Starting up? 5 things we’d recommend you think about!
Post Author:The Strata team
So you’ve decided to start up a business!
This is really exciting and could be the start of something that you’ve been thinking of for a long time; or it might be the meeting of minds over a drink that crystallised into something real; or it might feel like a better option that employment, more freedom and flexibility to follow your dreams.
Whatever the driving force, taking a few steps while you’re still in first gear might help you build a solid foundation from which to grow. A good blueprint can go a long way to securing organic growth. So here are five things that we think it’s worth putting in place early on:
1. Limited company or sole trader?
Generally speaking there is not a lot of difference in tax efficiency in operating as a sole trader versus a limited company any more (unless you’re husband and wife) but there is more flexibility as a limited company; and in the longer run more credibility in growing an entity rather than an extension of your skill set. Being a sole trader means that you are taxed income tax on the profit you make (the fees you generate, less the costs you incur). You declare your earnings and pay your tax through your annual personal tax return. If this is your only income, then you are allowed up to your personal tax allowance (this year the allowance is £12,570 meaning you can earn up this amount without paying income tax on the profits). However, by incorporating there are different opportunities and protections available as well as increased credibility. You can also incorporate after a period of time testing the market as a sole trader if you wish. If you decide to move straight to a limited company, and you’re setting it up with more than one shareholder, we would always recommend a shareholders agreement is put in place: but we can talk to you about that in more detail if this is the case.
2. Registering for VAT?
Whether you choose to go down the sole trader route, or the incorporated route, if you make above £85k of sales (not profit) in a 12m period you will need to register for VAT. Also if you expect your sales in the next 30 days will exceed £85k you must immediately register. You can also voluntarily register for VAT (in most cases) if you’re below the threshold. Why would you do that? Well the downside is that your customers will be charged 20% more; however if most of your customers are likely to be VAT registered then this won’t matter to them as they can reclaim it. If your new company is selling directly to customers (B to C) then they will suffer the VAT uplift. But then the next question is whether most people in your industry are also charging VAT in which case this may not matter. The upside of registering for you is that you can reclaim the VAT that you suffer on purchasing supplies and assets for the business. And you can claim this back for up to 4 years before registering if you kept the receipts and the goods are still in use; and you can claim for up to 6 months of services.
3. Record keeping
When you get started; keep some records from the beginning as well as all your receipts! It is amazing how much paper work (or electronic paper work) you will generate; and you will need it all at some point. Whether you’re paper or electronic in your preference, set up some files for both! Keep your documents organised. If you’re not yet ready to commit to an accountancy platform create a basic spreadsheet to track bills and invoices, and check them to your bank balance…. Which brings us to:
4. Business bank account
Do set one up straight away; having your income and costs coming out of a different account is hugely helpful and you’ll be thankful in the long run. You may need to set up a float if you are incurring costs before you spend; but you can take this out later once you’re up and running.
5. Save for your tax
Whether you are a sole trader or you have incorporated, you are most likely going to need to pay some tax if your business makes money. We would suggest setting up a savings account within your business account, and transferring in some from each of your paid invoices, so that you build up a fund to pay the tax man. Oh… and one more:.
6. Make an appointment to chat with us!
We are happy to have a freebie half hour with you to get you started and talk through any issues you have; we are on email@example.com