Overview

Top tip

• Don't start a new business until you have worked out your business plan.
• It does not have to be a long plan, just enough to map out your goals and to provide a checklist of things to do.
• The secret of running a successful business is to never stop planning and to keep following and updating your business plan.

Start here

1. Are you starting work, a new business or being offered a 'gig' job?

There are three things to consider:

• What is the difference between being self-employed and employed?
• Will the tax rules treat you as employed or self-employed?
• What do you really want to do?

You might not be thinking you are starting a business. Your employer may decide that you are self-employed alternatively the tax rules may deem that you are someone's employee and not self-employed after all.

Useful FREEVIEW guides if you are unsure whether you are self-employed or not:

• Starting work: Self-employed or Employed?
• Starting work: Special rules for certain types of worker
• Starting work: How employees are taxed
• Starting work: How the self-employed are taxed

2. If you are going to start your own business you will be 'self-employed' however that takes different forms:

• Which 'trading style' or 'trading vehicle' is going to be best for you?
• Your options are operating as:
  • A sole trader (running a business on your own or with employees).
  • A partner in a partnership (running a business with someone else).
  • A director and shareholder: running your own company (on your own or with others).

These guides take you into more detail:

• Trading vehicles: introducing the different trading vehicles used in the UK and Europe and what they mean.
• Which trading structure is suitable for me? A concise side-by-side comparison of the different trading vehicles used in the UK.
• Partnerships: a concise comparison of the different types of partnership recognised in the UK.

3. Looking at tax advantages and cost savings: is there any difference or advantage over the different trading styles and trading vehicles?

See

• Sole trader v limited company: an 'At a glance' comparison of tax and legal treatment.
• Sole trader v limited company: Tax differences and savings (2020/21): which is really most tax-efficient? 
• Will I pay less tax if I trade via an LLP? Comparing a company and a Limited Liability Partnership (LLP).

4. What are the legal requirements to set up in your choice of trading vehicle?

Partnerships

• There are different types of partnerships in UK law each covered by their respective partnership acts setting out various defaults.
• It is advisable to draw up an agreement to suit the nature of the partnership.
• We don't provide a template at this time because partnerships vary so greatly in size and activities that we don't think that a 'one size fits all' approach is ever suitable.
• See our guide to Partnerships.

Companies

• If you chose to trade through a company, the starting point is to form a new company with Companies House.
• Companies can be unlimited, limited by guarantee or limited by shares.
• If you are running a non-for-profit organisation then you may consider being limited by guarantee.
• The majority of trading companies are limited by shares.
  • Before you get started you need to plan your share classes, consider whether to modify the Articles of Association and/or draw up a shareholders' agreement. You can also make amendments following formation. 
  • You must also appoint first directors and a company secretary, and decide on the location of the company's official address, its Registered Office.
  • See How to form a company.

Our guide Starting a company: Start here covers:

• Issuing new shares: how to issue new shares in a company together with a summary of planning points and the potential pitfalls if you fail to make a qualifying issue for tax purposes.
• Share capital: What's an ordinary share: how to determine whether a share is an ‘ordinary share’ or not and what are the ensuing tax consequences if you find that a share is not ‘ordinary’.
• Share certificate template (freeview)
• Shareholders' Agreement: template for shareholders.
• Setting up different share classes (index): start here to learn about setting up different share classes, why these can be useful for family companies, what happens if you give employees shares and tax planning tips.
• Family investment companies: if you are not trading but managing assets you may find that a family investment company is a cost-effective alternative to running a trust.
• Investment reliefs: tax relief for you or for your external investors.
• Research & Development: tax reliefs for different sizes of company whether making losses or subcontracting.

Basic formalities and legal agreements

Companies

See Start-up index for companies 

Partnerships

See Partnerships

• There are different types of partnerships in UK law, each covered by their respective partnership acts setting out various defaults.
• It is advisable to draw up an agreement to suit the nature of the partnership.
• We don't provide a template at this time because partnerships vary so greatly in size and activities that we don't think that a 'one size fits all' approach is ever suitable.

Registration with HM Revenue & Customs

If you are in business, whether as:

• A self-employed individual.
• An individual in a partnership.
• A company.

You are required to open an account on the Government Gateway www.gov.uk and register with HMRC.

Individuals

• Under Self Assessment you must notify HMRC if you have taxable income or chargeable capital gains in a tax year for either Income Tax or Corporation Tax.
• When you start your business. select a suitable accounting basis period when you register.
  

Employers (individuals, partnerships or companies)

• Separate online notification and registration with HMRC are required if you take on workers and employees.
• You must assess any worker's employment status.
• Certain categories of workers are automatically deemed to be employees for tax purposes (this does not always confer any employment rights on them).
• You must pay employees via a payroll and deduct PAYE & Real-Time Information reporting (RTI).
• If you trade via a company and you are paying yourself a salary or any benefits, or if you trade via any type of business entity and you take on employees or pay your directors, or you make available employment type benefits, you will need to set up a PAYE scheme.
• See RTI for employers.

Construction industry Employers: Construction Industry Scheme (CIS) 

• If you are a contractor you must operate the CIS on your workers unless they are employees or their work is outside the CIS scheme.
• If you are a sub-contractor you must register with HMRC otherwise you will have tax deducted from your income at 30%.
• See CIS: Contractors and Subcontractors.

VAT

You must register for VAT if:

• You expect your turnover in the next 30 days to exceed the registration threshold of £85,000 in 2020/21 see Registering for VAT. 
• You have taken over a business as a Transfer of a going concern.
• You have taken over the business premises of a VAT registered business and are carrying on a similar trade, see VAT: Taking over an existing business.
• If you register for VAT after 1 April 2019 you are mandated into Making Tax Digital for VAT.
• See MVD tool: who has to join?

If you don't have to register for VAT you can choose to do so if you will be making taxable supplies.

See VAT: Starting in business

Accounting for tax and record keeping: sole traders and partnerships

Measures that are supposed to simplify accounting for tax, but for small unincorporated businesses give you the difficult choice of whether to elect to use cash basis accounting or use a system of fixed-rate expenses.

• Neither method is in practice simple to use: each has several drawbacks.
• We compare the different systems: keep an open mind about which system to use until trading is underway.
• See Accounting: Simpler Income Tax (cash basis)/fixed expenses

Accounting: companies

• Companies file their accounts with Companies House, in different formats according to their size.
• Small companies have the option of filing abbreviated accounts or micro-entity accounts.
• Company accounts are prepared according to Generally Accepted Accounting Practice (GAAP).
• See UK GAAP & FRS 

 Miscellaneous FAQs

• Will I need a pension scheme?

Tax Planning

• Tax planning for directors (index)

See Indexes to essential guides in this series