Before You Start a new Business
There is a big difference between having a regular income and job to working for yourself. Running your own business is great but its not for everyone. You need to recognise that there may be more worry and stress than a regular 9-5 job and more Financial Risks. Decide if its for you.
In starting a business you need to know what you are trying to achieve. What you are aiming for your business to look and operate like.
When you have decided what your business will look like, try and put some financial numbers and expectations around it and then ask “Am I happy with this?“. If the answer is “No” then just don’t give up – look at what you can change to make the answer “Yes“. Realise we don’t live to work we work to live, i.e. we work to earn the money we need to do the things we want to do.
When we have an agreed goal we need to do have a plan get to there.
There is a saying used to encourage and stimulate entrepreneurs…
If a man can build a better mousetrap the world will beat a path to his door
Frankly, this is a load of rubbish!
As well as having a good business idea (your better mousetrap) THREE more things are very important…
(1) the Marketing and Selling (convincing the world)
(2) the Organisation and Operation (your ability to deliver)
(3) having the Finance and plan to achieve these
- A common cause of failure in new business ventures is running out of Cash, and this is often caused by lack of planning.
- We need to decide the steps we need to take and then the resources required. This can then be written up and is called “the business plan”.
- If we are wanting external investment (Bank Loan for example) they will expect to see a business plan.
If we believe when we open for business we will make all the money you need from day one then we probably are not being Practical. If true great! Most likely we will have to make an initial investment and then in the early stages outgoings may be more than incomings. A Cash Flow Forecast is a key tool to use at this stage, to ascertain how much we need for how long.
Beware of the Sharks…
As soon as you set up in business the Sharks come. These are people or businesses that will tell us “what we must have to be successful”. We can all succumb to a good sales pitch and story and so the first key piece of advice is BEWARE OF SHARKS…
Once you start to get noticed you’ll be amazed at how many people contact you after your money. I call them SHARKS as cash is the life blood of any business and the Sharks are ruthless in going for our cash.
Do not believe everything you are told. If you really do have a requirement get alternative quotes and seek testimonials or references.
One thing to consider is indemnity Insurance but make sure you get multiple quotes and as this is normally based, in part, on turnover don’t try to impress by increasing expected turnover levels.
HMRC (aka the Tax Man)
From 2011 the fines and penalties given by HMRC are higher so its best to get a few simple precautions done correctly.
It use to be the case that if anyone did not complete a Self Assessment on time then the fine was £100 but could be limited by the amount of tax owed. So if no tax was owed often no fine was levied.
This is no longer the case the fine starts at £100 and after six months reaches £1,300 and can increase further.
It is our individual responsibility to inform HMRC (Self Assessment area) of any change in circumstances, not doing so is a failure to notify and is an offence and one can be fined even if no extra tax is owed. The change in circumstances can be:
- becoming self employed
- becoming a company director … (for example for your own limited company)
- getting income from land and property in the UK
- getting taxable foreign income in excess of £300/year
- receiving income from a trust or settlement
- getting untaxed income
- having Capital Gains
There is a SA1 form available from HMRC that can be used to send this information. If HMRC then advise you do not need to complete a self assessment form – get it in writing and keep it safe!
Essentially anyone working for themselves as a sole trader, in a partnership or being a company director should be completing a self assessment form, even if, for example, they are getting no income as a company director.
Also remember if you are completing a self assessment form to claim all relevant costs against tax – examples being subscriptions, home office costs etc – and losses made as a sole trader or partnership can be offset against PAYE income to get a tax refund. Always seek professional advice.
Above a certain turnover a business is compelled to resister for VAT but businesses can voluntary register before this level.
There are two reasons why a business may voluntary register for VAT and these are:
- to give a perception of size or reliability to potential customers or suppliers
- to make more money (for example by claiming back input VAT or using the flat rate scheme)
First, to remove any confusion, advising HMRC Corporation Tax Team that we are a company director for any business return does not count as advising HMRC Self Assessment Team that we are a company director. We still should complete the SA1 form.
When we register a company, at companies house, we will be sent the “Corporation Tax New Company Details form CT41G” for us to indicate the companies accounting periods for tax – make sure its in line with the companies house annual accounts year end.
A new company may have the first accounting period (for companies house) any length between six and eighteen months … this is done to enable the new company to chose any month for its year end. If the first companies house accounting period is longer then 12 months then HMRC will require this to be split into two tax returns, one for the few months over a year and the second one for a full year.
In general businesses that employ and pay staff need to register for PAYE (some specialist exemptions).
If you have set up your business as a limited company and intend to pay yourself then the limited company needs to be registered for PAYE
Every business registered for PAYE will now need to use the RTI system where monthly HMRC submissions are required – even if nothing is paid in the month. Failure to do so can incur a £100 fine per submission per month late. This means if you do not do a submission for four months your fines could total £1,000. Your accountant can ensure that these are done on time to avoid this extra cost and reduce your hassle.