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Laying the financial groundwork for your startup

Updated: Mar 12, 2019

Starting a business sounds easy - you have an idea; you start a business - but in reality there is a lot of organisational and financial admin you need to undertake before you can legally and compliantly trade.


Pay careful attention to the following and you’ll get started on the right foot; it’s so much harder to fix these issues once you’re underway.


Choose a company structure


First things first: you’ll need to set up the company and register it with Companies House. To do this, you’ll need to provide the following information:


● A name for your company

● A registered office (this can even be your accountant’s address)

● Memorandum and articles of association

● Director/s

● An idea of what the share capital and who the shareholders will be

● Inform Companies House of Persons of Significant Control (PSC) - usually those with at least 25% shareholding


Once you’re incorporated, you’ll need to submit accounts and compliance statements annually. A specialist startup accountant will be able to take this burden away from you, and ensure you’re set up and structured correctly for your business. They’ll also be able to advise whether a Limited Company structure is right for you, or whether you’ll be better off as a sole trader, or a partnership / limited liability partnership.


Register for taxes and VAT


Your startup accountant can help you to create an account on HMRC Gateway, which will then enable you to add any taxes you’re liable for. The most important of these is Corporation Tax; you automatically become liable for this once you create a company at Companies House. The first Corporation Tax return becomes due 12 months from the date of incorporation, and you will need to attach a full set of statutory accounts.


You’ll also need to consider VAT - all UK businesses must register once annual turnover exceeds £85k. Once you register, you can reclaim VAT paid on goods and services purchased for use in your business - but you will also need to charge VAT on all UK sales. Consider your pricing with and without VAT before you register; if your customers are not VAT-registered, they won’t be able to claim your VAT back.


Registering for taxes and dealing with reporting can be incredibly daunting for a new business. Compare accountants and find a reliable small business accountant who can help get these foundations set up correctly, helping to avoid issues down the line.


Register for PAYE


Even if you’re not employing any staff, you’ll still need to pay yourself, which means you’ll need to register with HMRC for PAYE. They’ll ask for:


● Company information (registered office, registration number)

● Directors’ personal details (address, UTR number, National Insurance number)

● Bank account details

● Expected number of employees in the next year

● Date you will be paying your first employee


Once registered - your startup accountant can help get this sorted - you’ll need to run payroll regularly and submit an RTI file on a monthly basis. This informs HMRC of the PAYE, NIC and any student loans deducted from employees. Your accounting software can do this, or your accountant can register and file on your behalf.


Start tracking everything


Once you incorporate a company, you come under scrutiny from HMRC, so it’s important to keep track of everything from day one - it will help you to pinpoint issues and will help your startup accountant to do reporting on your behalf.


Cloud accounting systems such as Xero, Quickbooks and Sage make accounting easy by linking directly to your bank and to your accountant, and often having a direct link to HMRC for reporting. If your startup accountant doesn’t use cloud accounting, it’s time to compare accountants and find a new one - the risk of manual accounting isn’t worth it.


Sort out a business bank account


If you’ve set up as a limited company, you will need to keep all business-related finances separate from your personal finances. Not only does a dedicated business bank account help you keep business cash clear, it can also bring certain advantages, such as making it easier to get an overdraft or a business loan at favourable rates.


Most major UK high street banks offer business accounts, but make sure your chosen bank links with your accounting software. A live link will make reconciling your accounts much easier, and will give you a complete real time view of your balances and transactions. Your startup accountant will be able to recommend a bank that will work well for your business and your accounting processes.


Investigate any licenses you may need


While you don’t necessarily need a license to set up a business, there are certain activities that may require one - for example, if you’re intending to play music, sell food, or trade in the street. While gov.uk is a great source of information when it comes to the legalities of trading, also check with your small business accountant.


Consider insurance


Even if you’re a solopreneur bootstrapping and building slowly, insurance is a must-have. At the very least, you’ll need professional indemnity if you’re selling a service, and product insurance if you’re selling goods. If you’re employing staff, you should also consider employment liability insurance. Speak to a specialist; often trade associations can be a good starting place, or speak with your accountant for recommendations.


Seek help to get the basics in place


As with other aspects of running a small business, there is plenty that can trip up even the best-intentioned director here. To lay the right financial groundwork, seek help before you truly take off. A dedicated startup accountant is a good place to start; they can help you to file the right notices and get the right foundations in place so you can focus on growing your business.


But choosing a small business accountant with the right credentials can be difficult. PROfiltr takes the pain out of finding a good accountant; compare accountants here.