6 Things You Need To Do When Starting Your Own Business

So you may have been made redundant due to COVID-19 and you have now decided to set up that business you have always dreamed of.

Now you have done all the fun things like designing you own logo and set up all your social media pages you need to think about the financial side of your business.

1) Decide whether you want to a limited Company or a Sole Trader

First you need to decide if you want to be a limited company or a sole trader. As if you want to be limited you cannot trade through a company that doesn't exist, so if you want to be limited you must set this up before you start trading.

If you choose to be a sole trade but later change your mind, it is easy enough to transfer your business over to a Limited Company. If you wanted to go the other way it can be little harder but still perfectly do-able. However, you cannot do this retrospectively. This means you can not trade for a year, realise that it would have been beneficial to be   self-employed/incorporated and switch historic transactions. So whatever decision you make, you are will be stuck with for a bit.

2) Incorporate your Limited Company If you do decide to trade through a Limited Company, then the next stage is to set one up.

There are many businesses that specialise in incorporating Limited Companies and any accountant or bookkeeper, myself included, can assist you with this.

However, you can choose to incorporate your Limited Company yourself.

The first thing to do is type in your new company name into Companies House and see if anyone else has already taken the name or used something similar. You can do that here.

Next is to fill out a couple of forms and pay £12. Companies House will run through each step with you, so the process shouldn’t be too daunting. You can do that here.

3) Register yourself for self-assessment If you decide to be a sole trader/self-employed you will need then you need to register for a self-assessment with HMRC.

By doing this, you are informing HMRC that you are self-employed and will be completing a tax return at the end of each tax year.

2. It makes the bookkeeping a whole lot easier whether you are doing it yourself or you decide to hire a professional like me at the end of the tax year to do so. This means that if you began trading in July 2020, you have until October 2021 to let them know.

However I would recommend registering as soon as you can because it’s a task you are sure to forget. Plus, it’s a very straight forward form which you can easily complete online and this can be found here.

4) Open a business bank account Set up a business bank account before you begin your business. This is because:

1. It makes it so much easier to see if your business is in profit.

2. It makes the bookkeeping a whole lot easier.

3. If HMRC did ever choose to investigate your business, they won’t be going through your personal information.

If you have set up a Limited Company then you need to ensure that the bank account is in the Limited Company name. This is because if the bank account is in your own name, any money in it will have to be treated as though you have removed it from the company. So, this is likely to be treated and taxed as personal income. And no one wants to pay more tax than they need to.

5) Consider how you will pay yourself

If you are self-employed than you can withdraw whatever money you want from your business as you will be taxed on the profits rather than your earnings.

If you trade through a Limited company then you are likely to be a Director and a Shareholder and the money you withdraw will be treated as personal income and taxed accordingly.

6) Know the deadlines Finally, you need to record a couple of deadlines into your diary.

If you are self-employed, then you will need to complete a self-assessment tax return for each tax year.

A tax year runs from 6 April to 5 April the following year.

You then have until the following January to complete your tax return.

This means that if you began trading in July 2020, your first tax return will be for the tax year 6 April 2020 to 5 April 2021 and you will have until 31 January 2022 to submit the tax return to HMRC and pay your tax bill.

If you trade through a Limited Company then your year end will fall in line with when you set the Limited Company up. You then have nine months after that year end to submit your accounts to Companies House and pay your tax bill. And a year after your year end to submit your accounts and business tax return to HMRC.

So, a company set up in July 2020, will have a year end of 31 July 21. Accounts will need to be submitted to Companies House and any corporation tax will need to be paid by 28 February 2022.

If you take a salary and dividends from your Limited Company you may have to register for self-assessment as well.