If your dream is to run a business, you’ll actually find that setting up a company in the UK isn’t as difficult as you imagined. Yes, there are some challenges that you’ll need to figure out, but that’s okay. Life is nothing without a good challenge. You have to make sure that you’re thinking endlessly and continuously of every angle. That’s the mark of a real entrepreneur, after all. You’re trying to solve problems and make a difference.
The first thing that you need to do in order to set up a business is to figure out what type of business structure you want. The structure you choose will determine a lot of other areas for you. For example, you’ll need to figure out taxes based on the structure of your choice, how you handle profit for yourself, and any personal responsibilities if your business takes a heavy loss. Paperwork will also be determined by the business structure.
Most businesses in the UK are either sole traders, limited companies, or business partnerships. Each one has its positives and negatives. A sole trader is someone that runs a business as an individual. You can keep all of your business’s profits after you’ve handled the tax side of things.
Keep in mind that you can be a sole trader and still hire staff — the term sole trader just means that you alone are responsible for the business.
This is an easy structure to set up, but it has weaknesses. You’re responsible for all of the losses your business makes, along with bills for things that you buy for your business. You also have to keep records of your business’s sales and spending.
Registering with HM Revenue & Customers is the step to being a sole trader. You need to do it as soon as possible. For example, if you start a business in 2013, you need to have that business registered with HMRC by 5 October 2014 or you’ll be charged a penalty.
On the tax side, the sole trader has to send a Self Assessment tax return every year, pay National Insurance, and also handle income tax on the profits that the business makes.
You have to make sure that you register for VAT if the business is expected to take more than 79,000 GBP a year.
Let’s move on to the limited company. This is an organization that you can set up to handle your business. Think of it as a shadow puppet that you can move around in a flexible format. The shadow puppet is responsible for its own business dealings — the finances of the puppet business are separate to your personal finances. This means that you get a lot of legal protection. If the business fails, your personal home is safe.
However, any profit it makes is owned by the company after paying corporation tax. After that, you get to share the profits. Every limited company will have members — people who own shares in the business. The directors are responsible for making sure that the company runs smoothly. They can own shares, but this isn’t required.
There are plenty of responsibilities that go along with being a director as well as handling a limited company. These companies are limited by shares — which in turn means that the shareholders responsibilities are limited to the value of shares that they own.
Company directors aren’t going to be held personally responsible for the business debts it everything goes wrong. This means that the limited company is actually a preferable structure to being a sole trader, where you really get no legal protection at all.
There are some other types of structures that don’t get mentioned a lot. For example you can have a private company limited by guarantee. This means that directors and shareholders financially back the company up to a certain amount if things go wrong.
There’s also the private unlimited company, where directors would be on the hook for all debts (yikes!).
There’s also the public limited company, where the shares are traded on the market, like the London Stock Exchange.
To set up a limited company, you have to set up the company with Companies House, as well as letting HMRC know when the company starts business activities.
Every year, the company has to handle statutory accounts, send Companies House an annual return, and send HMRC a Company Tax Return.
Registering for VAT is also pretty likely.
There’s also such a thing as an ordinary business partnership. This is where you and your business partner (or partners, if you want to have more than one) will personally share responsibility for the business. This can be a little risky, since it’s all on you. You can share the profits between the partners, and each partner only pays tax on their share of the profits.
You are responsible for the business’s losses, as well as any and all bills. This is a pretty risky state of affairs, so it’s better to look at a limited partnership, or a limited liability partnership.
No matter which business structure you choose, you’re still going to have to market your company effectively. Knowing what your marketplace is looking for will be very important when it comes to determining your business’s success. There’s no time like the present to get your dreams off the ground. Why not look into more about starting a business in the UK today? You’ll truly be glad that you did!