So, you’ve started a company – now what?
You’ve opened that unassuming letter from Companies House, and maybe you’ve cracked open a bottle of champagne (or prosecco). You’re the proud owner of your very own Limited Company!
It’s a big step, more than a little exciting. But, let’s face it, more than a little daunting as well. It can feel like you’ve opened up a puzzle box with so many pieces to fit together – and someone’s stolen the picture from the top of the box.
From navigating the intricacies of the UK tax system to understanding what you should do with all those documents, it’s a lot. But that’s where we come in. At Red76Tax, we believe in simplifying the complex and bringing a personal touch to accounting.
This guide has been crafted to give you a solid foundation as you embark on your entrepreneurial journey. Think of us as your trusty companion, making sure you’re informed and confident every step of the way. And, when you get stuck, we’re ready to do some of the heavy lifting for you.
7 things to think about when you’re starting a business in the UK
Ok, so we know there are a million things to think about when it comes to running your own business. But we’ve seen hundreds of businesses through our doors. And, when it comes to taxes and accounting, here are the 7 things that should be at the top of your list.
1. Taking advantage of the benefits of being a Limited Company
Now you’ve made the leap, what’s so different from when you were a sole trader?
Sole Trader: As a sole trader, you run your own business as an individual. This means you’re personally responsible for your business’s debts. You have some accounting responsibilities but can keep all your business’s profits after tax. It offers more simplicity but less separation between personal and business finances.
Sole traders pay Income Tax on the profits your business makes and the money you take out. The National Insurance you pay is also based on your profits.
Limited Company: In contrast, a private limited company is a separate legal entity. This means the company’s finances are separate from your personal finances, offering a degree of personal financial protection. There are more reporting and management responsibilities involved.
Limited companies pay Corporation Tax on their profits. As a director, your salary and any dividends you take out will be subject to personal taxation.
2. Understanding Corporation Tax
Stepping into the world of business, there’s no escaping the topic of taxes, and for limited companies, Corporation Tax takes centre stage, and understanding its nuances can make all the difference in ensuring you remain compliant while maximising your profits.
What is corporation tax and when is it payable?
Simply put, it’s a tax on the taxable profit of your company. Taxable profit is different from the total profit you might see on your profit and loss statement, as it excludes any non-taxable income and includes non-deductible expenses.
Typically, your Corporation Tax payment is due 9 months and 1 day after the end of your accounting period. For many businesses, this aligns with the financial year, but it’s vital to confirm based on your company’s specific accounting period.
Corporation Tax rates change, and it’s pivotal to stay updated. You can find the most recent rates on the GOV.UK website.
Just as there are obligations, there are also opportunities for relief. These can range from deductions for capital expenditures to specific industry-focused incentives. It’s worthwhile to explore these reliefs, as they can considerably reduce your tax bill. And the best way to maximise your opportunities? Get help from a specialist tax accountant.
3. Setting up a Business Bank Account
Keeping your business finances distinct from your personal ones is a cornerstone of efficient and transparent financial management. And for limited companies, it’s not just a recommendation; it’s a necessity.
Legality: As a limited company is its own legal entity, it requires its own bank account. This isn’t just about clarity; it’s about compliance. Using personal accounts for business can complicate matters and is not recommended.
Transparency: Having a separate business account simplifies the accounting process, making it easier to track income, outgoings, and overall company financial health. This clarity is invaluable when making business decisions or seeking external investment.
Protection: Your personal assets are better protected when there’s a clear line between personal and business finances. It ensures that should the company face financial difficulties, your personal assets are less likely to be affected.
Got questions about the sort of account you need or how to divide your assets? Then keeping an open channel with experts who can guide you through the intricacies of the UK business landscape is vital. A good chartered accountant can help you find the account that’s right for you.
4. Deciphering VAT: When and how to register
Ah, VAT! The three-letter acronym that can send shivers down the spine of many a budding business owner. However, with a clear understanding of the when, why, and how, registering for VAT becomes a straightforward process.
