Setting Up A Small Business
Many people will have a great business idea, and they then think, how do I set up a small business. The most important thing to do is ensure you are not in breach of the law.
Exactly what you need to do to set up depends on your type of business, where you work and whether you take people on to help.
Firstly decide the structure of your business. Options include; register as a sole trader, limited company or partnership.
Although this is the simplest way to set up, you will be personally responsible for your business’s debts. You also have some accounting responsibilities.
If you start working for yourself, you are classed as a sole trader. This means you’re self-employed – even if you haven’t yet told HM Revenue and Customs (HMRC).
You’re probably self-employed if you:
- run your business for yourself and take responsibility for its success or failure
- have multiple customers at the same time.
- You can decide how, where and when you do your work
- You can hire other people at your own expense to help you or to do the work for you
- provide the main items of equipment to do your work
- You charge an agreed fixed price for your work.
- If you sell goods or services to make a profit, including through your Website , Apps or Social Media.
A partnership is the easiest way to set up a small business involving 2 or more people.
As with a sole trader the partners are liable for the debts of the partnership.
If you form a limited company, its finances are separate from your personal finances. The company is considered a separate entity.
However, you may find banks or other lenders require your personal indemnity when applying for loans or raising finance or capital.
Limited companies require a greater amount of reporting than a partnership or sole trader.
As a Director/ Owner you are responsible for the management of the company. Including, ensuring it trades legally and it meets the statuary requirements, including accounting, legislation or financial competence.
It is recommended you get help from a professional accountant. Your accountant ensures you comply with the requirements of running a limited company and give advice on statuary requirements.
In a Limited Company you are both the owner of the company and also an Employee.
Selling Goods or Services
You could be classed as a trader if you sell goods or services. If you’re trading, you’re self-employed.
You’re likely to be trading if you:
- sell regularly to make a profit
- make items to sell for profit
- sell online, at car boot sales or through classified adverts on a regular basis
- earn commission from selling goods for other people
- are paid for a service you provide
However, you are probably not trading if you sell some unwanted items occasionally or you don’t plan to make a profit.
You are required to inform HMRC if you are trading or going to trade as a Sole Trader, Partnership or Limited Company.
Registering for VAT
VAT registration is required if your VAT taxable turnover goes over £85,000 (the ‘threshold’). Alternatively if you know that it will exceed £85,000.
Your VAT taxable turnover is the total of everything sold that is not VAT exempt.
Insurance Requirements for Small Business
You are required to have Public Liability Insurance. Also, if you employ people you will require Employers Liability Cover.
Also, remember to advise your car insurer if you intend to use your vehicle for work related journeys. In some instances you may find you are insured if you have not made you insurance company aware.
Check if you are required to obtain any special licences to trade for your business. Examples include; care work, street trading, hold minding, dog walking, keeping customer data and many more. Check here if you need a permit or licence.