Monday, 8 August 2011

Your Business Structure

Business Structure

Having made the decision to take the plunge to become self-employed, it is important to decide upon the best legal and tax structure for your business.   The structure you choose dictates on several things including the way you are taxed and your exposure to creditors.

Sole Trader
This is the simplest way of becoming self employed. 
Sole Traders are required to prepare accounts each year and this forms the basis of any tax and National Insurance you are required to pay.
All profits are automatically your own.
The business of a sole trader is not separate from the owner’s personal affairs.
Any debts of the business are required to be paid by the owner.  This means that if your business doesn’t succeed, any personal assets (including your home) could be at risk.

A group of two or more people join forces to work together.  Partners share profits and are taxed in the same way as sole traders.
It is advisable that a Partnership Agreement is drawn up at the start.  This is a legally binding document which sets the rules of the Partnership (e.g. who will do what, how profits will be shared, what happens if one partner wants to leave the partnership).
All partners are “jointly and severally” liable for the debts of the partnership.  This means that if certain partners are unable to pay debts, the remaining partner(s) become liable for all the debt(s).

Limited Company
A Limited Company is a separate legal entity from its owner or owners.  It can trade, own assets and incur liabilities in its own right.  The company’s finances are separate to the owner’s finances. 
As the owner of a limited company, you own shares in that company. If you work in the company then you are also an employee of the company.  When a company makes a profit, the profits belong to the company.  As the owner of the company, you can be paid dividends, or as an employee you can be paid a salary.  You can use both to extract money from the company if you own and work for the company.  You need to consider IR35 before paying dividends.
Companies pay Corporation Tax on profits.  Profits are calculated after salaries have been paid, but before dividend payments are made.
An accountant can advise you on the best way to pay salaries and dividends.
There are more administrative factors to consider; you have to register your company with Companies House.  Every year, your accounts need to be sent to Companies House.  As you will also be paying yourself a salary you have to comply with PAYE procedures.
One of the main advantages of forming a Limited Company is that your personal liability is limited to the nominal share capital you invested.

Limited Liabality Partnerships
A Limited Liability Partnership is legally similar to a company.  It is administered like a company in all ways except for taxation where it is treated like a Partnership. That means you have all the statutory and administrative burden of a Company, but don’t have the tax and Nation Insurance flexibility.
LLP’s are most suitable for professional partnerships.

It is important to seek advice before deciding on the structure of your business, as there are several factors to take into account particularly in relation to tax issues and liability for debts.

An accountant can help and advise with most things.
It is probably best to seek advice from a solicitor when drawing up a partnership agreement.

Tuesday, 26 July 2011

Starting Your Own Business

Starting Your Own Business

Starting your own business can be very rewarding, but it can also be a very stressful time.  From the daily drudge of 9-5 with a salary at the end of the month to doing something you enjoy doing all the hours you can without any guarantees there will be much left at the end of the month to pay yourself.

But, many people do enter self-employment and are very successful. 

It may feel like the wrong time to be starting a new business - but is there ever a right time?  If you wait until the economy picks up you may have left it to late and someone could be doing what you dream of doing now.

At IQ Chartered Accountants in Scarborough we can help and advise you when starting up your business.  From helping you decide whether you should be a sole trader or a limited company, to doing your VAT returns and sorting out all your tax affairs with HMRC.

We offer a free initial consultation where you can tell us about your business idea and then we can advise you how we can help you.  There's no obligation for you to use us as your accountant - it's just free, no nonsense advice from people who are used to helping new start ups.

In fact (without wishing to blow our own trumpets), Business Link Yorkshire recognised our expertise and chose IQ Chartered Accountants to deliver their FAST Start programme for people becoming self-employed across the Yorkshire Region.

Please have a look at our website for further information about how we can help you.

You can also follow us on Twitter and Facebook where we regualrly post hints and tips on running your own business.