2020 has been an interesting year, to say the least. With the coronavirus pandemic, many businesses have had to shut their doors, however not all businesses are suffering. In this article, I will explain the best new business ideas for the post coronavirus era, as well as the tax and accounting considerations of starting a new business.
Without a doubt, the coronavirus has changed the way people run their business, hire employees, meet with clients, and sell their goods and services.
Although this has been a difficult time for many people and businesses, this pandemic may potentially make way for new and exciting business practices. Not only is it easier to accept online orders, but it’s also easier to set up and manage your business online with HMRC.
Online, Online, Online!
With everyone staying home, online businesses are thriving. Restaurants have made online ordering possible, you can order groceries through an app, and it is easier than ever before to order whatever you need through online platforms.
If you are thinking about starting a business during this time, I would highly suggest making it accessible online.
Here are just a few examples of online businesses that are simple to set up and will thrive during this unprecedented time.
- Online teaching
- Online fitness
- Online stores
- Online cooking lessons
- Copywriting business
- Online music lessons
- Freelance web development
There are so many creative ideas to make money with an online business. Find the one that suits your interests and lifestyle and get going!
Tax and accounting considerations when starting a new business
If you are thinking about starting your own business, congratulations on taking the first step and finding information on the process! Starting a business can be a daunting task, and there are lots of steps involved to ensure that you have all the necessary tools.
There are several important steps to follow before you start trading, which I will briefly outline in the following sections.
Business structure
The first step to starting your business is choosing a business structure and registering your business with the relevant authorities. The business structure determines how your business is legally classified, and how you report your taxes and income.
There are pros and cons to each business structure, so it is important to research each one and find the option that best suits your situation.
Sole proprietorship
A sole proprietorship, also known as a ‘sole trader’, refers to a business that is owned and run by a single individual. You can have other employees under this business type, however, generally, it is a single person operation.
A sole proprietorship is not considered a legal entity, but rather an extension of the person who runs it. Because of this, the owner has unlimited liability and is personally liable for any business debts.
This type of business is the easiest to set up and operate. To register as a sole proprietorship, you simply need to register for Self Assessment through the HMRC website.
Partnership
A partnership business structure refers to a business jointly owned by 2 or more people. There are 3 different types of partnerships in the UK: general partnerships, limited partnerships, and limited liability partnerships (LLPs).
In a partnership, all partners sign a partnership agreement which determines each owner’s rights and responsibilities within the company. Each partnership type has different responsibilities of the owners and different liability of each partner.
To register a general partnership, the ‘nominated partner’ must register for Self Assessment online. The nominated partner is responsible for submitting tax returns and keeping detailed financial records. All partners have unlimited liability.
For a limited partnership, you must complete an application form and send £20 to Companies House. Limited partnerships have at least one limited partner and one general partner. Limited partners have limited liability, whereas general partners have unlimited liability. The general partner manages the day-to-day operations of the business.
To register a limited liability partnership (LLP), you need to register with Companies House by post, by accredited software, or through an agent. All partners have limited liability. In an LLP, there is at least one ‘designated partner’ who is responsible for registering for Self Assessment and keeping detailed financial records.
Limited company
A limited company is considered a legally distinct entity. Therefore, the owner of a limited company has limited liability and is not personally liable for any business debts. This also means that business finances must be completely separate from personal finances.
There are two types of limited companies, public limited companies (PLCs), and private limited companies. Private companies cannot offer shares to the general public, whereas public companies can.
If you are just starting a business, you will likely be a private limited company, as public limited companies require a minimum share capital of £50,000. Once your business is established, you can convert from a private to a public limited company.
You can register a limited company online and will be registered for Corporation Tax at the same time. It costs £12 to apply and takes 24 hours to process.
Registering for VAT
You must register for VAT through HMRC if your business has a VAT taxable turnover over £85,000. Once you have reached the VAT threshold, you will have 30 days to notify HMRC and register for VAT.
