What are the options
The legal status of your business is the first vital choice you will be faced with. There are a range of options available from sole traders, partnership, limited liability partnership and limited companies. Choosing either one of these would have an effect on the financial and legal side of the business in the future.
Further information is provided below on the business structures and some of their key points.
A Sole Trader is an individual who is independently in control of their business. Choosing to become a sole trader would result in you being personally liable for any business debts and you being self-employed.
The advantages of operating as a swiss replica watches sole trader is that the profits made are for you to keep. Some of the requirements of operating as a sole trader are stated below:
Each partner must complete a self-assessment tax return each year detailing their share of profits and any other sources of income they may have.
- You must register as self-employed with HM Revenue & Customs (HMRC) within the first three months of trading. This should be the first thing you do, as there are penalties, starting from £100, if you fail to register in time.
- You will have to complete a self-assessment tax return each year and pay income tax, detailing your income and expenditure, so you will need to keep records of these.
- You must pay Class 2 National Insurance contributions (NICs). These are set at a fixed weekly amount, which you can usually pay in instalments by direct debit if required.
- You will also need to pay Class 4 National Insurance contributions, based on your profits and paid with your income tax.
The HMRC website has more information at www.hmrc.gov.uk.
A partnership occurs where there are two or more people who operate in a business together. Each partner within the business is equally responsible for the debts and costs of the business. The distribution of profits between the partners is dependent on the partners and how they choose to distribute the profits
- The essential requirements for a partnership are the same as for a sole trader, but apply to each partner in the partnership.
- Both partners must complete a self-assessment tax return (SA100) and the nominated partner must also complete a partnership tax return (SA800), which shows each partner’s share of the profits of losses.
- Each partner is personally responsible for paying the tax and Class 4 National Insurance contributions due on their share of the partnership profits.
Limited Liability Partnership (LLP)
A limited liability partnership is similar to an ordinary partnership but has the advantages of limited liability for the owners of the business. This gives them some protection if the business gets into difficulties.
- You may have any number of members in your partnership, with a minimum of two “designated” members, who carry extra responsibility for the business.
- You must register with Companies House and file annual accounts.
- An annual LL AR01 form confirming certain information about the LLP, e.g. registered office address and member details, must be completed and returned to Companies House, with a small fee.
- A Partnership tax return must be filed with HMRC each year detailing the income and expenditure of the business and how the profits have been allocated between the partners.
- Each partner must complete a self-assessment tax return each year detailing their share of profits and any other sources of income they may have.
A limited company must be registered as a corporate entity with Companies House. One of the main advantages of operating under a limited company is the protection it provides which is different to all of the other business structures. The liability of debts is limited to the assets held by the company instead of the directors or shareholders being personally liable.
- You must register with Companies House and file annual accounts.
- An annual return (form AR01) must be prepared and returned to Companies House with a small fee.
- At least one director must be appointed, with legal responsibility for running the business ensuring it trades lawfully and responsibly. This director may be separate to the shareholders (business owners).
- If you choose Taxcare Accountancy to handle your accounting and tax affairs then Taxcare will be responsible for filing statutory documents, such as the AR01 form and accounts with Companies House each year.
- The business owners are shareholders in the company and able to extract dividends from the company out of the net profit after tax.
- Directors can be paid a salary (under PAYE), which will be treated as an expense of the company when its accounts are prepared.
- If the directors are also shareholders of the company, they may take dividends from the company but only from the net profits after tax has been provided for.
- As a separate legal entity, the company is responsible for filing a corporation tax return for each accounting period and to pay corporation tax on the profits.
- If benefits are provided to directors, these must be accounted for as a benefit in kind, on which the individuals pay tax. The company must pay employers’ Class 1A NICs each year.
- Directors must submit a self-assessment tax return each year, detailing their income. This may be a combination of salary, dividends (if they are a shareholder), benefits in kind and other sources of personal income.
Choosing a Business Name
Choosing the right name for your business is essential as the name can say a lot about your business and what you operate in. Choosing the correct name at the start of the business is vital as changing a name at a later stage could affect the operating of your business and would be costly.
- Check your chosen name with Companies House to make sure it’s unique within your chosen business sector.
- Check other meanings of the name you intend to use, particularly if you will be trading overseas. An embarrassing translation could cost you international business.
Taxcare Accountancy can open up your company and send the necessary information to companies house. Once you have decided your company name, Taxcare Accountancy will open the company and provide you with all the necessary documentations including the incorporation certificate and shareholder certificate. Taxcare Accountancy also books an appointment with our partners Barclays Bank, which will allow you to open a business bank account.
Bookkeeping and accountants
Keeping the correct financial records is an important part of operating any business. The exact type of accounting records is dependent on the businesses legal structure. Keeping up-to-date financial records will help you stay up-to-date with HMRC and will also:
- Provide useful insight into how your business is performing,
- Help you to maintain a healthy cash flow
- Give you an early warning if certain issues need addressing.
At Taxcare Accountancy we look after all your accounting and tax affairs which allow you to focus more on your business. Having an accountant rather than employing a part-time or full-time bookkeeper will also be cost effective. Apart from looking after your accounting affairs, Taxcare Accountancy also provide tax saving advice, business solutions, maximising profits and additional support such as property tax advice.
