Starting a business – what comes first?

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David Ingall offers a practical step by step guide for entrepreneurs setting up their first business.

Starting your own business is stressful, particularly for someone setting up for the first time. There is a bewildering array of information out there, and it’s important to concentrate first on what you actually need, rather than the ‘optional extras’ people are attempting to sell you. There are a number of considerations which entrepreneurs need to be aware of at the initial stage of forming a company – and making the right decisions now will make the early months of running your fledgling business a little easier.

Selecting a legal entity
Once you have had a new business idea, the next stage is deciding what form the business will take – a sole trader, partnership, limited company or limited liability partnership (LLP) – all of which have their own advantages and disadvantages.

Operating as a sole trader is the simplest option as, other than compliance with income tax regulations, there are no further rules on what records must be kept. A partnership is also a relatively simple arrangement but it requires an understanding between the partners about the nature of their agreement (it may be best to do this in writing) and the partnership will need to be dissolved if one of the partners dies or steps down from their role.

A limited company is a separate legal entity from its shareholders or directors, meaning they are not personally liable for all the company’s debts. However, the directors have certain legal obligations to the company, its shareholders and its creditors, while the company’s accounts have to be filed with Companies House in a specified format, where they are then open to public inspection. There are legal requirements to keep accounting records, file separate tax returns and treat the directors as employees.

An LLP is a partnership, but with limited liability for the partners, providing some protection if the business fails. As with a limited company, there is an obligation to file copies of the accounts at Companies House and to have on public record the members of the partnership.

At this point, it is worth reminding entrepreneurs that an accountant or financial adviser can provide further information on the differences and which structure is most appropriate for the business in question.

Tax authorities
Tax is a consideration for all types of businesses, and the onus is on the taxpayer to register with the authorities.

The profits of sole traders or partners are taxed as income, therefore a self-assessment tax return will need to be completed each year, which necessitates a proper record of income and expenses being kept.

Limited liability companies or partnerships are liable to corporation tax and an annual return must be sent to HM Revenue and Customs (HMRC).

If the company has sales of over £70,000 for the last 12 months, it must register for VAT, while if it has any employees, it will need to operate a PAYE scheme.

Failure to deal with these issues right at the beginning can ultimately be very expensive in tax penalties of one sort or another. Ensure you complete your accounts early and ask your advisors to tell you what your tax bill is going to be. By not leaving it to the last minute, you are less likely to get a nasty surprise by receiving a bill you had not budgeted for.

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25th Apr 2010 18:09

Oh - and customers

 The one thing missing from this is customers, and before that a product or service that someone wants to pay real money for.

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27th Apr 2010 15:01

business starting guide

The guide is incorrect : Limited Liability partnerships are not subject to corporation tax but are tax in the same way as none limited partnerships profits are allocated between the members who pay income tax and class 4 NIC on their shares of the profits....

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14th Nov 2014 16:45


It is almost certain that, whatever the entity, a Bank Account will be necessary for the business.  Certain Banks have made it a very difficult operation for a new Director.Shareholder and they simply refuse to discuss the business with anyone other than the new and inexperienced Director until the account is open. To open the account, they ask all of the questions that the new Director's Accountant would ordinarily answer, but they don't/won't talk to him UNTIL the account is open.

Months later .............................................................

Focus on this one Vince Cable .......... or are you and Mr Osborne the cause of it. Perhaps you are so interested in Money Laundering which, of course, every new company is likely to be guilty of, that you do not realise the consequences of the scrutiny that the Banks are carrying out. God forbid that you or any of your uncivil servants would want to get into business.

If you want to stop money laundering, concentrate on those who have a need to, not ordinary businesses. And while I'm at it - stop M Hodge et al whingeing on about the "immoral" large company tax "dodgers". There's nothing MORAL about TAX. And there's nothin IMMORAL about LEGALLY minimising it. If you don't like them taking advantage of the holes in the legislation (probably purposely built in by your tax drafting consultants) then CHANGE THE LAWS.

Lets hope that some of start up companies survive long enough to be in a position to concern themselves about excessive regulations and taxes.

AND - if you don't get your Xmas present on time this year because of a shortage of Truckers, then have a word with the EU Bureaucrats at the root of it.


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