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FAQs
Frequently Asked Questions (FAQs): What type of business should I set up as - sole trader, partnership or limited company? Do I need to register my business? Do I have to register for VAT? Can I get a grant or loan? What forms of finance are available to me? How do I go about trading through a limited liability company? Do I need an accountant? How do I find one? Do I need a solicitor? How do I find one? Can I run my business from home? If my business fails what will I be liable for? What Regulations might affect me and my business? If I am unemployed, will I lose my benefits if I start a business? Where can I find out more about franchising? What do I need to do about tax and national insurance contributions when I take on my first employee? How do we start credit-checking businesses who want to purchase our products/ services? Do I need a business plan? How can I get one? How can I raise my business profile? Frequently Asked Questions: Q1: What type of business should I set up as - sole trader, partnership or limited company? A: There are advantages and disadvantages for each type listed below.Sole Trader: Typically, you are a self-employed person who submits an annual Self Assessment Tax Return to HM Revenue and Customs. You also pay a low rate of National Insurance (unless your earnings are high, NI Class 2 £2.30pw and NI Class 4 - any profit over £5,345 to £40k caluclated at 8%). Your options for raising finance are limited as a sole trader, however you do not need to register your business name. If you use a business name other than your own, your stationery must also have your own name and so must your premises. You are personally liable for all debts incurred by the business. Partnership: Very similar to sole trader except there are two or more people involved. The big difference is that all the partners are "jointly and severally liable" for all the debts. This means that if, for example, your partner disappears, you're liable for all, not half, the debts. For this reason you may wish to consider having a solicitor draw up a proper partnership agreement. Contact Lawyers for your Business: 020-7405 9075, www.lfyb.lawsociety.org.uk Limited Company: This is a separate legal entity, which is distinct from you as an individual, even if you are a director. A company must have at least two shareholders - a director and a company secretary.Limited companies have more credibility than sole traders, it is easier to raise finance and they can offer some protection to the owners in that their liability to meet the company's debts is limited to the amount of their shares. However, you could lose this protection as it's normal practice now for banks to look for personal guarantees from you if the company needs to borrow.NI payments for limited companies are more complex (payments are higher), however there are tax advantages for high earners through keeping money in the business or making pension payments. Limited Companies must make an annual return to Companies House and send in annual accounts. top of page Q2: Do I need to register my business? A: There are some differences in the "type" of registrations that can be made. Sole Traders Registering with the Inland Revenue: As a sole trader you are required to notify the HMRC within 3 months of starting to trade, failure to do so will result in a £100 penalty being levied against you and if you don't register and are not paying tax, you will be breaking the law and could be liable to further penalties.The registrations with the HMRC are for (i) Schedule D Taxation and (ii) Class II National Insurance Contributions (paid by the self-employed). Registration can be made by using the forms provided with the HMRC's brochure "Starting your own Business" (CWF1), which can be obtained from any local tax office. Or call the Helpline for the Newly Employed on 08459 15 45 15. Registering a business name: In addition to registering with HMRC, if you are a sole trader, or intending to set up a partnership, there is no legal requirement to register your trading identity or alias, although many business people choose to register their business name with one of the many business names registers that exist within the UK (this will cost around £250).Registering provides some protection against other parties "passing off" as you and trading under the same name. However, if you do register your business name it does not mean that you have any more right to use that name than a party who has not registered, although it will allow you to prove reasonably easily that you started using a particular business name on a particular date.Intellectual Property: If your business has a particular brand, logo or identity you may wish to apply for a Registered trademark to protect this "intellectual property". For more information contact the Patents Office in London. A search of the web will take you to their web site. This will cost between £300.00 - £800.00 to register a Trademark, however, there is no legal requirement to do so. Limited CompaniesIf you will be trading as a limited liability company, the company registration needs to be lodged with the Registrar of Companies at Companies House - www.companieshouse.co.uk Once incorporated, nobody else is allowed to trade under your company's registered name. A simple option available is to buy a "ready made" company from one of several specialist businesses who advertise in most of the National newspapers. You have the choice of pre-defined name or a name of choice for such companies and they are supplied with copies of necessary forms etc. Your accountant may also help you register your business. top of page Q3: Do I have to register for VAT? A: You don't have to register for VAT unless your business is likely to have sales of over £67,000 a year. If your sales are lower then it may still be worth registering in order to claim back the VAT you pay on your purchases. Seek specialist advice on this from a business adviser, accountant or direct from the VAT office. Helpline number 0845 0109000. top of page Q4: Can I get a grant or loan? What forms of finance are available to me? A: For information on accessing finance for your business see Raising Finance .top of page Q5: How do I go about trading through a limited liability company? A: There are basically two ways of obtaining a Limited Liability Company through which to trade. Acquiring a company which has already been incorporated but is not trading (known as ‘dormant’), commonly referred to as buying a company ‘off the shelf’, or alternatively incorporating a new company from scratch.Incorporating a new company is not particularly difficult, although two legal documents, the Articles and Memorandum of Association (the company's constitution), will need to be prepared and copies submitted with the application to the Registrar of Companies at Companies House . Many small businesses choose to use the services of a formations agent to undertake all of these formalities on their behalf although agents will levy a fee for their services.The forms that need to be completed when making an application to incorporate a new private limited company (Form 10 and Form 12) can be downloaded from the Companies House Web Site. Copies of standardised Articles and Memorandums for "general commercial trading companies" can be obtained from legal stationers as well as from many formations agents. top of page Q6: Do I need an accountant? How do I find one? A: A limited company must have its accounts