I want to start my own business

As a budding entrepreneur you may have a great idea and you may have already identified your niche in the marketplace but you may have underestimated the amount of ‘red-tape’ that is required in setting up your own business.  We have many years of experience in helping entreprenuers set up their business, helping them with their business plans, guiding them through the maze of ‘red-tape’ and freeing them up to get their business off the ground.

If you are unsure how to approach a bank manager, we can assist you with this and any associated fundraising for your business.

Should I operate as a Limited Company?

When you start your business, one of the first decisions you will need to make is which legal structure to go for.

There are several different kinds, including limited liability partnerships and social enterprises, but for most people the choice comes down to staying self-employed or setting up a limited company.

Tax and National Insurance
When you are a self-employed, sole trader, people are doing business with you. When you have a limited company, it is a separate legal entity with its own financial affairs.

If you stay self-employed business expenses will be deducted from your revenue, and you will be taxed on the profit you make. You declare this in your annual tax return, and must also pay National Insurance contributions. On a monthly basis you can take drawings from your business to live on.

With a limited company, you can’t just take money out of the business as it belongs to the company, not you (this is the case even if you own 100% of the company). The only way to get money out is to be an employee and either take a salary/bonus and/or take the profits out (known as taking a dividend). The company can also repay money you have loaned it.

We can advise on the most tax advantageous method to suit your circumstances.

Costs and paperwork
Generally speaking, it costs a little more to run a limited company. Because it is an independent legal entity, there are certain paperwork requirements, such as sending annual accounts to Companies House. This must be done even if the company is not currently trading, or you will face a fine. Ultimately you could be banned from being a company director if you don’t fulfil your responsibilities properly.

Some of your company information will be in the public domain for anyone to see. This is not the case for sole traders, whose tax affairs stay private.

We can help you prepare annual accounts and file annual returns at Companies House and corporation tax returns with HMRC.

Marketing and credibility
Depending on who you are selling to, you may find it more advantageous to your public profile to operate through a limited company. Even though a self-employed person can have employees and pay VAT, there is a perception that being a sole trader means your business is very small. Having a limited company implies being larger, which can raise your profile in your business sector.

Employees
Being a sole trader won’t stop you from hiring employees. You can hire and fire the same as a limited company can. Just remember that the biggest difference between being self-employed and having a limited company is the legal liability. If employee relations deteriorate and the case went to an employment tribunal, it would be you personally liable.

Your liability if it all goes wrong
A limited company is so named because it has limited liability. As a director, if the business goes wrong, you will only lose what you have put into it. There is little chance that people who are owed money by the failed business can come after your personal assets or house (unless, of course, you have secured loans on them).

As a self-employed person legal liability sits with you personally. If your business runs out of money, it is your problem, and you could lose your house.

This key difference is the main reason for switching from sole trader status. When it’s just you on your own working from home, your financial liabilities are low. As you start to take on premises and employees the risks become greater, and it may make more sense to shield yourself financially and legally through a limited company.

Of course remember to get professional advice from us before taking any action. Don’t rely purely on information contained on this website.

How do I deal with HM Revenue & Customs?
You don't have to employ a tax advisor or an accountant if you don't want to, particularly if your financial situation is straightforward or you are on a low income and cannot afford the expense.  However, you may find that a good accountant can help you manage your finances more easily. We can deal with all your tax affairs, including filling in your tax return and notifying HM Revenue & Customs that you are now a trading business.

If you do decide to appoint us, you need to give written permission to us to enable us to deal directly with HMRC on your behalf by completing form 64-8 'Authorising your agent'.