Starting a business is a stressful and exciting time. There are so many things to consider – branding, employees, strategy, and more.
This blog will outline some of the key things you should be thinking about when starting your own business in terms of financial planning and requirements. We’ll go through any information available in terms of business structure and plans, revenue requirements, and claimable expenses – so you’ll be as prepared as possible for registering your business!
Business Registration
Let’s start off with business structure. Business structure takes into account your type of business, where you work and whether you take people on to help. Most businesses register as a sole trader, limited company, or partnership.
- If you are classed as self-employed for tax purposes, personally responsible for your business’s debts, and have some accounting responsibilities, you would need to set up as a sole trader business.
- If you are classed as self-employed for tax purposes but share responsibilities for your business’s debts and have accounting responsibilities, you would be considered a partnership – which is the simplest way for 2 or more people to run a business together.
- If you are an employee of the limited company and are classed as employed for tax purposes, have separate personal finances to that of the business, and the business has more reporting and management responsibilities – you have formed a limited company.
All of these types of businesses need to be registered, as well as where you work, and whether you are an employer. Further information about business structures and their implications can be found on the UK Government website here.
Developing a business plan is also advised by HMRC, as well as business advisors to help outline goals and forecast financial performance. A business plan is essential for you to clarify your business idea – not just to other people, but to yourself. Business plans allow you to spot potential problems, set out your goals, and measure your progress. If you have a clear and concise business plan, you are more equipped to convince customers, suppliers, and potential employees to support you.
You can download a free business plan template here, and find some more detailed information about what to include here.
Another point to consider is VAT Registration Threshold. The VAT threshold is £90,000 for 2024/25. If your turnover exceeds this amount, you are required to register for VAT – which you can do online.
If you are registering a limited company, you’ll need:
- Your companies registration number
- Your business’s back account details
- Your UTR
- Details of your annual turnover
You’ll also be asked to provide information about your Self Assessment, your Corporation Tax, and your PAYE.
If you are registering as an individual or as a partnership, you’ll need:
- Your National Insurance number
- An identity document, like a passport or driving licence
- Your bank details
- Your UTR
- Details of your annual turnover
You’ll also be required to provide information on your Self Assessment return, payslips, and P60.
Revenue Requirements
Now, let’s take a look at the inland revenue (HMRC) requirements for self-employed individuals.
You must register as self-employed with HMRC within 3 months of starting your business – which you can find out more about here. Registering allows you to pay Income Tax and National Insurance contributions on your earnings, and also means you can claim certain business expenses to reduce your taxable income. Once registered, you’ll also receive guidance on maintaining proper records of your income and expenses.
As part of being registered as self-employed, you must file an annual self-assessment tax return. This is how you report your income, expenses, and calculate the tax you owe. If you are submitting a paper return, you must submit it by midnight 31st October 2024. If you’re doing an online tax return, you must submit by midnight 31st January. Find out more about process for Self Assessment tax returns here.
In terms of National Insurance Contributions (NICs), the class you pay depends on your profits. If your profits are £6,725 or more a year, Class 2 contributions are treated as having been paid to protect your National Insurance record. This means you do not have to pay Class 2 contributions. If your profits are less than £6,725 a year, you do not have to pay anything, but you can choose to pay voluntary Class 2 contributions. If your profits are more than £12,570, you must pay Class 4 contributions. The rates and thresholds for Class 2 and Class 4 NICs are outlined in more detail here.
Something else to keep in mind is Making Tax Digital (MTD) strategy. This is designed to help reduce the tax gap by requiring business and individuals to keep digital records, use software that works with MTD, and submit updates every quarter, bringing the tax system closer to real-time. At the moment, MTD applies to self-employed individuals earning above £85,000, and you can find an overview of the strategy here.
Claimable Expenses
Finally, let’s outline the expenses that self-employed individuals can claim.
If you’re self-employed, your business will have running costs, some of which you can deduct to work out your taxable profits – as long as these are allowable expenses. HMRC outlines the allowable expenses for business-related costs such as office supplies, travel, and vehicle running costs.
If your business is run from home, you may be able to claim a proportion of your costs for household bills such as:
- Heating
- Electricity
- Council Tax
- Mortgage interest or rent
- Internet and telephone use
Expenses related to professional services are also allowable. You can claim costs for the hiring of accountants, solicitors, surveyors, and architects for business reasons, and as well as professional indemnity insurance premiums. However, you can’t claim for the legal costs of buying property or machinery or fines for breaking the law.
Take a look here for more details on what you can claim, and how to claim it.
So there you have it! We hope that this blog has provided you with some context and resources to support you as you start your business journey – and if you need further advice and clarification, please contact me here.