INFORMATION

This is a special mobile-friendly website produced by an accountant in Carlisle. You can also look at it on a laptop or desktop computer. Here we give general information for new businesses. You may jump between sections on this page using the small coloured buttons:

 

STARTING UP

If you are starting in business then we suggest that you talk to an accountant as soon as possible. You can start as a sole trader or partnership and don’t have to set up a company straight away. You don’t have to register for VAT straight away either. You need to keep all your bank statements, invoices received, vouchers, receipts, invoices or bills which you issue, cheque book stubs, paying-in books and all other documentation related to your business. Just put everything in a box and give it to your accountant when the accounts need to be prepared. That does mean everything!

One good system is to buy two concertina folders straight away, with one compartment for each month. At the year end give one folder to your accountant with the records in it, and keep the other for current activity. When you get the folder back from the accountant, transfer the contents to a cheap file for long-term storage, and re-use the concertina folder in the third year.

If you have cash takings, then you will need to keep a record. You can use a system like the Simplex D or the Evrite 707. We have a free system which you can download from our main website in batches of three months.

If all your income is through your bank account, then you may not need to keep books at all. We will just scan your bank statements with new technology, and we are not really bothered whether you keep books or not.

 

VALUE ADDED TAX

The VAT threshold is £83,000 and you must register for VAT if you make taxable supplies of goods or services and your turnover exceeds this limit. If you are anywhere near the limit, then you should check every month by looking back over twelve months. This “moving window” requirement is over the top, but it’s the law! Ask an accountant such as us to help you. We have software which makes VAT monitoring quick and easy, and usually do this as a one-off free service.

In addition, if you anticipate that you will exceed this threshold in the next month alone, perhaps by getting a very big order, then you must register for VAT at once.

After registering for VAT, you will need to submit a VAT return every three months. We can do this for you, and will give you a 25% discount on the accounts fee if we do. Just ask us for a quotation.

The VAT threshold has been £83,000 since 1st April 2016.

 

TRADING

If you inherit something and sell it on the Internet at an online auction site, then you are not trading and do not need to pay income tax, although you may need to pay capital gains tax on high-value items. Likewise you are not trading if you are just clearing out a garage or attic at a car boot sale.

However, if you get the taste for selling and start buying goods to resell them, then you are trading and you need to tell HM Revenue & Customs within three months using form CWF1. Ask an accountant to help you.

You also need to tell the Revenue on form CWF1 if you provide services for profit or personal income.

 

INCORPORATION

Many businesses start as a sole trader or partnership, and become a company later. The usual time to think about incorporation is when your profits are high enough for you to be paying income tax at a higher rate, which is also called surtax. Your accountant can advise you on this. Incorporation can mean lower taxes, but it also means more bureaucracy and higher accountancy fees. We would love you to incorporate, but not too quickly! We have a separate page for new companies.

Some sole traders may find that if they do a lot of work for one customer, then there is a risk that HM Revenue & Customs will say that they are really an employee, and charge extra tax and national insurance to that customer. This is known as IR35 risk after the number of a circular from the Revenue. Some prospective customers may insist on only dealing with companies so they do not face IR35 risk, which is instead borne by the company. This is a second motive for incorporation even when there are no obvious tax advantages.

A third motive for incorporation is that a company can have limited liability. This matters in some industries. If a company is sued then company assets may be at risk, but individual shareholders do not face any additional risk beyond losing the value of their shares.

A fourth motive for incorporation is to own a company name which is co-ordinated with a website address. You can just keep the company going as a dormant company for a few years while trading as a similar name. We can advise on this.

A fifth motive for incorporation is simply to have a self-contained business for a variety of reasons.

These five motives for incorporation are roughly the order in which they are met with in practice, with tax being the commonest motive.

 

 

NOTICE

While every care has been taken in the preparation of this page, no liability will be accepted for any inaccuracies or incompleteness in the information presented. The intention of this page is to warn about common pitfalls, and you should see an accountant the moment you have any concerns.