Registering your business is one of the first exciting milestones in launching your new venture. Taking the leap from employed life to becoming a fully-fledged entrepreneur can seem a little daunting.
However, with over 650 thousand registrations between 2019 and 2020, and a record year for new businesses established in 2020, it seems many switch from salaried work to a life of self-employment, despite the adversity.
Whether you simply want to officially inaugurate a side project, or you have big ideas for a fully-fledged company, registering your business should be the first step on that journey.
Why you need to register with HMRC:
With a number of administrative decisions to make in the early stages, doing the paperwork to register with HMRC may not be front of mind, but this is a crucial step you should not ignore. If you make the shift to self-employment, HMRC needs to be aware of your status so that they can collect the right amount of tax.
HMRC’s deadline for registration is October 5th after the end of the tax year from your self-employment start date. It’s advisable not to leave registration this late though, to avoid an unwelcome and hefty tax bill.
We spoke to Chloe Hawkins of CH Accounting Solutions Ltd to give you the best advice and glean some of her top tips in this step-by-step guide:
Tip one – making the right choice between Sole Trader or Limited Company
The process route for small business owners is different depending on the structure you choose, for example, whether you will be a Sole Trader or a Limited Company, therefore it is crucial to make this decision first. Remember not to shy away from the idea of becoming a Limited Company in favour of Sole Trader status. Many new business owners often believe that Limited Companies are far too complex, but in reality, this is not the case. In fact, opting to become a Limited Company may have many longer-term benefits over sole trader status, so be sure to research your options before you register.
Once you have chosen, you’re ready to register for Self-Assessment with HMRC via the government’s online portal and be sure to keep a note of your personal UTR number (Unique Taxpayer Reference) as you’ll need this for future access.
Tip two – decide who will manage your tax affairs
Remember, if the idea of managing your taxes is daunting or feels like a drain on your time, a good option is to hire a reputable, chartered accountant to manage your tax. Many new business owners will shy away from hiring an accountant for fear of the cost. In reality, paying an accountant could cost you as little as £30 per month, and that cost is more than covered in the savings they could generate for you at the end of the tax year.
When it comes to your tax returns, don’t make the mistake of not completing a Self-Assessment tax return because you have made a loss, you can offset losses against future profits, therefore saving you tax in the future.
Be discerning in your search for an accountant. Check that they have chartered accountant status to ensure they have the necessary training and qualifications and try to choose an accountant that offers a free initial consultation, to make sure you don’t pay over the odds from the off. A reputable accountant will also be able to advise you on what company structure works best for you and your business and can help you along your journey to success.
Tip three – set up a business bank account and keep things separate
If you’re going down the limited company route, remember it is a legal requirement to have a business bank account.
If you’re opting to become a sole trader, it is also worth setting up a business bank account to keep business expenditure and income separate from personal expenditure and income. If you don’t, it makes reconciliation almost impossible and could result in you paying more tax. Make sure you keep those VAT receipts so these can be used to reclaim VAT.
Watch this space for more of our tips from the experts or take a look at our Coupay blog for more pearls of wisdom on kick-starting your new venture.