Updated: Nov 19
If you are reading this, chances are you are already a business owner, or about to become one.
We have a lot of respect for business owners who live their passion, vision and dreams through their business – which is their pride and joy!
“A fine is a tax for doing wrong. A tax is a fine for doing well”
Here are a few of the basic important things one must consider when starting a business:
Type of entity:
An accountant can help with choosing the right structure.
The type of entity you will trade through will depend on a few factors such as; number of business owners, modes of remuneration (salary, bonus, dividends), class of shares that may represent different remuneration for different shareholders, persons with significant control etc.
Most new business owners will either opt to be a sole-trader or a limited company, the key factor in this decision will be the mode of remuneration and timing of tax liabilities.
An accountant can advise more.
“What is the definition of an accountant? Somebody who solves a problem you didn’t know you had”
Business ownership is a constant flood of satisfying milestones coupled with expanding to-do lists.
One of the most important things you will need to get a grasp of is the accounting tasks that come along with owning a business.
Here is a key list of things you should consider for your business which will also help keep your accountancy costs low and allow you to run a reactive business due to informed decision making.
“Experience is what you get when you didn’t get what you wanted”
For self-employed persons, you would need to register as self-employed by completing form CWF1
You will then have online access to your account with a government gateway ID and password
You will also receive a Unique Tax Reference (UTR) number.
Limited companies – once a company has been registered, a government gateway ID will also be available for online access. A company will also have a UTR number and a Companies House registration number and a Company authentication code.
Any business that needs to employ staff will need to register with HMRC for a PAYE Scheme
Once registered for a PAYE scheme, limited companies will be required to enrol their staff on a pension scheme.
Make a note of all the relevant deadlines so that you do not miss submissions else you may be liable to a fine.
Business Banking and Book Keeping Obligations
Open a separate bank account for your business. Try as much as possible to ensure that all business transactions are carried out from this business account, trying not to use individuals’ bank accounts for business transactions.
Track your expenses and maintain your records. There is commercial software available to do this; alternatively, your accountant would be able to look after this for you. There are strict rules around what expenses are considered and hence allowable as a business expense and this may differ slightly from what is a tax expense. Please seek advice if unsure.
“What do you call an accountant without a spreadsheet? Lost!”
Set up a payroll system either yourself or appoint an accountant. It is always advisable to use an accountant unless you have sufficient experience of this. You wouldn’t want to get staff salaries incorrect.
If you run a payroll scheme, it is important to note that you also need to submit RTI (Real Time Information) information from your payroll software to HMRC.
VAT in UK Obligations
Determine our VAT status. If your trading income goes above £ 85,000, you are required to register for VAT; else you may opt to register for VAT. VAT is a very complex area, do ensure you speak to an accountant who can guide you on the VAT accounting you need to do.
If registered for VAT, you may have to sign up to MTD (Making Tax Digital). This allows electronic VAT submissions to HMRC for which you would need compatible software.
“Cash-flow deficit occurs when you have too much month left at the end of your money”
Business budget/forecast – it is advisable to forecast your financial position for a minimum of 1 if not 3 years. Not only does a forecast allow you to measure progress, but you can also use it to implement remedial measures when things are not going to plan.
Raise finance – a robust forecast can be used to raise finance from lenders. Ensuring you have enough liquidity from the onset can be the difference in business success or failure.
Lastly, choose relevant business partners for example Accountants, HR Consultants etc that will support your growth by providing you with the necessary expertise, so that you can fully concentrate on your business.
“Failing to plan is a full proof plan to fail”
Finding An Accountant
Now that you are familiar with the key accounting tasks to complete in your business, here are some tips to help you pick the right accountant that will help you grow your business and meet tax obligations.
Ensure that you choose the right business structure for your trade i.e. sole trader, partnership, limited company etc.
Ensure that your statutory obligations from a ‘business set-up’ and ‘ongoing reporting’ point of view have been understood and set-up correctly.
Determine if you need to have an accountant – if yes, identify the services you need and decide if you want to engage one for all or part of the services.
Choose the right accountant. Be led by the value you perceive you will receive and how much of your time would be freed up for you to run your business and view this in conjunction with the price you are required to pay for this professional engagement.
Ensure that you encourage the accountant to tell you what other services you may require because if you are new to running a business, there may be more you need than you think. You want to avoid surprises later and avoid situations where you think information was kept from you. Some accountants will only quote for what you ask not for what may be required later on as it is sometimes seen as ‘soliciting for work’.
For help on how to manage personal finances, you will find a Personal Finance Coach at Boss Of My Money
To have a no obligatory chat with an accountant, contact TaxAssist Woodgreen
HMRC Processes for setting up a business
How to register a Company
Setting up a workplace Pension Scheme
This information has been compiled by TaxAssist Accountants Woodgreen to serve as a guide to new business owners. It is based on our experience of commonly asked questions from clients we have worked with. Please seek independent advice if unsure of what steps you must follow. The content above is not exhaustive.
Author: Sanjay Parekh
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