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  • Writer's pictureNicola Fallon

What you need to do when you first set up a business

Updated: Jul 12, 2023



There is lots of confusing information around for new business owners, it’s difficult to know where to start or what to do for the best. Here at Virtual Accounts and Taxes, we try to make one aspect of being a business owner as simple as possible: understanding your business accounts and taxes.


Company Structure

There are several types of company structure, but in this blog, we will be concentrating on Sole Traders and Limited Companies.

If you are a Sole Trader, you:


  • Are the self-employed owner of the business

  • Are solely responsible for work & liabilities

  • Have minimal reporting requirements

  • Pay tax via Self-Assessment

  • Pay yourself through drawings


If you have a Limited Company:


  • It is a separate legal entity to you

  • You have limited liability

  • There are more reporting requirements

  • Tax is paid via Corporation Tax

  • You can pay yourself salary and dividends (which are declared via Self- Assessment)


Now that you understand the difference between these two types of company structures, we will share our 4 top tips. These will ensure you are compliant with HMRC, you understand your reporting requirements and will help set you off on the right foot as a small business owner.




1. Understand your obligations


Sole Traders


  • Taxes

As a sole trader, you are responsible for your own taxes and liabilities and these are personally recoverable from you. This means that, should you fall into arrears with HMRC, they can pursue you through debt collection agencies and the courts.


  • Insurance

We always recommend you get insurance for your business. The type of insurance you need will depend on the type of services you offer, if you have customers visiting your premises or if you employ people. You need to consider if you need Professional Indemnity Insurance, Public Liability Insurance and Employers Liability Insurance at the very least.


  • Expenses

Any expenses you claim through your business must be 100% for business use only.


  • Drawings

Payments you make to yourself are called Drawings if you are a Sole Trader.

They should be taken from any profit the business makes as post tax deductions i.e. they do not reduce your tax liability, which is calculated on the profit BEFORE Drawings are taken


  • Record keeping & GDPR

You'll need to keep records of all your income and expenditure in relation to the business, this includes keeping copies of invoices and receipts. These can be stored digitally rather than keeping the paper copies.

If you store any personal client data, such as home addresses or email addresses then you will need to comply with the General Data Protection Regulations (GDPR) and register with the Information Commissioners Office (ICO).


Limited Companies


  • Taxes

As a Limited Company Director, you are responsible for ensuring the business pays its taxes and liabilities.

This includes any PAYE and National Insurance contributions for employees, VAT and Corporation Tax.


  • Accounts

A Limited Company is required to submit annual accounts, which includes Profit & Loss report and a Balance Sheet to Companies House every year.


  • Confirmation Statements

As a Limited Company Director you would be responsible for ensuring the companies Confirmation Statement is submitted to Companies House every year.

This contains details of the Registered Office address as well as full details of all Directors and Shareholders.


  • Expenses

Any expenses claimed must be 100% for business use only.


  • Salaries & Dividends

A Director usually takes a salary as with any other employment. This tends to be at a lower level with Dividends topping up the income.



2. Register with HMRC


All businesses are obligated to pay taxes and register with HMRC, but you pay your business taxes in different ways depending on the structure you have chosen.


Sole Traders


  • Register as self-employed through a government gateway for the business.



  • You'll need your business details, personal information & National Insurance number


  • Once registered, you'll be sent a Unique Taxpayer Reference (UTR)


  • Tax is paid via Self-Assessment. The reporting year is between 6th April and 5th April and the tax due on the profit reported is payable on the 31st January the following year.


  • If your tax liability is more than £1,000, you will have to pay Payments on Account (PoAs) for the current tax year, which are paid in two instalments (31st January and 31st July each year)


  • Failure to register as self-employed can result in a penalty from HMRC.


Directors


  • Register for self-assessment through your own personal government gateway.



  • You'll need your personal information & National Insurance number.


  • Once registered, you'll be sent a Unique Taxpayer Reference (UTR).


  • Tax is paid via Self-Assessment. The reporting year is between 6th April and 5th April and the tax due is payable on the 31st January the following year.


  • Failure to register as self-employed can result in a penalty from HMRC.


3. Set up a Business Bank Account


Setting up a separate business bank account is essential for Sole Traders and Limited Companies alike. Not only does it help to keep your business and personal income and expenditure separate, it makes doing your accounts and tax returns so much easier and your bookkeeper and accountant will thank you for it!


There are lots of great business accounts out there, some with free accounting software and others offering incentives and bonuses for new start-ups, Do your research and find a bank account that is suitable for your business structure.


4. Use Accounting Software


Using accounting software makes it easier to keep all your business’s financial records in one place. It will save you time and give you peace of mind. There are many benefits to having digital accounts; you can produce and email invoices, automate payments, set up bank feeds, photograph expenses and submit taxes.


There is increasing pressure on small businesses to digitise their accounting and tax reporting. Digital compliance is becoming a necessity given the emergence of Making Tax Digital (MTD). If you’re a VAT registered business, then submitting digital returns to HMRC has been compulsory since April 2022. From April 2024, MTD for ITSA (Income Tax Self-Assessment) will apply for business owners with total business income above £10,000 per year, so it’s wise to invest in digital accounting software now to prepare for this.


Your first step to using accounting software, which would save hours of admin, could be to record your expense paperwork instantly using the Dext app or a similar expense scanning app service. This type of software allows you to send photos of your expense receipts from your smartphone directly to your accountant. You can also automate regular supplier invoices and bank statements as well as electronic receipts, ready for bulk processing.


There are lots of great accounting software packages available. We use Xero, FreeAgent and Coconut in our practice as we have clients with different needs and complexity.


Need further help?


You don’t have to manage your business accounts and taxes alone. Hiring a professional can take all the stress and worry away and it won’t cost as much as you may think.


To find out more about Virtual Accounts & Taxes Ltd and the services we provide, please visit our website.




Or to arrange a free initial consultation book an appointment with Nicola Fallon here:





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