The idea of starting your own business can be daunting, there are lots of things that need to be considered that you may not have even thought about, let alone the thought of will you be successful or not.
We can’t tell you if your business will be a success but we can advise you of some of the points you need to consider from an accountancy/tax perspective.
When will your accounting year end be?
This is an important decision, as this will normally be the date you will need to start preparing your accounts and tax returns to be filed. Normally the date chosen for sole traders is the 5th of April, in line with the end of the tax year which makes accounts and tax returns less complicated. Another popular date is the 31st of December so your business accounting year runs alongside the calender year making it easy to remember. If you have a seasonal business you may want your year end to be when business is slow so that you have time to sort out your accounts and tax return in plenty of time.
What type of business will it be?
Will you be a sole trader or a limited company? A limited company will have more complex accounts and tax returns to prepare, but will grant your personal belongings protection should legal or debt collection action be made against you. This will also determine how you draw money from the business; a sole trader will automatically own any money generated, however you would need to pay yourself a wage or draw dividends from a limited company. Finally, you could form a dormant company which is a non trading company with simplified accounts, in order to reserve a name for the future if you plan on changing from sole trader to a limited company at a later date.
Do you need a business bank account?
The main reason to create a business bank account is to separate your business income and expenses from your personal affairs. If you run your business through your personal bank account you run the risk of HM Revenue and Customs (HMRC) deciding that some of your personal income, possibly a gift or loan from relatives, is actually business income. This would mean paying tax on something that has nothing to do with your business, unless you can provide sufficient evidence to prove it is personal income. If you do run the business through a personal account, make sure you keep records of your transactions, both personal and business, to avoid this happening. Most banks provide additional support and special offers for newly starting businesses, so it is worth at least speaking with a few before making your decision.
Should you register for VAT?
Registration is mandatory when you have a turnover of over £82,000. however even if you are not making this amount it may be worth registering if you trade in items that are on a special rate or zero rated for VAT, (not exempt though) as even though you will not be paying as much VAT to HMRC you can still claim back VAT from purchases which can help reduce costs for the business. It is also nice to know that every VAT quarter HMRC will be paying you money.
Of course there are many other points to consider, but at least you can be safe with the knowledge that you should now have an understanding of the above points.
If you would like any advice or assistance with the above points, feel free to get in touch and we’ll be happy to help.