Setting up a new business right first time

Structure of the business

When starting a business one of the things to think about is the structure of that business.

Do you set up as an unincorporated entity (sole trader or partnership) or as a legal entity (Limited company (Ltd) or Limited Liability Partnership (LLP))?

If you have a partner that will be involved in the business and has available tax allowances then that may impact on the structure you choose.

All factors should be considered not just any potential tax saving when making the decision including limited liability status and credibility with customers as positives offset by the increased compliance involved with running a Ltd or LLP.

However solely from a tax point of view above a certain profit level (and in most circumstances) the business trading as a Limited company will normally end up paying less tax.

The benefit has reduced with the increased dividend tax rates from 6 April 2016.

For example, there are 2 identical husband and wife businesses trading in 2017/18. One is a Limited company and the other is a partnership but both make a pre tax profit of £102,000 before they extract any remuneration. The couple with the partnership pay £5k+ more in tax/NIC than the Limited company with the right profit extraction.

The numbers need to be worked through for specific circumstances.

Other considerations

There are lots of other things to consider when setting up the business. These may include:

Should the business register for VAT and if so what is the most appropriate scheme (standard rate, flat rate) and the timing of the returns (annual/quarterly)

Is the business going to be employing staff so registering as an employer with HMRC, dealing with Auto Enrolment pensions and other employer responsibilities?

Does a shareholder or partnership need to be put in place if there are third parties involved in the business?

How and who is going record the transactions of the business and get ongoing financial information– are you going to use some bookkeeping software such as Kashflow or Xero? Are you going to do the bookkeeping inhouse or use a bookkeeper?

Make sure you speak to an accountant early in the process as they can help you make sure that you set your business up with the structure and processes that are right for you and your business