What you need to know when you first set up a business

There is lots of confusing information around for new business owners, it’s difficult to know where to start or what to do for the best. Here at Virtual Accounts and Taxes, we try to make one aspect of being a business owner as simple as possible: understanding your business accounts and taxes.

Company Structure

There are several types of company structure, but in this blog, we will be concentrating on Sole Traders and Limited Companies.

If you are a Sole Trader, you:

• Are the self-employed owner of the business
• Are solely responsible for work & liabilities
• Have minimal reporting requirements
• Pay tax via Self-Assessment
• Pay yourself through drawings

If you have a Limited Company:

• It is a separate legal entity to you
• You have limited liability
• There are more reporting requirements
• Tax is paid via Corporation Tax
• You can pay yourself salary and dividends (which are declared via Self- Assessment)

Now that you understand the difference between these two types of company structures, we will share our 4 top tips. These will ensure you are compliant with HMRC, you understand your reporting requirements and will help set you off on the right foot as a small business owner.

1. Understand your obligations

Sole Traders

• Taxes

As a sole trader, you are responsible for your own taxes and liabilities and these are personally recoverable from you. This means that, should you fall into arrears with HMRC, they can pursue you through debt collection agencies and the courts.

• Insurance

We always recommend you get insurance for your business. The type of insurance you need will depend on the type of services you offer, if you have customers visiting your premises or if you employ people. You need to consider if you need Professional Indemnity Insurance, Public Liability Insurance and Employers Liability Insurance at the very least.

• Expenses

Any expenses you claim through your business must be 100% for business use only.

• Drawings

Payments you make to yourself are called Drawings if you are a Sole Trader. They should be taken from any profit the business makes as post tax deductions i.e. they do not reduce your tax liability, which is calculated on the profit BEFORE Drawings are taken

• Record keeping & GDPR

You'll need to keep records of all your income and expenditure in relation to the business, this includes keeping copies of invoices and receipts. These can be stored digitally rather than keeping the paper copies.

If you store any personal client data, such as home addresses or email addresses then you will need to comply with the General Data Protection Regulations (GDPR) and register with the Information Commissioners Office (ICO).

Limited Companies

• Taxes

As a Limited Company Director, you are responsible for ensuring the business pays its taxes and liabilities. This includes any PAYE and National Insurance contributions for employees, VAT and Corporation Tax.

• Accounts

A Limited Company is required to submit annual accounts, which includes Profit & Loss report and a Balance Sheet to Companies House every year.

• Confirmation Statements

As a Limited Company Director you would be responsible for ensuring the companies Confirmation Statement is submitted to Companies House every year. This contains details of the Registered Office address as well as full details of all Directors and Shareholders.

• Expenses

Any expenses claimed must be 100% for business use only.

• Salaries & Dividends

A Director usually takes a salary as with any other employment. This tends to be at a lower level with Dividends topping up the income.

To read more about the other 3 tips, please visit our blog below:

What you need to do when you first set up a business (virtualaccountsandtaxes.co.uk)

Nicola Fallon is the Founder of Virtual Accounts and Taxes Ltd