Threshold clarity: VAT, or Value Added Tax, isn’t something every business needs to concern itself with immediately. There’s a threshold of turnover, beyond which your business must register for VAT. This threshold can change, but we can advise you on up-to-date figures.
Why should you register for VAT?
Once your business hits a certain turnover, then registering for VAT is mandatory. But, there is also a case for voluntary registration. This can offer an air of professionalism, suggesting your business is of a certain size. Additionally, it allows you to reclaim VAT on eligible business expenses and purchases.
On the flip side, you’ll need to charge VAT on your goods or services, which might not appeal to all customers. Plus, there’s the added administrative work of VAT accounting and returns.
5. Employing Staff: What you need to know
Your business is growing, and you need an extra pair of hands (or a few). But with great growth comes great responsibility—especially when it comes to the rules and regulations around employment. Here are a few things you’ll need to consider:
Employer’s Liability Insurance: Once you become an employer, the law requires you to have Employer’s Liability Insurance. It starts from just a few pounds a month, and it’s designed to protect you against claims from employees who’ve been injured or become ill as a result of their work. Beyond just the legalities, this insurance provides peace of mind, ensuring both you and your team are covered should any unforeseen issues arise.
PAYE for employee taxation: PAYE stands for ‘Pay As You Earn’. It’s the system your business will use to collect Income Tax and National Insurance contributions (NICs) from your employees’ wages.
Setting up PAYE is essential when you employ staff. It involves registering with HMRC, understanding the tax codes, and ensuring the correct deductions are made. It’s also something we can help you with here at Red76Tax.
6. Keeping records and documentation
Numbers tell a story. And, for your company, the financial numbers tell the tale of your business’s health, trajectory, and potential challenges. And where do these numbers come from? Accurate record keeping!
Avoiding financial blind spots: Think of your financial records as the headlights on your business journey. Without clear and accurate financial documentation, you could miss potential pitfalls or opportunities.
Legal necessities: By law, businesses are required to maintain certain financial records for a set period. This includes details of sales, expenses, and other financial transactions.
Operational benefits: Beyond compliance, a well-organised record-keeping system provides invaluable insights for business decision-making. Want to know if a marketing campaign was profitable? Need to track your inventory costs? It’s all in the records.
Here’s a useful guide on how to set up a basic record-keeping system.
7. Finding a good accountant
You didn’t go into business to be an accountant, so don’t try and be one!
Sure, you might be a whiz at what you do, but the complex world of taxes, compliance, and financial strategy can be, well, another story. That’s where you need a seasoned accountant to help you decipher it all.
An expert accountant (like us here at Red76Tax, of course!) can help you:
Grow your business: An accountant doesn’t just crunch numbers; they help you interpret them. They provide insights on cash flow, profit margins, and growth strategies. Good accountants are very good at seeing your business through impartial eyes and being able to see the blinding obvious of what needs to happen for it to be successful
Ensure compliance: With the tax landscape continually shifting, an accountant ensures you remain compliant, avoiding potential fines or penalties.
Spot potential pitfalls: Our seasoned team has helped countless new businesses navigate the complexities of starting up, ensuring they’re set up for success from day one.
At Red76Tax, we’re the human face of accounting. We’re not just here to balance your books but to understand your business dreams and help you achieve them.
While it’s entirely possible to venture into the business realm solo, the intricacies of tax, compliance, and financial management are vast. Just as you wouldn’t drive without your sat nav (or a map if you’re old school!), steering your business without a knowledgeable accountant is a risk not worth taking. Having a professional tax expert, and ICAEW qualified firm, like Red76Tax by your side is an investment in your business’s future, ensuring you focus on what you do best while we handle the rest.
How it works
We talk through what you might need, and give you a feel of who we are and how we work. Then we send you a quote. If you feel we’re a good match then we can start working our magic for your business.