Starting a Business - The First Steps

Are you contemplating starting your own business? If so, youíll know itís an exciting, yet daunting prospect. Even so, it is important to ensure that every decision you take is the right one for your business.

To start with, you should prepare a full business plan and establish sources of funds and tax-efficient borrowing.

Your business plan should set out what your business is going to do, detail the research you have carried out to prove that a market exists for your product or service, and give projected figures for the first six to twelve months of trading.

You should get yourself an accountant if you do not already have one, and discuss with them whether your business needs a PAYE scheme or should be VAT registered.

An accountant will also help you assess the business structure that will best meet your needs: sole trader, partnership, limited liability partnership (LLP) or limited company (Ltd company).

There are both advantages and disadvantages for each structure with respect to control, perception and costs. Another important consideration is selecting the right year-end for your business.

If you plan to become self-employed, failure to notify the Inland Revenue within three months of the last day of the month in which the self-employment begins will result in a £100 penalty.

There are several reasons why a limited company is often considered better than working as a sole trader or in a partnership.

Forming a limited company can make sense when the limitation of liability is important.

Trading through a limited company can also be an effective way of sheltering profits from personal tax as profits paid out in the form of salaries, bonuses or dividends will normally be taxable at an individualís top rate, whereas profits retained within the company can be taxed at a rate as low as 0 per cent.

Although leaving profits in your company can be tax efficient, you need money to live on. You should take professional advice as to the most advantageous ways for you to extract profit from your company. A salary may meet most of your needs, but donít overlook the use of benefits in kind and dividends, which may save you income tax and could also result in a lower National Insurance bill.

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