Running your own business is often all about taking a leap of faith firmly out of your comfort zone. So what are the 10 key money areas to consider in your first 10 months in business?
Should you set up as a sole trader or a limited company? This is one area where you can get a huge amount of conflicting advise. Things are also changing with the announcements in the most recent budget which have changed the taxation of dividends. In a nutshell:
- If you are not expecting your annual profits to be high (say less than £25,000)
- Your business isn’t going to be very risky (so limiting your liability isn’t as much of an issue)
- And you are perhaps not sure how long you will keep going for as you don’t know for sure if it will work out
then it is quicker and easier to start off as self-employed. If the answers to any of the above are different then it is worth investigating the limited company route.
One of the first things you need to do is figure out how to invoice your customers. If you don’t invoice them, you won’t get paid. Make sure you put all of the relevant information on your invoices to make sure they are valid, including things like your bank account details if you want to be paid online.
3. Setting up a bank account
If you are operating through a limited company then legally you HAVE to have a separate bank account in the limited company name. If you are self-employed then you don’t – but it is usually easier to understand your business finances if you do. Perhaps you have a second current account that you are not currently using, or could set a new one up. Avoiding a business account in the short term will save you in bank charges.
This word often sounds a bit scary, but it is simply making sure that you keep track of all your numbers. From lists of sales invoices that you can tick off when paid, to a spreadsheet detailing your bank transactions so you know what the different payments were for, you need some way to add up your ins and outs. As Making Tax Digital approaches it will be increasingly important, and really you will need online accounting software, get in control of it as quickly as you can.
5. Registering with HMRC
Assuming you are starting off as self-employed, you need to notify HM Revenue & Customs. You will be put on the list of people who need to do a tax return each year. If you don’t let HMRC know you are self-employed then you risk being fined.
6.Understanding what expenses are tax deductible
This is one of the main areas that will save you tax. From travel expenses to working from home to your mobile phone make sure you understand what you can claim. and what you can’t.
7. Storing your receipts
Make sure you keep ALL your receipts, and where possible get itemised receipts instead of just getting credit card stubs. You can scan and keep them electronically instead of keeping hard copies, which also makes them easier to back up and less likely to fade. Alternatively there are some fabulous apps out there to make this whole process easier, such as Receipt Bank.
8. Putting money aside for tax
If this is the first time you have been out of the world of employment then the tax bill at the end of the year can come as a real shock. Put some money aside each month to pay your tax bill (20% is a good rule of thumb, although the percentage you need to save will vary depending on your total taxable income), if you put it somewhere like an ISA then you can also earn nice tax free interest on it. It won’t just be the tax bill – you may also have to make payments on account.
9. Completing your tax return
At some point you will have to file a tax return based on your bookkeeping records. Scary I know, but unavoidable. If however you are keeping your bookkeeping up to date you will find completing your tax return a whole lot less stressful.
10. Registering for VAT
For a lot of businesses there is no need to worry about VAT. Just bear in mind that the VAT registration threshold for compulsory registration is £85,000 turnover in a 12 month period (2017-2018 tax year). You can voluntarily register if your turnover is below that threshold, which can be great if either you have to pay out a lot of VAT (e.g. if you are in manufacturing), or if you can go on the flat rate scheme as a consultant or similar. Mind out though for the new Limited Cost Trader rules!