SILAI Business Advice

Starting a New Business | Expanding Your Business - Tax

From Customs and Excise

New Business and VAT Registration information on VAT in the UK, Starting a business, when to register for VAT and more…
So, we have the subjects of Tax, VAT and the most cost effective solution for business. As we will find out later on this page, there are 2 ways one can go into business either self employed or by forming a limited company, that’s all very well but what about tax? does it play a part depending on how you start your business? it certainly does!
So lets look at VAT, in the UK its 17.5% and you must register for it, this little snippet from the Inland Revenues website: “If you are in business, you must register for VAT if your turnover for the previous 12 months is above £67,000″ so VAT is pretty much self explanatory. Here is the link to the VAT page of the Inland Revenue:

Here is a link to show you a demo of how you fill your VAT return in online


Not all goods are vatable however, you should check with your accountant to see or alternatively you can call the helpline for the VAT service and all the other numbers.

So as we will find in the section below Trading as a .. there are benefits to be had on tax depending on the direction you want to go in. Please see below:

Trading as a business – Self Employed
So the plus points on this off course is you can just start trading prior to trading you would inform the Inland Revenue you have become self employed, this is mandatory by the way. So once you have informed the IR, you start and off you go.

The benefits of being Self-Employed include:
1. Flexibility , you can do as much or as little as you like with regards to your product sales, bearing in mind outflow equals inflow thus the more you produce the more you do earn.
2. You determine your own salary: another plus point, so whereas in a 9-5 job you may earn say £6 per hour, being self employed you could be earning £60 per hour, depending off course on the product you sell and its profitability.

Ok, so there are many other benefits to being self employed, lets look at the minus points too:
1. Tax: You will be required to “pay on account” by the Inland Revue each year, this would be considered to be mandatory, in addition its follows a tax return so you have to make allowances for this.
2. If anything goes wrong in the business you have set you will be personally responsible, therefore, say you incur a debt and don’t have the money to pay for it, you could have a situation were your home is at risk depending on the size of debt.
3. There may not be as many tax benefits in becoming self employed and thus you may be liable for a lot of charges.

Summary of being self employed:
In a nutshell, it has plus and minus points, its useful for those who are not able to form a limited company, but it can be costly and no protection for you if anything goes wrong.

Trading as a business – Limited Company

So lets take a look at running your business as a limited company, this is ideal for many people and it requires just 2 people to start as a limited company.
So pretty much anyone can form a limited company on the proviso you are not currently banned from being a director and not bankrupt. Firstly, you register a limited company, the cost of this varies from companies who specialise in company formation, some are outrageous in cost, others are not and off course you can always do it yourself, but lets keep it simple. I have listed companies on the right hand side who offer good value services – per the advertising but its a golden rule to get 3 quotes to ascertain the best package for you.
The cost of forming a limited company can vary greatly from £20 + VAT to £180 + VAT and more depending on factors like if you require the registering company to act as a company secretary or as a registered address, but lets presume you are trading from home and your partner will be the company secretary.

So lets look at the benefits shall we:
1. Limited Liability: In short means if anything goes wrong in the company – debt lodged etc you
would not be liable ordinarily, however check this with a good accountant. Your limited company becomes a person in the eyes of the law so any bother, the limited company gets it, under normal circumstances then, you would just walk away. Exception here is breaking the law which is another story altogether.

2. Dividends: You can have a dividend each year
3. Lots of tax incentives to be had, claiming tax relief on leasing of vehicles etc.

Lets now look at the minus points:

1. Corporation tax: This must be paid each year normally after the first 18 months of trading and you must send a set of accounts – trading summary to companies house, if you fail to submit a return you may lose your company or risk a fine for not filling a return and see your company listed to be removed in the London Evening Standard.
2. P.A.Y.E and National Insurance: You have to submit a return each quarter listing how much is due for staff payments, there is a plus point however, the IR send you a CD showing you how:)
3. VAT: This is a minus point, but is the law. Once you reach the ceiling in sales, VAT registration is required, this is the same for both self employed and for limited companies, if you fail to register you may be in deep soup, a fine and interest.

Summary of forming a limited company:
Its the suggested road perhaps for many and the benefits outweigh the inconvenience, you basically work for the limited company contra to working for yourself in the legal sense and the tax breaks and help may outweigh the negatives.

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