When starting a new business, it’s good to know you are not alone
Before you start, it is important to know which type of business best suits your circumstance, sole-trader, limited company or partnership. Before you choose there are some things that should be considered:
- commercial risks
- expected level of profitability
- financing requirement
- tax planning
- Business Plan
It is always a good idea to set out your business objectives in writing before you begin.
Consider what skills and knowledge are required for the business you wish to start and make sure you have these and the experience necessary.
Calculate what you need to spend initially on equipment, advertising, expenses during the business set-up period and how much funding you will require from banks and other lenders. If you need to borrow money, a business plan is going to be essential.
What are your expectations for sales and expenses, construct a profit and loss report for the first three years to test that the business can be profitable at your expected level of turnover.
Even if you don’t need to borrow money, a good business plan will help you to understand your initial position and give you a good indication of your future possibilities.
We can help with the production of a business plan.
Banks and Finance companies
If raising finance or arranging an overdraft is key to your business start-up, it is important to discuss the business with your bank as soon as possible. A business plan is the best way to explain the concept of your ideas, demonstrate that you have given serious thought to your project and can show the expected profitability and cash flows which are essential to a lender’s decision to lend money.
VAT (Value Added Tax)
You need to consider whether or not to register for VAT from start-up. The timing of registration can affect both the profitability and the cashflow of your business, we can explain the pros and cons based on your particular circumstances.
One of the main advantages of registering for VAT when you do start-up is that you can reclaim VAT on purchases made before you start trading, subject to certain conditions.
If you don’t register straight away, it is still possible to reclaim VAT incurred prior to registration at a later date, provided the claim is made within certain time limits. For further guidance on VAT registration please see our VAT section.
Tax Traps to avoid!
- Tax Penalties – As soon as you have set a start date, it is important to notify HMRC of your intention to start trading. Self-employed individuals, partnership businesses and limited companies face penalties for failure to notify HMRC that they are liable to tax.
- VAT Penalties – It is against the law to represent yourself as registered for VAT if you are not, as this is considered to be fraud. If you do register for VAT submit your returns and pay your dues on time to avoid late filing penalties, interest and surcharges.
- Proof of VAT – It is important to always obtain a proper invoice for any business purchase and a VAT invoice if you are registered for VAT. If you fail to do so, HMRC may deny a reclaim of the VAT paid.
- Company Car – This is an area that needs careful consideration as the tax implications can be harsh.
Self-employed individuals and partners will need to keep a log of business mileage to backup any claim for tax relief using a mileage claim. If a sole-trader claims motor expenses rather than mileage, a private usage element must be dis-allowed for tax purposes.
There are tax charges for the individual if they have the use of a company car and depending on the car, these charges can be quite severe. Limited company owners will need to compare whether the cost of using a car owned by the company will be more or less cost effective than using a privately-owned vehicle for business purposes and claiming a mileage allowance. The tax implications vary considerably depending on many factors, which is why a careful review should always be undertaken in order to minimise any tax charges and maximise any reliefs.
The rules are different for business vans.
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TaxSmart Accounting are an independent and forward thinking accountant with the flexibility to meet the client’s needs in a professional and personal manner. Outsource as much or as little of your bookkeeping and payroll needs as required with our fully personalised service. Contact us today for further information or a free consultation on how we can help your business.