New Year, New Business
If you’re planning on starting a business or turning your hobby into a profitable side hustle or even your main income in 2022, then you’ll need to start thinking about all things tax and accounts…
BHP’s Kirsty Swinburn has provided her ten top tips for where to start.
The first big question should be what entity are you going to run your business as? You need to decide what structure your business will have, for example, you might prefer to be a limited company, sole trader, or a partnership. Each has its pros and cons so you’ll need to decide what’s right for you.
- Who to be in Business with
As part of deciding what entity your business will be, you will need to assess who you want to be in business with. If you’re a sole trader, you’ll be on your own. If it’s a limited company – are you looking at bringing in spouses? Should you consider having children as shareholders? If it’s a partnership – who do you want as a partner? Again, should family members be included?You need to consider the implications of all these decisions.
Once you’ve decided what entity the business will be in, and the consequences of that, you will then need to register your business with HMRC and make sure that everything is set up correctly.For companies, they’ll have to register to submit corporation tax returns and new partnerships will need a partnership tax reference. Sole traders and partners will need to register for self-assessment and self-employed National Insurance.
What accounting year-end should your business have? That’s an interesting one for unincorporated businesses, i.e. those that are not companies, because of the basis period reform coming into force in the next few years. The aim is that the new basis period rules will simplify things for the self-employed and partners so that a business’s profit or loss for a tax year is that which arises in the tax year itself.Everyone will end up having a 5th April year-end for tax purposes by April 2024 but, depending on what your expected profits are likely to be in the next two years, you may be able to benefit from the transitional adjustments and the potential for a five-year spread of tax if you choose a different accounting year-end at the outset.Companies have more flexibility and can choose their year-end to suit them.
- Record Keeping
Record keeping is the next big one. You will need to keep records of all the sales and expenses your business makes and incurs.Making Tax Digital for Income tax is coming in April 2024 so, additionally, any new sole trader or partnership needs to have their records on a digital footing from the start.There are a host of accounting software and apps to help you meet the filing obligations, and these can also help you manage your business easily and effectively. BHP has a dedicated Digital Finance team who can help you select and get started with the right one for your business.Alternatively, if you’d rather someone else do the admin entirely, BHP also offers a bookkeeping service that can be tailored to your needs.
When your sales exceed the VAT threshold (currently £85k) you will need to register for VAT and start charging VAT on your sales.VAT can be complex as, for example, VAT is not chargeable on all types of sales and can be charged at different rates on different products (e.g. cakes and biscuits have different rates). For some businesses, it may make sense to voluntarily register for VAT and there is also a range of VAT schemes that smaller businesses can use to reduce the costs and admin burden.BHP has a friendly, no-nonsense VAT team to help you navigate this complex area… (just don’t get them started on Jaffa cakes…)
- Staff Considerations
If you’re going to have staff, you will have payroll considerations to think about. This will include auto-enrolment for pensions, adequate payroll software, and registering with a PAYE scheme.
- Your Pension
If you go into business, you may want to think about pension contributions for yourself. It may be early on in your business’s existence, but the advice is always the sooner in your life you can make pension contributions, the better. You may also have been employed and been in an auto-enrolment scheme with your employer and come out of it to start your business. If so, you’ll have a gap in your employment record, so you’ll need to think about when you want to start making contributions either from the company if you have a company, or personally.
- Get Good Professional Advisors around you
You are likely to benefit from having professional advice in place, for example, an accountant to ensure that your business is set up correctly for all your tax needs and that, eventually, your tax returns are filed correctly. You may also need a lawyer to help you with things like partnership agreements, employment contracts, sales T&Cs etcAt BHP, we have a professional team on hand that can support you with a wide range of tax and accounting queries so if you are thinking about starting your own business in 2022, make sure to get in touch with a member of our Team for advice here via: firstname.lastname@example.org
- Finally, enjoy the journey!
We know that starting your own business can sometimes be daunting, hard and lonely, but we also know from our clients that it can be hugely rewarding giving you the opportunity to work in your own way, to your own schedule on something you’re passionate about. We love helping new businesses get up and running on the accounts and tax side, leaving you free to concentrate on building a business you love.