Start-Up Mini Guide
Start-Up Mini Guide
Our experience suggests there are typically 5 steps to starting a new company. So we have listed these below and given some pointers for anyone considering setting up their own company.
- Choosing the right structure
- Early decisions
- Issuing shares and fund-raising
- Tax efficiency for you and your company
- Accounting & business Support
1. Choosing the right Structure – LTD, LLP, or a Sole Trader?
Limited companies remain by far the most popular business structures, and this is despite increasing tax rates in recent years.
Limited companies are widely understood (by founders, banks and investors alike), easily set up and of course come with limited liability for the owners. The ability to withdraw retained profits and pay associated taxes on a timetable that suits the business owners is also a popular attribute.
That said LLPs and Sole Trader structures do have their place, LLPs for the ease of transfer of ownership, and Sole Traders for smaller businesses, where the extra cost of maintaining a limited company or LLP, including the cost of submitting financial statements to Companies House, can be an important factor.
We can talk you through the options and help you settle on the solution that is right for you. We can also help with all the relevant paperwork and submissions. If you choose the Limited Company or LLP route, we organise the incorporation for you for a fixed fee.
2. Early Decisions
Important things to consider:
- Company name – Pick something that is relevant, memorable, available and where necessary has the associated web address available.
- Trading address – Are you going to work from home, rent dedicated office space, use a virtual office or use ‘touch down’ space within a shared location?
- Choosing a year end – Think about likely patterns to your business plan, are you going to be busy in the summer and quiet in the winter. Should you pin it to the calendar year or tax year?
- Choosing a bank – This is a laborious process and will involve lots of paperwork and a visit to a branch. An existing relationship will help in the big four, otherwise you may find the challenger banks more engaging.
- Choose accounting software – we are Xero partners, and can help you get started. Dext is another firm we work with, for the processing of purchase invoices and expenses.
- Who’s doing what? – If you’re on your own, do you need support e.g. like a bookkeeper. If you are starting a business with colleagues, assign roles and make sure someone takes the lead.
3. Issuing shares and fund raising
This may be as simple as arranging the incorporation with you receiving 1 x £1 share, or 1 share each if you have business partners.
More complex solutions may involve discussions around:
- Whether to involve family members in the ownership structure
- Business partners with different equity stakes
- External investors
There are fantastic tax reliefs available for those investing in start-ups, particularly the Enterprise Investment Scheme, and its smaller sibling the Seed Enterprise Investment Scheme. Both schemes allow a percentage of the amount invested to be offset against income tax in the year of investment and 0% CGT on a profitable exit.
4. Tax efficiency for you and your company
Matters for you to consider:
- For you personally
- The salary you draw may be a matter of negotiation with your investors. However, if you are the only shareholder, then its likely that it will be more efficient for you to draw a small salary (of around £9,000 per annum) and top up when you wish to by declaring dividends. This works particularly well if you are starting from scratch and wish to reinvest profits in the early days.
- Whilst you will not get access to EIS when you invest in shares in your company, SEIS is available in some circumstances. Down the line, when you sell your stake, you may also access to Business Asset Disposal Relief (Known as Entrepreneur’s Relief prior to 6 April 2020) giving you access to a beneficial CGT rate when you eventually sell your shake.
- Its common practice for business owners to subscribe to a small number of shares, and if further funds are required, to invest via a director loan. The great benefit here is that whilst the shareholding is maintained, the loan can be repaid without tax implication once the company is in a position to do so.
- For the company: Research & Development tax relief and staff incentive schemes
- R&D Tax relief – HMRC supports certain types of R&D expenditure, and provides tax relief and/ or cash payments for doing so.
- Staff Incentive Schemes – tax efficient for staff if set up in a certain way an approved by HMRC.
5. On-going accounting and business support
Once the business is established, you will need to consider how to set up your accounting function. From bookkeeping to management information and year end accounts, your requirements are likely to depend on
- The volume and complexity of transactions to be processed
- The in-house skills available to you
- Whether you are a natural team builder or prefer to contract services out where possible
- The demands placed on you by investors, other Directors/shareholders and/or any external bodies (e.g. the FCA or other industry regulators).
At Haggards, we will tailor our service to your needs. We have been doing this, and doing it well since 2004.