Setting Up a New Business- The Basics

The process of setting up a new business is complex. You need to consider your company’s vision and mission. You need to fine-tune your products and services while learning more about your target market and their needs. Also, you need to conduct a financial analysis to ensure that you have the capital to get started. But, above all, new businesses need to know what they’re in for from a tax perspective. 

In this article, we’re going to show the basic of setting up a new business for tax. This short guide is applicable to sole traders, partnerships, and companies of all sizes.

Choosing Your New Business Structure

There are three different types of business structures for you to choose from. These include:

 

• Sole trader- This structure is simpler but you will be personally responsible for any debt your business incurs. You are also responsible for your accounting. 

• Limited company- By registering your new business as a limited company, your personal and business finances remain separate. You will, however, have more management and reporting responsibilities. With this structure, you may want to seek professional advice from a local accountant. 

• Partnership- A partnership is a favourable business structure if there are two or more of you setting up the business. In this instance, you will share the responsibility of your business debt. You will also have more accounting responsibilities. 

 

Formalities and Legal Agreements

Depending on the type of business you set up, there are some formalities and legal agreements that you must adhere to. Here’s a breakdown:

Partnerships

In UK law, there are different types of partnerships. These are covered by there respective partnership agreement and come with their own set of defaults. With this in mind, make sure to draw up an agreement that suits the nature of the partnership itself. 

Companies

Companies must register a new business with Companies House. These can be limited by shares or by guarantee, or unlimited. New businesses that are not-for-profit should consider being limited by guarantee. On the other hand, if you are a setting up a trading business, your company will be limited by shares. 

Registering a New Business With HMRC

Whether you are a sole trader, limited company, or a partnership, you need to register with HMRC. To do this, you must create a Government Gateway account. Once your account is ready, the rules differ slightly depending on the business structure you go for. 

As a sole trader, you have to register if you have chargeable capital gains or taxable income for either corporation or income tax. When registering, make sure to choose a realistic accounting basis period for your individual needs. If you have to register for VAT or you hire employees for your new business, separate registration and online notification will be necessary. 

Accounting for Tax and Record Keeping

The process for paying taxes and keeping records differs depending on the structure of your new business. Here are some fundamental elements you should be aware of:

Sole Traders and Partnerships

As a small unincorporated business, you can opt for cash basis accounting as well as the new system of fixed expenses. These measures were put in place in 2013 to make it easier for small business to do their taxes. Unfortunately, neither of these methods are simple to use. As a result, work with your local accountant to establish which is most suitable for your needs. 

Companies

The way your company files its accounts with Companies House depends on your size. If you are a smaller company, you can file micro-entity or abbreviated accounts. Additionally, you should prepare your accounts according to Generally Accepted Accounting Practice (GAAP). 

Set Up Your New Business With the Help of a Local Accountant

The complexity of setting up a new business depends entirely on the structure you choose as well as the investment you make into your finances. As you can see from this post, the devil is in the detail and by missing any of these elements you could end up paying more tax that you legally have to. 

By working with a reputable accountant near you, you will be able to invest more time into the operational aspects of your business while also knowing that your finances are in order. To find out more about setting up a new business, contact Newnham & Son today. One of our friendly team members will be happy to run you through the process.