Starting up in business can be daunting. You want to get everything right from the outset but sometimes the choices are not straightforward. Almost all start-ups favour trading as a limited company but is this the right move? In my latest blog aimed at start-up businesses I take a look at the considerations you need to think about.
Many are tempted by the promise of lower taxes and for businesses projecting a solid profit from the outset this may well be the way to go. The UK rate of corporation tax is currently 20% and forecast to reduce further. Compare this to income tax rates coupled with National Insurance obligations and it is easy to see why this is a tempting proposal. However, new taxes on dividends have made the extraction of profit from your company more expensive. If you are forecasting a loss in the early years make sure you understand how you may be able to utilise this against other income.
A limited company provides a level of legal protection which may be beneficial depending upon your trade. As a separate legal entity a company has its own identity, is owned by shareholders and run by Directors. Make sure you understand this concept and the difference between the different roles. Borrowing from a bank may not be as straightforward in a company and many institutions are likely to require a personal guarantee over any lending. Also, don’t assume that the limited status separates you from all responsibilities. The ‘Veil of Incorporation’ can be lifted if the Director does not manage the company in the best interests of stakeholders.
A company must deliver company accounts each year and prepare a corporation tax return which is filed with HMRC. Companies are also required to file a conformation statement at Companies House. These responsibilities are often delegated to an accountant. The cost of this work should be compared to expected tax savings when making the decision on business structure. Make sure you appoint a reliable and competent accountant as the penalties for late submissions or missed deadlines can be significant.
At Lovewell Blake we encourage new business owners to talk to us early. We can guide you through the decision making process and even incorporate your company for you. Take a look at our New Business Kit
for a more detailed view on this subject and other considerations. Check out our dedicated Start-ups page
for more information or to meet with us.