect VAT, and as your business becomes more successful and profits increase, you’re likely to need to do so. You might think that your business isn’t quite there yet, but understanding the requirements and planning ahead is a good idea, as if you do well, it’ll come around sooner than you think.
Because HMRC has moved to having everything digital, once you’re VAT registered, you’re going to need to keep records digitally, because you’ll file your VAT returns with a system that is compatible with the Making Tax Digital requirements.
There’s a LOT more to be understood about VAT, and we’ll dive into it further in another post – but the biggest piece of advice we can give you is to check with your accountant, as there’s a lot to get right.
Business rates
If you’re going to be conducting business from an office, retail premises, or another location, you may need to pay business rates. This is similar to Council Tax, but is paid on properties where business takes place, rather than homes.
Sole traders and businesses starting out from home generally won’t pay business rates in addition to council tax, although there are a few exceptions. These include where you have additional staff working from your home; where customers visit your home; if you’ve adapted your home to work there, such as a garage or shed conversion; or if your business is part business part home, such as a pub, or shop that you live above.
It is always best to check if you’re unsure. Check with your local council, and you can find out more here, and you can find a guide to how much your business rates might be here.
Decide how you’ll be paid
There are two main ways you can take money for yourself from the company – either taking a salary, or drawing dividends – and there are benefits to doing both, depending on your personal circumstances. Again, your accountant can discuss these with you, and help you to make the right decisions.
If taking a salary is right for you, then that’s easy. You’ll simply set yourself as an employee on your payroll system, and then pay yourself in the same way you would anyone else.
For limited companies that are drawing dividends, it is a bit more complex. You’ll need to hold director’s meetings to declare the dividends, with minutes of the meeting held, even if there’s only a single director. There also needs to be paperwork completed, including dividend vouchers with the company name, the date, the shareholders to receive the dividend, and of course, the amount to be paid. The company must retain copies of the vouchers, and recipients must have a copy too. Find out more about taking money out of a limited company.
Choose a good bank account
Keeping your business and personal finances separate makes things a lot simpler, and finding a business bank account is easier than ever. They almost always have a monthly fee, but shop around on places like MoneySuperMarket or MoneySavingExpert, and you can find some good introductory offers. You’ll need to provide information to open the account, including:
· Proof of ID (passport, photo driving license or national ID card) for all named company directors
· Proof of address (utility bill, council tax statement, recent bank statement)
· Full business address (including postcode)
· Contact details
· Companies House registration number (for limited companies and partnerships)
· Estimated annual turnover
Some banks will require you to have a good credit score, and to provide your banking history too. You may need to go into the branch, or to have a phone interview to complete your application, although in most cases, you’ll be able to start your application online.
There are several benefits to having a business bank account, and some of the perks that you may be able to access include having a personal advisor free of charge (ideal if your accountant charges for their time), low fees, online account management, overdraft facilities, and foreign transaction facilities. Whether you need each of these now, or may do in the future, make sure you get the best all-round account for your business.
Apply for loans and funding
If you’re starting a business with no backing and you don’t have the savings to risk putting in, then you might need to look at other types of funding. There are a few options you can choose from, including loans, investment schemes, and grants.
Start up loans
Taking out a loan can be a good option if you’re certain about the success of your business, and there are start up loans that are available at lower interest rates, and with longer repayment periods to help you get started. As with any kind of debt, if you take a loan, you need to be certain you can make repayments, so keep your repayments at the forefront of your business expenses, and if you can, have a few payments put aside, just in case.
Seed Enterprise Investment Scheme (SEIS)
SEIS is one of four venture capital schemes that the UK Government backs, and allows businesses to raise money when they start out by offering tax relief to investors that buy shares in their company. You may be able to receive up to £150,000 if your business is eligible, and as long as the business isn’t trading on a stock exchange when shares are issued. Find out more here.
Enterprise Zones
Certain areas of England may have schemes that can provide tax breaks and government benefits to help companies get going. The eligibility depends on the geographical area and what is available, with some including business rate discounts and enhanced capital allowances. Check with your local council to find out more.
Small business grants
Grants are helpful, no matter how small they are, and the UK government has different ones available. You may be able to receive cash, or tax relief. There are three main types of schemes:
· Equity finance, which are awarded to start ups, and young businesses
· Direct grants, which can cover essential start up purchases
· Soft loans, which usually offer better rates than banks
You can find plenty of options when searching online for business funding and start up funding, but there’s a few options to start here:
· The UK Government’s business finance support finder
· The Local Enterprise Partnership Network provides funding and advice for businesses across England
· The Highlands and Islands Enterprise and Scottish Enterprise both provide support for Scottish businesses
· Businesses in Northern Ireland can consider NISPO II’s Proof of Concept grant and Invest NI grants, as well as getting support from Enterprise Ireland
· In Wales, Business Wales has a finance locator that can help find grants to apply for and gives detailed information about the application process
Always take advice when you’re looking for funding – and of course, do your due diligence. Make sure you fully understand all the terms and conditions, especially if there are repayment requirements.
Plan your strategy reviews
Your business is going to change quickly, and you need to celebrate those small wins, as well as the big ones. You may reach your targets much slower, or quicker, than you expected. That’s why you should review your business strategies regularly – you want to make sure you’re always working efficiently.
Working with your accountant to review your business, your finances, and your plans, will ensure that your business can keep going, and your accountant will almost certainly be able to spot ways for you to make savings, and to make sure you’re not losing money on things you don’t need to spend on.
Don’t think that changing your strategy is in any way a sign of failure. It is definitely something you plan for, and to keep your targets lined up.
Our final thoughts
When you’re starting a business, you’ll be putting your all into it – there’s a lot to do! It is absolutely worth the effort though, to know you’re building something that can serve you for as long as you want it to. While we’ve said it more than enough times for you to have got the message, we can’t stress how important it is to have a great accountant on your side, since they can help you to stay on track with everything, from your tax obligations, to the best bank account, loans and funding, and to help you review your strategies, when the time comes. If you’re looking for a supportive accountant with business experience, get in touch – we’re happy to help.