Whatever the structure of your business, if your taxable turnover will be more than £83,000 in any 12 month period you will have to be VAT-registered. This means that you must charge VAT on all your goods or services, (providing they are not VAT-exempt) and will have to complete and submit a VAT return, usually each quarter.
Depending on the nature of your business, your customers or clients may prefer you to be VAT-registered, even if your turnover is below the minimum threshold. It may also be beneficial for you personally.
VAT is a complex area and it is sensible to talk us here at Taxcare Accountancy about the best approach for you and your business.
It is good practice to have a bank account for the business that is separate from the personal accounts of individuals involved. This makes it easier to keep your business finances in good order and also means that if HMRC ever looks into the business’s affairs then you can provide them with this business bank account statements which will only have your business transactions and not your personal transactions.
If the business is a limited company, then the bank account MUST be in the name of the limited company. Different banks offer different business accounts and the bank where you have your personal account may not always be the best choice, so it makes sense to shop around.
In making your decision, issues to consider include charges,
- If you are likely to want to pay in cash takings over the counter,
- Whether the bank offers easy access to a dedicated business adviser,
- What other services it might be able to provide as your relationship develops over time, such as insurance, business loans or even a commercial mortgage.
Taxcare Accountancy can save you time by booking a business bank account appointment with Barclays Bank. This will save you time going into the bank and booking an appointment. As Barclays Bank are partners with Taxcare Accountancy your appointment will be made earlier than if you was to book an appointment by yourself.
If you are planning to take on employees, there are a number of factors you need to be aware of to ensure you are compliant with your legal responsibilities. Legal responsibilities include paying employees, Auto-enrolment and training your employees.
The National Minimum Wage (NMW) is the minimum pay per hour almost all workers are entitled to by law. The national minimum wage varies upon the age of the employee. Below is a list of ages and the national minimum wage per hour in 2016-2017 financial year:
- An Apprentice: £3.30
- Under 18: £3.87
- 18-20: £5.30
- 21-24: £6.70
- 25 and Over: £7.20
Based on a typical full-time working week of 37.5 hours, the NMW for an employee who is 25 and over would receive an annual salary of £12,960. This would be £1960 more than the annual tax-free personal allowance of £11,000. After deducting the personal allowance of £11,000 from the annual salary of £12,960, the taxable income would be £1960.
In setting directors’ remuneration, it may not be necessary for them to have a service contract, which may mean their pay does not have to comply with NMW regulations.
How to pay salaries
You will need to set up a Pay As You Earn system (PAYE) to ensure your employees are paying tax and National Insurance.
Most employers will be legally obliged to report PAYE via Real Time Information (RTI) which was introduced in April 2014, which means you must submit payroll information to HMRC, on or before the point at which employees are paid. Employers with nine or fewer employees can report their PAYE information on or before the last payday in the tax month until April 2016.
Taxcare Accountancy will not charge you extra to set up the PAYE system. As this will be included in the package that Taxcare provide.
If you are unsure about PAYE issues, you can call Taxcare Accountancy on 0208 478 3383 and a friendly member of the team would be available to answer all your queries.
Alternatively you can visit the HMRC website, where information is available at http://www.hmrc.gov.uk/payerti/getting-started/paye-basics/rti.htm
Every employer with at least 1 member of staff must automatically enrol those who are eligible into a workplace pension scheme and contribute towards it. The government’s objective is for more people to have another income on top of their State Pension when they retire.
Every employer must automatically enrol workers into a workplace pension scheme if they:
- are aged between 22 and State Pension age
- earn more than £10,000 a year
- work in the UK
Non-eligible jobholders do not have to be automatically enrolled but they can opt-in to the scheme and you will need to contribute to their plan.
Each employer is allocated a staging date from when they are required to comply with the new pension regulations, with dates being based on the number of employees in the employer’s PAYE scheme as at 1 April 2012. Staging dates are as follows:
- More than 50 employees – by 1 April 2015
- Fewer than 50 employees - between 1 June 2015 and 1 April 2017
New employers commencing after 1 April 2012: between 1 May 2017 and 1 February 2018.
There are a number of different types of pension schemes available and different types of providers offering these schemes. The type of scheme most likely to be available to employers is a scheme run by a large, specialist provider that is designed to be used by many different employers. For Example: Aviva, Nest, Peoples Pensions, Standard Life Etc.
Nest Pension Scheme:
NEST is a contribution scheme. This means that the contributions paid in by you, your employer and anyone else are invested and build up your own pension pot. You use this pot to provide yourself with an income in retirement.
The main features of NEST are:
- defined contribution scheme, so you build up your own pension pot
- flexible contributions
- low charges
Training your employees
It is your legal obligation to ensure your employees receive the appropriate and adequate training they need to carry out their duties. For example, appropriate licences or certificates are essential if your employees handle heavy machinery or drive long distances in specialised vehicles.
If one or more of your employees will be handling money, you need to ensure they are adequately trained to comply with the Money Laundering Regulations.