According to the latest estimates, over 800,000 new businesses will be registered in the UK by the end of the fiscal year 2021. In recent years, the entrepreneurial community in the UK has expanded significantly as more people become eager to start something on their own.
However, starting a business anywhere is not an easy task. And in the UK, where business registration, finance, and tax matters are complex, it becomes even more difficult for aspiring businesspeople to launch their new ventures. This, however, does not mean that doing business in the UK is difficult by any means.
Having a competent financial and tax advisor, a business planner, and closely following the UK government laws on setting up a business can yield successful results for everyone.
The need is to be thorough in your homework, diligent in your market research, and absolutely meticulous in your business registration process. At the end of the process awaits a thriving and competitive market that welcomes new businesses wholeheartedly.
In this post, we’ll be telling you everything you should know about setting up a business in the UK, including giving important finance and tax advice.
Why Start Your Own Business?
Before you begin your quest to launch a business in the UK, ask yourself this question. It’s essential for you to know the reason or goal behind setting up your business to keep yourself motivated.
Creative Freedom
Doing a business of your own allows you to enjoy creative freedom. You can work on your ideas, do things according to your creativity, and find reward in liberating yourself from corporate norms.
Work-Life Balance
Although it’s tremendously difficult to have free time when doing your business, it still offers a better work-life balance. This is because you can conveniently manage your work schedule with your personal life commitments and live fulfilling lives.
Control of Income and Expenses
Unlike a job where you only get a limited income and have to control your expenses, a business lets you plan your finances. You may have to wait a while before your business becomes profitable, but managing expenses is fully in your control.
Long-Term Stability
In a highly volatile and uncertain economy, having long-term financial stability is essential. Therefore, 64 per cent of the workforce in the UK is keen to set up their own business.
Rewarding and Fulfilling Experience
Starting a business lets you control your own life, unlike corporate jobs, where you work for others for a fixed salary and on their schedule. In the end, having your business is more rewarding and fulfilling for ambitious individuals.
How to Set Up a Business in the UK?
Let’s now move on to the big part of this post. Here’s a step-by-step guide on how to establish a business from scratch in the UK. If you are not interested in starting from scratch, then you can always consider franchising.
Come Up With an Idea
This is undoubtedly the prerequisite of starting a business. Conceptualise your business and think of the product/service you’ll be offering to the market. You don’t have to start big. Setting up a waffle cart can also be a business idea.
Devise a Business Plan
However, for more large-scale startups, you must devise a business plan. A business plan should contain at least five-year plans you have for your business. A business plan should be professional, vetted by a corporate advisor, and must contain the following:
- Market research
- Funding plan
- Marketing strategy
- Financial strategy
- Forecasts and estimates
- Executive summary and details of your product/service
Seek Expert Advice
Starting a business is surely rewarding and fulfilling; however, it shouldn’t be done without an expert’s help. When you have developed a business plan, reach out for an accountant consultation or a business strategist’s expert advice.
Think About Financing
Financing a business may be the most difficult part. But fortunately, there are plenty of ways to finance a startup in the UK. Learn about your financing options and consider one of the following:
- Bank Loans: You can reach out to a bank to apply for a business loan. However, you must be a UK citizen and not have any prior debt to claim a business loan from the bank.
- Government-Backed Loans: The government of the UK offers £5,000 to £25,000 startup loans to entrepreneurs.
- Structured/ Unstructured Loans: Non-governmental organisations also offer structured/unstructured business loans if you meet their criteria.
- Venture Capitalists: You can also connect with venture capitalists to raise funds for your business. However, venture capitalists require you to return in the form of a certain percentage of your business’s profits.
Some Considerations
While individuals from all nationalities can start a business in the UK, there are some variations in the criteria. It’s essential that you hire a chartered accountant to help you through the process of raising capital.
Choose a Business Name
Once you have devised a business plan and thought through the finances, you must create a business name. There are no hard and fast rules on business names, but you must make sure that your business name doesn’t replicate another existing business in the country.
Choose a Business Structure
The UK has many types of business structures to choose from. Choosing a business structure will help you in planning for tax and better knowing your liabilities. Here are some of the business structures you can choose from.
Sole Proprietorship
A sole proprietorship or sole trader is the most common type of small business structure. There are over three million businesses registered as sole proprietorships in the country. There are numerous advantages to becoming a sole trader, including simplified tax processes. However, as a sole proprietor, your liabilities will be the same as your business, and in case of default, your assets are vulnerable.
Limited Liability Company
Most financial and tax specialists recommend that you opt for a limited liability company. As the owner of a limited liability company, you will not be personally liable for your business’s finances, and none of your assets will be threatened should your business default. A limited liability company must have a director (owner) and a member.