You can also register for VAT voluntarily if you are below the threshold and you think it may be beneficial to your business.
To register, you need to create a VAT online account with HMRC. This process is free, and you will receive a VAT number immediately as well as a VAT certificate within 30 days.
The VAT registration will determine how often and what periods you will need to submit a VAT report to HMRC. With most invoicing and accounting software, you can submit returns directly to HMRC from your account.
Accounting and bookkeeping
Although accounting and bookkeeping are not the most exciting part of running a business, it is extremely important. You must keep detailed records of all of your financial records including invoices, bank statements, receipts, PAYE records, VAT reports, and accounting reports.
It is highly recommended to use accounting or invoicing software to keep all of your important documents safe in one place.
Accounting and bookkeeping are important for reviewing how well your business is performing, reporting the correct information to the authorities, and for receiving potential financing. You will need to keep your business records for at least 7 years.
Invoicing & accounting software is becoming increasingly powerful. They are very easy to use programs that ensure all required information is on your documents and that you never lose any data.
Payroll
Regardless of your business structure, if your business hires any employees, you must report this to HMRC.
Payroll is a broad term that covers any money that is spent on your employees. This may include salaries, tax, benefits, sick pay, maternity leave, commission, holiday pay, and travel costs.
First, you will need to register as an employer with HMRC and create a PAYE online account. Next, you will need to choose a payroll software to accurately and securely record employees details, wages, and deductions.
When it comes time to pay your employees, you will need to submit a Full Payment Submission (FPS) through your PAYE online account. This will notify HMRC of how much employees are being paid and their income tax and national insurance contributions.
You can use payroll software to easily keep track of your payroll costs, or alternatively record it as an expense on your accounting software to reflect on your accounting reports.
Insurance
It is highly recommended to get business insurance to cover the costs of any liability claims or property damage. If you do not purchase insurance, there is a risk that you may lose the time, money, and effort you put into your business.
You can meet with an insurance broker, or get estimates online of the type of coverage you should acquire based on the nature and size of your business.
If you work as a contractor, most large businesses will require you to be covered under professional indemnity and public liability insurance.
Professional indemnity covers professionals who deal with customers property or data, such as if you provide professional services or advice to clients. Public liability will protect you from any claims of damage to a person or their property while conducting your business.
If you work primarily from your home, you should be aware that most home insurance policies do not cover business-related activities. You should consult your home insurance policy to see what is covered.
Applying for credit and financing opportunities
So you’ve got your business idea and have registered your business. But how do you get money to finance your business? If you’re not independently wealthy, you may look for external capital for your company. Well, there are a few ways that you can approach this.
First, you will need to determine how much money you will need. You can calculate this by estimating your future sales, expenses, and the time it will take you to pay suppliers. Before approaching any potential lenders, make sure that you have a detailed and achievable business plan explaining how much money you require, and what you will be using the money for.
It is also beneficial that you explain any previous business management background in your plan to show investors that you have the experience and knowledge to succeed.
There are a few options for raising funds for your business, through debt financing, equity financing, or both. It would be advisable to discuss these options with your accountant to find the best solution for you.
Some debt financing opportunities you may consider include banks (loans and overdraft), lease financing, and trade credit from creditors or suppliers.
Equity financing usually refers to selling a portion of your business in the form of shares. These deals are generally modified to meet the needs of both the business and investor.
You can find more information on our small business guide: “Get financial backing from a bank or investor”.
Summary
If you follow these steps, you’ll be well on your way to setting up a successful business. Even during the pandemic, there are several simple processes and options available to you online.
If you want more detailed information on starting a new business, I have created a 50 page “New Business Kit” which outlines the financial, tax and accounting considerations of starting a business in 2020.
For the most up to date information regarding VAT registration, tax rates, and business registration, I would suggest going directly to the UK Government website. I would also suggest speaking to an accountant as they can be great advisors for new businesses and help with complex tasks such as budgets, business plans, and taxes.
