If you are considering setting up your business or you have started trading but not sure what to do next? Where to start? I hope the following information will be of help, but if you require any further clarification please do not hesitate to contact us, your feedback will be very much appreciated!

Setting Up Your Business

Most business register their business as a sole trader, limited company or Partnership

Sole Trader

If you’re a sole trader, you run your own business as an individual and are self-employed.

You can keep all your business’s profits after you’ve paid tax on them. You’re personally responsible for any losses your business makes. You must also follow certain rules on running and naming your business.

When you need to set up as a sole trader
You need to set up as a sole trader if any of the following apply:

you earned more than £1,000 from self-employment between 6 April 2022 and 5 April 2023
you need to prove you’re self-employed, for example to claim Tax-Free Childcare
you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits

How to set up as a sole trader
To set up as a sole trader, you need to tell HMRC that you pay tax through Self Assessment. You’ll need to file a tax return every year.

Register for Self Assessment. We offer free registration

Your responsibilities
You’ll need to: keep records of your business’s sales and expenses
send a Self Assessment tax return every year
pay Income Tax on your profits and Class 2 and Class 4 National Insurance (more detailed information can be found on the Business Guidance Tab – National insurance

Limited companies

If you form a limited company, its finances are separate from your personal finances, but there are more reporting and management responsibilities Please take a look at the tab’s Running a Limited company and Benefits of a Limited company

Directors’ responsibilities

As a director of a limited company, you must:

• follow the company’s rules, shown in its articles of association
• keep company records and report changes
• file your accounts and your Company Tax Return
• tell other shareholders if you might personally benefit from a transaction the company makes
• pay Corporation Tax

You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance.

You may be fined, prosecuted or disqualified from being a company director if you do not meet your responsibilities.

Some people get help from a professional, for example an accountant, but you can set up a company yourself. We offer free registration.

Partnerships

A partnership is the simplest way for 2 or more people to run a business together.

You share responsibility for your business’s debts. You also have accounting responsibilities.

Setting up

In a partnership, you and your partner (or partners) personally share responsibility for your business. This includes:

• any losses your business makes
• bills for things you buy for your business, like stock or equipment

Partners share the business’s profits, and each partner pays tax on their share.

A partner does not have to be an actual person. For example, a limited company counts as a ‘legal person’ and can also be a partner.

When you set up a business partnership you need to:

• choose a name
• choose a ‘nominated partner’
• register with HM Revenue and Customs (HMRC) We offer free registration.

The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping business records.

VAT
You must register for VAT if your turnover is over £85,000. You can register voluntarily if it suits your business, for example if you sell to other VAT-registered businesses and want to reclaim the VAT. More detailed information can be found on the Business Guidance Tab- VAT

Naming your business
You can trade under your own name, or you can choose another name for your business. You do not need to register your name.

You must include your name and business name (if you have one) on official paperwork, for example invoices and letters. If you are Vat registered you must include your Vat number on invoices.

Business names
Sole trader names must not:

include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
be offensive
be the same as an existing trade mark
Your name also cannot contain a ‘sensitive’ word or expression, or suggest a connection with government or local authorities, unless you get permission.

Example
To use ‘Accredited’ in your company’s name, you need permission from the Department for Business, Energy and Industrial Strategy (BEIS).

Check which words you need permission to use, and who from.

You’ll need to register your name as a trade mark if you want to stop people from trading under your business name.

Business Records

Business records should be kept for 5 years after the 31st January Tax Return
(longer for assets that are still in the register)
For Limited companies it is 6 years. For payroll records the average is 6 years. For Vat Returns it is 6 years. ( A little confusing I know- information is what is recorded on government website, so safe to say 6 years overall)

Accounting Methods

There are two types of accounting methods

1 Cash Accounting
2 Traditional Accounting

You need decide which method you want to use?

1 Cash Accounting (Briefly)

This is recording income and expense once you have received income and paid for expenses

What are the advantages of the cash method of accounting?

Advantages. Shows Cash Flow: The cash method most resembles a cash flow statement. It provides an accurate picture of how much cash your business actually has on-hand. Single-Entry System: The cash method can be done with a simple single-entry system, so a complex accounting program is not always necessary.

The disadvantage of cash accounting

It doesn’t show your customer’s liabilities to your business, which could cause you to forget about unpaid customer debts. Because cash basis is just a snapshot of your business’s finances, you may not have a clear picture of your long-term finances. If you have a system that records all sales and expenses as they occur then you have to consider accrual transactions at the end of a period and reversing transactions at the start of next period which can be a cause for errors.

When cash basis might not suit your business

Cash basis probably will not suit you if you:

• want to claim interest or bank charges of more than £500 as an expense
• run a business that’s more complex, for example you have high levels of stock
• need to get finance for your business – a bank could ask to see accounts drawn up using traditional accounting to see what you owe and are due before agreeing a loan
• have losses that you want to offset against other taxable income (‘sideways loss relief’)

2 Traditional Accounting (Briefly)

This is recording all income and expenses regardless whether it has been received or paid for

What are the advantages of the traditional method of accounting?

With traditional accounting system a single file is used for each account eliminating errors and improving recording and reporting information. You know exactly what your creditors are due and what is due from your debtors

The disadvantage of traditional accounting

It can be more time consuming in recording documents, but with an automated system can be very efficient. Plus if you are vat registered you will need to pay HMRC on what sales have been made regardless if they have been paid for – but advantage to this is purchases can be deducted regardless if they have been paid for.