General Partnership
A general partnership is very much like a private limited company but with two or more partners. All the partners of the general partnership entity will not be personally liable for the business’s finances but will be obliged to pay income tax alongside the corporate tax. If you’re forming a partnership, opting for this structure will protect you and your partners.
Limited Liability Partnership
A limited liability partnership is quite different from a general partnership. In a limited liability partnership, one is a general partner, and the other is a limited partner. The limited partner is only liable for the amount they invest in a business, while the general partner is liable for all the business’s debts and finances.
Pros and Cons of Sole Proprietorship
Here are the benefits and downsides of running a sole proprietorship:
- Single-handed control of operations
- Low costs to start a business
- Simplified and easily changeable business structure
- Unlimited liability, risks, and limited capacity are the cons of this structure
Pros and Cons of Limited Liability
Here are the pros and cons of limited liability:
Pros:
- Limited liability and risk
- Easier to manage operations with multiple people on board
Cons:
- You need more than one person to start
- Can become complex to manage the taxes
Pros and Cons of General Partnership
Here are the pros and cons of a general partnership you should know:
Pros:
- Shared pool of knowledge and resources
- Less risk for an individual
Cons:
- The risk of disputes and malicious practices of individuals that may negatively impact the business
Pros and Cons of Limited Liability Partnership
Here are the benefits and downsides of a limited liability partnership:
Pros
- You can raise more capital with a partner’s investment
- You have the opportunity to expand and diversify with more partners
Cons
- Sharing of profits against a limited risk for the limited partner
- You’re more liable to the debts and bear more burden of running a business
Hire a Chartered Accountant
Once you have chosen a business structure, proceed to hire a chartered accountant. A Chartered Tax Adviser & Accountant must be registered with one of the chartered accountant bodies in the UK and will bring valuable expert insights to your business. A chartered accountant can help you register your business as well as devise a tax strategy.
Get Your Company Registered
The next step is the most important one to officially launch a business in the UK. You have to register your business with HMRC and kick-start your entrepreneurial journey. Rest assured, a competent tax and financial advisor will look after this process for you and help you navigate the complexities of the law.
Pay Attention to Taxes
Next up, taxes. According to the UK government, all businesses must pay a corporate tax of 19 per cent. However, your income and corporate tax dynamics will vary depending on your business structure. Here’s a breakdown for you.
Tax for Sole Proprietorship
As a sole proprietor, you will be liable to pay income tax as well as National Insurance Contributions (NICs) against your business earnings. However, if you sell your business assets at some point, you’ll be liable to pay capital gain tax.
Tax for Limited Liability
You’re not bound to pay income tax as a limited liability company owner. But you will be paying a 19 per cent corporate tax on your business’s earnings.
Tax for General Partnership
Taxes for general partnerships are more complicated than other types of business structures. You’ll be liable to pay income tax, and so will your partner. However, your business’s corporate tax will be separately accounted for.
Tax for Limited Liability Partnership
In a limited liability, the general partner must pay an income tax and NICs. For a limited partner, the taxation remains the same as income tax against the business’s profits.
Open a Business Bank Account
Once you have sorted the taxes and finalised a business name, proceed to open a business bank account. A separate business account from your personal account will allow you to be more accurate about your business expenses, transparent in your transactions, and help keep your finances well-sorted.
Hire a Team
After all the documentation and procedures, it’s time to kick-start your entrepreneurial journey officially. You may want to start by hiring a team for your business. You can either do it yourself or rely on a recruitment agency to help you.
Start Marketing
Once you have a team, an office, and the required capital, it’s time to market your business. Use social media, the internet, and all the tools at your disposal to venture into the market.
Continue to be Your Own Boss
There’s nothing better than starting your own business. It will allow you to enjoy creative freedom, have a rewarding career, and benefit from a more stable work-life balance. While the process of starting a business is lengthy, it’s surely fulfilling in the end.
For More Tax and Financial Advice, Check This Out!
If you are an aspiring business person, entrepreneur, or corporate worker looking to venture out on your own, then there’s no time better than now.
To learn about corporate taxes and seek tax advice from the most competent chartered tax advisors and accountants in the UK, reach out to IBISS & CO. The tax specialist firm has offices in London and Walsall and can help you with a wide number of accounting services and tax planning matters.
Whether you seek business and tax advice, planning for inheritance tax, RTI and payroll, VAT services, or help with tax investigations and disputes, IBISS & CO. is at your service. Connect with the Chartered Accountants at the firm today to get started.
