Posted: Thu 1st Jul 2021
You're prepared to start your business, you've researched the market, you've tested your product and obtained the best advice you can.
What are the practical questions you need to consider now? Here are some answers.
Who do I need to notify about my new business?
If your business reaches the threshold for compulsory VAT registration (in 2022, this is £85,000 in the previous 12 months or lesser period), you must notify HMRC and register for VAT. However, it can be advantageous to register even if you're below the threshold.
Depending on the nature of your business and whether you're operating from a business premises, there may be other bodies you should notify, such as your local authority.
If you create a limited company, you must notify Companies House, who will then notify HMRC. HMRC will send you a form that you must complete and return within three months of it being issued.
What accounting records do I need to keep?
By law, every business must keep adequate accounting records.
HMRC does 'records checks' to make sure businesses are complying with its requirements. Similarly, if your business is registered for VAT, you must keep financial records according to the guidelines HMRC has given.
If your business is a limited company, the Companies Act says you should keep proper accounting records of:
money you've received and paid
all sales and purchases
your assets and liabilities
If you employ staff, you must keep proper records for Pay As You Earn (PAYE) and for calculating what tax you owe.
All employers' payrolls are linked to HMRC using Real Time Information.
It may be that because of the type of business you run, there are other records you must keep to stay within the law.
If your records are inadequate in any of these areas, you could face a legal penalty.
Should I use accounting software?
Almost certainly! If you already have a computer, using accounting software to run the accounting and management information systems can make such a big difference to your business. The software provides fast and detailed information, saving you time and money.
There is now a wide range of small business accounting software packages that don't cost too much. Read our guide to accounting software to learn what options you have.
It's important, however, to seek independent professional advice (with an accountant, for instance) on which systems are suitable for your particular business.
If your business is VAT-registered, you must file your VAT returns via HMRC's online system. Using accounting software greatly assists this process.
Can I start my business by working from home?
Working from home requires considerable self-discipline and doesn't suit everyone. However, it's an excellent way of starting a new venture when the business proposition allows. This is because you have lower overheads during that all-important stage of establishing the business.
It'll also allow you to claim a percentage of your property's running costs as an office. The danger here, however, is that HMRC might consider your claim excessive and launch an inquiry, which could result in disallowed costs and an increased tax bill. There's also the possibility of having to pay capital gains tax when you eventually sell the property.
If you do decide to work from home, consider notifying these organisations:
Your local authority: There may be a case for paying business rates but it's unlikely if the local authority decides that there has been no material change in the use of the house (from residential use).
Your insurance companies: Your contents insurance will probably need to specify any business assets – computing equipment and so on – to make sure they are covered.
Your bank/building society (if you have a mortgage): This is usually a formality but it's advisable in case there is a potential breach of the mortgage agreement.
Can I use my own vehicle in the business?
That all depends on the business structure you've chosen.
If you're a sole trader or in a partnership, you can bring a private vehicle into the business right from the start. But if you do, it's important to keep all your receipts for petrol, repairs, insurance etc.
For tax purposes, you must also keep a record of your business mileage so you can calculate the allowable business share of the total running costs.
For limited companies, bringing a private vehicle into the company is less advised. This is because of HMRC's 'benefit in kind' regulations, which assess the benefit derived from the personal use of a company car together with the fuel benefit.
You can include business-specific vehicles, such as delivery vans used solely for business, in the business's assets and recover all costs against the business, but not if you use them for personal reasons.
What insurance must my business have?
By law, if your business has employees, it must have employers' liability insurance. There are minimum amounts which the insurance must cover. The Health and Safety Executive (HSE) is responsible for enforcing the law on employers' liability insurance.
If your business uses motor vehicles, you must have at least third-party motor insurance. If motor vehicles form a core part of your business's trade, you'll need a specific policy (for example, for vans carrying goods).
Apart from these compulsory insurances, there are a number of risks which it's prudent to insure against.
public liability insurance covering the public for death, injury or damage to their property which happens as a result of your or your employees' negligence
buildings insurance and contents insurance
business interruption insurance covering periods when you're unable to do business because of damage to your property (such as flooding)
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