So you are in business already or want to set one up? Be prepared that by pursuing your goals comes legal do’s and don’ts! It is beneficial to be well prepared and avoid any nasty come backs so let us take a look at the options.
From the outset you need to decide what type of legal structure to adopt for your business as this will determine what you need to do straightaway. There will be implications depending on your legal structure from anything to your finances, tax and even what you put on your website. This short guide will give you a snap shot of the two most common options and how they affect your tax, legal and financial responsibilities.
The clue is in the name! You are legally operating as an individual and are responsible for all liabilities that come with the business. If the business makes a loss then you do. By way of an example if you owe Joe Bloggs money for supplies and are left short it is you who is liable and not the business name. Alternatively if the business makes money then you do personally!
Simplest and less stringent of options but not without obligations! As soon as you start your business there are legal obligations to be fulfilled with HMRC. Make sure you tick off the following:
- Register as self employed
- Complete your tax return each year and pay your taxes by the 31 January deadline
- Get up to date with your NI contributions
- Register for VAT if your VAT taxable turnover is over £82k in a 12 month period
- Keep all your receipts and get up to date with all your financial records
You are a separate legal entity owned by shareholders and run according to a Memorandum and Articles of Association which is a either a template document from companies house or one drafted by you or your lawyers. It is a set of rules by which you run your company. Shareholders appoint directors who run the company on their behalf. In most small businesses the Shareholder is the Director and vice versa. Remember money cannot be simply drawn from a limited company but paid through salaries, dividends or loans.
Again the clue is in the title. Your liability unlike a sole trader is limited so debts can be limited to the company and not you as an individual. You can benefit from tax perks if you turnover a specific amount and enjoy a lower tax rate when employing those under the PAYE scheme.
Again there are a number of legal obligations to be fulfilled so please tick off the following:
- File all your documents with Companies House namely your accounts and annual return. There are fiscal penalties if you don’t do this!
- Pay your taxes! Are you eligible for Corporation Tax?
- Make sure your company name, registered address and place of registration (England & Wales) are marked on your website.
Whatever structure you use make sure it suits you:
- Are you happy from a tax perspective?
- Is your paperwork in order?
- Are you happy with the way your peers view your business structure?
- And last but not least…is your business thriving profitably under the structure?
Image: business startup via shutterstock