How to register a business
Do you have an interesting business idea that you would like to set up? Business Leader gives you the complete guide that looks at the best way to set up a business.
Depending on what business you are looking to set up, there are different steps that need to be made.
Most start-ups register as either a sole trader, limited company or a partnership.
Setting up as a sole trader
Most business businesses initially set up as sole traders as it is the simplest way to set up and manage your accounts.
From a legal perspective, you are clarified as a business owner and self-employed. You are responsible for paying tax, but are also allowed to keep the profits of your business. This also means that you are responsible for any losses that may occur.
As a sole trader, you will need to register for self-assessment though the UK government website and file for a tax return every year. To do this, you will also need to apply for Class 2 National Insurance, even if you have completed a business tax reform before.
Once registered, you will receive a 10-digit Unique Taxpayer Reference, or UTR, and enrol yourself for self-assessment on the government’s online service portal.
Once complete, you will receive a letter within 10-12 working days, or 21 if you live abroad, with your activation code. Use this code to complete your online account.
There is also a print-off version that can be completed and returned to HMRC.
As a sole trader you will be responsible for keeping records of your businesses’ sales and expenses. You will pay income tax on profits. HMRC has an online calculator to aid you make the correct payments.
If you achieve an annual turnover that exceeds £85,000 then you must register for VAT. If you sell to other VAT-registered businesses, you can reclaim that VAT.
There are slightly different VAT-related applications that need to be made if you are making a start in the construction industry. HMRC’s Construction Industry Scheme (CIS) can be found on the government website.
Naming a sole trader company
You can trade under any name that you do not need to register, or even just trade under your own name. Whatever name is chosen, it must be included on all official paperwork, including invoices and letters.
Names cannot include ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’.
Any company name cannot include and ‘sensitive’ words or phrases or contain any reference to government or local authorities.
Setting up a private company means that the business is legally separate from the people that run it and those people’s finances are separate from the company’s ones.
To set up a private limited company you and your business partners will need to register with company house – also known as ‘incorporation’.
You will need a suitable company name, address, at least one director, details of the company’s shares (you will need at least one shareholder) and identify your SIC code.
A SIC code (standard industrial classification of economic activities) is used to describe what type of business you are running. You will need to find out what this is on the government website before you apply to Companies House for registration.
Once all of this has been completed, the shareholder(s) create the written rules of the company, otherwise known as a ‘memorandum and articles of association’.
Details of those shareholders with a significant control of the company should also be made known to companies house. These are members that have over 25% share or voting rights on business matters.
To register a limited company, you must declare the memorandum to HMRC with a cost of £12 paid by debit/credit or PayPal. Once complete, your company will be set up within 24 hours.
Postal applications are made by cheque worth £40 and you will receive notification in 8-10 days.
Your company can be registered the same day, by visiting company’s house before 3pm and at a cost of £100.
Once registered, you will receive a ‘Certificate of Incorporation’ – this confirms the legality of the company and notifies you that you will need to register for corporation tax within three months.
You can hire someone to manage these activities but it is still the directors responsibility to maintain records and accounts.
A partnership is the simplest way for two or more people to run a company together. Responsibility for the finances, profits and any debts occurred are shared between the owners. Stock and equipment that is needed is also at a shared cost.
Each partner pays tax in accordance to their share.
A partner doesn’t have to be a person. A limited company counts as a ‘legal person’ and can also be a partner.
Once a business partnership has been established, an appropriate name and nominated partner in the business must register with HMRC.
This nominated partner is responsible for maintaining financial records and tax records.
Once you have chosen the type of business you wish to register, there are a series of legal issues that need to be resolved.
For all three businesses that are outlined above and depending on what type of business is being run, there are certain licenses and permits that will need to be obtained. This is particularly in the case of food and small goods traders but also apply to play music in public or private.
Temporary Events Notices are also applicable in England and Wales for events.
Various types of business insurance are also needed, depending on what type of business is being run and what sector you are going to be in.
Some types of business insurance are required by law. You are obliged to have employer’s liability insurance to cover the cost of compensating employees who are injured or who may become ill through their work. You can get employers’ liability insurance quotes from constructaquote.com.
If your employees have the use of a company car, then you are obliged to provide commercial motor insurance.
There are several other types of business insurance that are optional.
Commercial property insurance is used to cover the cost of repairing or rebuilding your business premises or replacing your equipment or stock.