audited or approved by a qualified accountant. If your business is not a limited company then it is up to you whether you want an accountant to help you prepare accounts for tax and management purposes. Some local accountants provide a free consultation for potential new clients. The London Society of Chartered Accountants can provide the names of local accountants providing services relevant to your needs. The Institute of Chartered Accountants and Accounting website also contains accountant search facilities. top of page Q7: Do I need a solicitor? How do I find one? A: You don't need to consult a solicitor just to start a business, but it may be a good idea to get legal advice from a solicitor in certain cases. These include drawing up a partnership agreement, buying or leasing premises, drafting a commercial contract. Under the Lawyers for Your Business Scheme a free legal consultation is available from a local solicitor for anyone about to set up a new business. Contact them on 020-7405 9075, www.lfyb.lawsociety.org.uk. top of page Q8: Can I run my business from home? A: Running your business from home can be cheap and effective, but if you live in rented accommodation there may be restrictions about this. Check your lease or talk to your landlord, or - in the case of council accommodation - check with your local housing officer. If you use part of your home exclusively for business purposes, you may in some cases be liable to pay business rates. top of page Q9: If my business fails what will I be liable for? A: If you trade as a sole trader you are personally liable for all of the debts and liabilities of your business without limit. In extreme cases, a business failure could result in your being declared bankrupt by the Courts.Partners within a partnership carry ‘ joint and several liability’ for the debts and liabilities of their business. This means that all partners are liable for the full amount of the business debts and liabilities - contrary to a common belief that liabilities are divided in line with the ownership or financial interest in the business.In contrast to this Directors and Officers of Limited Liability Companies, and partners of Limited Liability Partnerships, are not personally liable for the debts and liabilities of their businesses, which are considered separate entities in law. However, where a Director or partner has personally guaranteed a debt or liability they will become liable for this where the Company or LLP is unable to discharge it when it becomes due.Under present Insolvency Law, individuals can face bankruptcy proceedings, and companies winding up proceedings, for debts of just £750.00. If you believe your business is in financial difficulty- seek professional advice from your Business Adviser or accountant. top of page Q10: Which regulations might affect me and my new business? A: The basics for any business will include meeting any regulatory requirements, however, these depend on what you will be doing. Start by considering the general areas of a business covered by regulations:Business structure Tax, National Insurance, VAT Health & Safety Environment Employment Premises Intellectual Property LicencesFor further information see Business Link’s Regulations and Compliance top of page Q11: If I am unemployed, will I lose my benefits if I start a business? A: You should make general enquiries at the place where you are claiming benefit, to see where you stand and how your benefits could be affected. The Department for Works and Pensions run a Benefits and Business Start-Up Advisory Service.It is worth enquiring about local schemes designed to help people start up a business together with New Deal, to see whether you are eligible to apply. Business start up support varies and depends where you are. New Deal offers help for people who want to set up and run businesses if they are claiming the Jobseekers Allowance.Contact your Jobcentre Plus about any local schemes helping business start-ups. For information about New Deal speak to your nearest New Deal Unit . top of page Q12: : Where can I find out more about franchising? A: Franchising can be a relatively quick way to set up in business. If you are interested in selling a well-known brand or product, are prepared to work hard and have the right amount of money to invest (both for the initial cost and ongoing costs), you can be very successful. However, you must really do your research because you will be tying yourself into a partnership arrangement for a definite period of time. You should also get any form of agreement legally checked- speak to Lawyers for your Business.Check out the following web sites: The Franchise Association and Franchisedirect. You may also wish to contact a High Street Bank as they have their own franchise departments. top of page Q13: : What do I need to do about tax and national insurance contributions when I take on my first employee? A: Call the HMRC New Employers Helpline. An adviser will ask you a few basic questions about your business; arrange for your payroll to be registered with the HMRC and send you a New Employers Starter Pack containing all the instructions, tables and forms needed to get started. Once you are an established employer, the Employers Helpline will give help and advice on issues related to PAYE, NICs, tax credits and student loan deductions.As an employer you will be responsible for:working out tax and NICs due each pay day keeping accurate and up to date accounts for wages, payments and such like relating to your employees making Student Loan Deductions (SLDs) and paying Tax Credits, if necessary paying deductions to the HMRC office each month (you can do this quarterly if your average monthly payments are below £1500) telling the HMRC, at the end of the tax year (5 April), how much each employee has earned and how much tax and NIC deductions you have made. You must also give details of any expenses paid or benefits provided to your employees.For more information check out the leaflets listed on the HMRC website, all of which are available from your nearest tax office. The HMRC Local Business Support Teams provide help and advice to new or small businesses and employers. top of page Q14: How do we start credit-checking businesses who want to purchase our products/ services? A: There are several organisations providing credit checking services and Dun and Bradstreet is one of them. For more information on these service providers contact the Institute of Credit Management Tel: 01780 722 900, website: www.icm.org.uk top of page Q15: Do I need a business plan? A: It is essential for any successful business to have a business plan. Your business plan will tell you whether your business is viable and will be your guide to operating your business. A good business plan will be your tool to sell your business to potential financier, supplier etc. Get started now and download our Business Plan Template . To get expert advice on putting an effective plan together make an appointment to see one of our advisers and attend our Effective Business Planning and Raising Finance seminar. top of page Q16: How can I raise my business profile? A: A very easy way to raise your business profile is to regularly attend business networking events . This is a great opportunity to introduce your business services/ products, gain contacts and potential new business. This goes hand in hand with your marketing and advertising , both of which are very important to any business. top of page </
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