How to start a new business

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Once you have decided to start a new business, you need to know what your next steps are. Doing so can help ensure that your business sets off on the right foot.

With the right planning in place, you can ensure that your business is compliant with commercial law whilst also streamlining your finances from the start.

Structuring your company

The first decision that you should make regarding your business is what company structure it will be using. Making this decision early will impact your financial planning, so you must choose the right structure.

Structures that could suit your business include:

A limited company – This is a separate legal entity registered with Companies House. Whilst the financial liability is removed from yourself, you will be required to pay Corporation Tax and extract profit from your business via salary, dividends, and director’s loans.
A sole trader – Operating as an individual means that your finances will be legally tied to the business. Whilst this means you keep profits; it also means that you are responsible for all debts and taxes owed by the business. You will also be taxed via Self-Assessment for Income Tax (ITSA).
A partnership – This is where you run your business with a partner. You will be jointly responsible for all profits, losses, debts, and paying taxes via ITSA.
Limited liability partnership (LLP) – This is similar to a partnership, except the partners are only liable for the capital that they have invested.

If you are unsure that you are going to choose the right structure for your business, getting advice is key. However, you can change your business structure later down the line to adapt to the needs of your business.

Planning your taxes

Once you have settled on a business structure, it is time to get on top of your tax planning. Doing this ahead of time can ensure that you are compliant whilst also offering opportunities to reduce your tax liabilities.

If you are operating as a partner or sole trader, profit from your business will be considered as personal income. This means that you should report it through ITSA through your online account with HM Revenue & Customs (HMRC).

When operating as a director of a limited company, you are likely to be salaried. In this case, tax is paid through PAYE. If you receive income from dividends, you may need to report it via ITSA.

The business will also be required to pay Corporation Tax at the following rates:

Profits under £50,000 – 19 per cent
Profits over £250,000 – 25 per cent
Profits between £50,000 and £250,000 – a tapered and increasing rate between 19 and 25 per cent.

If your taxable turnover exceeds £90,000 in a 12-month period, you will also need to pay and register for VAT. In this case, you will need to comply with Making Tax Digital (MTD) and report your VAT returns quarterly.

Planning can help you to minimise your tax liabilities. For example, you should take into consideration allowable expenses and deductible expenditures.

Setting up your accounts

It is important for you to set up your accounts from the moment your business begins. This includes keeping comprehensive records of all transactions, including expenses and invoices.

You can use these records to report your taxable profits and income via your Company Tax Return or Self-Assessment. It may be advisable to integrate accountancy software into your accounts process.