Business start ups - some practical advice
Business plan and finance
You have your business idea, you’ve done your research and now you’re starting to put things in motion to get the business off the ground.
A new business often needs a degree of funding and unless you are lucky enough to have a benefactor, substantial savings or very low set-up costs then you will need to approach a lender of some description which could be a bank, private investor, charity, public body or even crowd funding, and to secure finance you will almost definitely need a good business plan. An accountant can help and not just with drafting the financial forecasting which is essential, but in reviewing the plan, asking challenging questions that a bank or investors are likely to ask, and by attending the meeting or presentation with you. When going for finance it is critical that you are well prepared.
However, even if finance is not required from a lender a business plan is an excellent tool for a new or young business. It helps collect your thoughts and ideas. It sets out your business objectives in writing. It outlines how you are going to finance the business, as well as your expectations for sales, profitability and investment in assets. Drafting a business plan makes you think about issues and parameters you may previously not have considered, such as your marketing strategy and budget. It helps you put in contingency plans and allows you to set goals, measure and track progress. It is constantly evolving, and should be reviewed and amended as circumstances change. Your accountant is someone who can help you track your business progress against your plan, make suggestions and recommendations.
New businesses with a well thought out and monitored business plan are more likely to succeed. You can download business plan templates from the internet quite easily, but if you are unsure which one is best suited to your type of business then it might be preferable to seek advice.
Your business structure, which would normally fall in to one of the following three categories - sole trader, partnership or limited company (though there are other options such as a community interest company, CIC), and your decision on which one to choose can include the following:
- commercial risks
- expected profitability financing
- need for limited liability
- profit sharing
- tax planning
- use of car for business purposes.
An accountant is best placed to talk through all these considerations and guide you towards the right decision for you and your business.
Compliance with the law
Many new or young businesses are not aware of what they must do to be compliant with the law, for example:
- Sole traders and partnerships must notify HMRC when they start trading. Failure to do so will result in penalties. Companies House notifies HMRC of newly incorporated companies.
- You must keep proper accounting records.
- Sole traders and partnerships have to submit tax returns by 31st January after the end of tax year in which they started trading, unless the return is on paper, in which case it should be submitted by 31st October.
- A company has to submit accounts to HMRC within nine months of the end of its first accounting period, must pay any corporation tax due within the same time period, and must submit a corporation tax return within another three months of that deadline.
- A company must also submit an annual return of company details to Companies House.
- If you are employing staff, you will need to register a payroll scheme with HMRC and account to HMRC for tax and National Insurance contributions on their salaries.
Value Added Tax (VAT)
VAT registration at start-up or in the future will affect both profitability and cash flow of your business. If the things you sell are mainly standard or zero-rated, and your suppliers charge you VAT, it could be beneficial to register your business for VAT, and if you expect the next 30 days sales alone to exceed the £81,000 VAT registration threshold for annual sales, and the things you sell are not exempt, then you must register. One of the main advantages of registering for VAT when you do start up is you’ll be able to reclaim VAT on purchases made before you start trading.
Ideally you should decide whether or not it’s in your best interest to register for VAT at start-up. However, if you decide against VAT registration at start-up then register at a later point in time HMRC have made it possible for traders to reclaim VAT prior to their registration; provided the claim is made within certain time limits.
Business at home: If any room in your home is used exclusively for business at any time you can reduce your tax by deducting some of your household costs from your taxable business profits. Try to ensure that the room is used at some point for personal use to avoid capital gains tax when you sell your home.
Invoices: Always obtain a proper invoice for any business purchase and a VAT invoice if you are registered for VAT. If you cannot produce a copy or record of an invoice your claim for tax relief or VAT claim may be denied.
Company car: whether you are sole trader, a member of a partnership or a limited company, the use of a car in your business needs to be thought through carefully. Sole traders and partners need to keep a log of business mileage to backup any claim for tax relief. A company owner will need to compare whether the cost of using a company owned car is more cost effective than using a privately owned vehicle for business purposes. The tax implications vary considerably, so a careful review should always be undertaken to minimise tax charges and maximise tax reliefs.
VAT Penalties: If you are registered for VAT avoid late filing penalties, interest and surcharges by submitting your returns and paying your dues on time. Do not represent yourself as VAT registered if you are not, as HMRC considers this to be fraud.
The right accountant can help a start-up with all of the above. Reviewing plans, business structure, ensuring compliance, selecting the right bookkeeping and accounting system, cash flow, tax planning and identifying tax saving opportunities. Getting the accounting and related business processes right and in place at the beginning will ease some of the stress associated with a start-up and will definitely save time, money and frustration further down the line.
HMRC Purchases made before VAT registration: reclaiming the VAT
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