Liability insurance covers the costs of compensation claims following fault or negligence brought against you or your business by clients, customers, shareholders, investors or members of the public.
Cyber insurance covers for loss and damage of information from IT systems and networks.
Despite the many different types of business insurance available, there are general rules and regulations to follow.
Business insurance is usually sold as a package, combining multiple different packages under one premium – much as it is with all other insurance we use in life.
These policies are based on a number of factors such as the annual turnover, nature of the business, number of employees and your insurance claims history.
This varied type of insurance from an insurer, specialist broker or through the British Business Brokers’ Association (BIBA).
There are also rules and laws to follow in regards to selling goods online, buying/selling goods from abroad and storing/using personal information.
Look at Business Leader’s articles surrounding the upcoming GDPR here.
Where are you running your business from?
Are you planning on running your business from home, an office or a unit in a business park? Where you plan on starting your business can affect many parts of your company.
If you are running your business from home, you may need separate insurance to run a business to your standard home insurance. You will also need to check with HMRC as to whether you will have to pay business rates.
Contact the British Insurance Brokers’ Association for advice and altering your insurance.
Before setting up an office at home, you will need to check with your landlord or mortgage provider, as not notifying and re-agreeing your terms can lead to legal issues.
If you are planning on making alterations to your home in order to run your business out of it, you will need to gain permission from the local planning office and your local council.
This is also the case if you will be receiving lots of deliveries or want to advertise outside your home. You will need a license for this.
As a business owner who works from home, you can include your business costs in your self-assessment tax return, whether you are a sole trader or part of a business partnership.
One of the benefits of working from home, is the ability to claim a proportion of your council tax as well as the cost of heating, lighting phone calls and broadband.
However, you may have to pay Capital Gains Tax on the part of your property you plan on using for your business.
You have to also pay business rates on that part of the property as well.
This is set out by the Valuation Office Agency , who provide a rate that is added to your council tax.
Rate relief is available to small businesses if the property has a rateable value of £12,000 or less.
One thing that many home-run businesses don’t think about when they start, is that there are still health and safety regulations that need to be adhered to – like it is in a normal work environment. Contact the Health and Safety Executive to make sure that your home business meets the national standards.
When renting a property solely for your business, there are a series of responsibilities required by law. There will also be rules set out by the landlord who is leasing the property.
A legal health and safety risk assessment, set out by the government is necessary for any rental property for business use.
Following this, you will be responsible for fire safety, safety of electrical/gas equipment as well as managing any asbestos issues.
There are also health and safety guidelines for temperature, space, ventilation and lighting.
Toilets, drinking water and safety equipment must be provided.
If renting, your landlord is responsible for any communal areas and you must take steps and be vigilant that they fulfil these responsibilities.
If you or the landlord do not follow these rules, then fines and even prosecution are likely.
With regards to the repairs and maintenance of the building – it should be outlined in the lease agreement.
If you decide to move out of the premises, you may have to pay for certain repairs and return the property to the state in which it was first leased.
The repairs are named as ‘dilapidations’ and should be one of the main parts of any lease agreement.
If there is no mention of repairs of returns in the lease, then the responsibility will fall upon you, the tenant.
If you rent or buy a property, you may have to pay business rates.
What happens when you need to take on an employee?
So, you have made a successful start and you are now looking to expand your operation?
Whether you are looking to take on full time members of staff, agency workers or freelancers, you will be responsible for their health and safety, running the payroll, paying for their national insurance and provide a workplace pension.
With regards to their national insurance, you can claim back an allowance to reduce the bill.
There are many parts to signing up a new employee. Wages, legality of work in the UK and DBS (formerly CRB) check are necessary and must be issued to HMRC.
Terms of employment must be sent to the prospective employee more than one month before starting. This must be signed by both parties.
Once registered, you must inform HMRC four weeks prior to making a first payment to them.
Where to turn to for help and support?
Setting up and starting a business comes with many challenges and there are sources of material and people that you can contact to help you.
The Business Support Helpline is a free ‘growth hub’ that offers advice and sources of finance for new companies.
They are available through web chat on their website and via their social media channels. They are also available Monday to Friday, 9am to 6pm on 0300 456 3565.
Working for yourself
As a sole trader, you are classed as self-employed – even if you have not yet registered with HMRC.
To be classed as self-employed you run a business for yourself and are solely responsible for its finances.
Though there are many benefits of being self-employed – such as choosing own hours and being in charge of what is being bought and sold – you must be registered as self-employed for tax status reasons.