Starting in business? This guide takes you through the key steps in getting started for tax, with links so that you can drill down for more detail.

Top tip

  • Don't start a new business until you have worked out a 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 is to never stop planning and to keep 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:

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 (runing a business on your own or with employees)
    • A partner in 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:

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

See

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

Partnerships

  • There are different types of partnership 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.

Companies

  • If you chose to trade though a company you need 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. 
  • See How to form a company.

We recommend our company section: Starting a company: start here this 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 (free view)
  • 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 your 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

Partnerships

See Partnerships

  • There are different types of partnership 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.

Companies

See A Start-Ups Index for companies 


Registration with HM Revenue & Customs

If you are in business, whether as:

  • a self employed individual,
  • an individual in partnership or
  • 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 is 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 alway 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:

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 which are supposed to simplify accounting for tax, small unincorporated businesses give you the difficult choice whether to elect to use cash basis accounting, you can also use a system of fixed rate 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

Tax Planning

Indexes to essential guides in these series

Starting up: Index

Guide & link Details

Starting work 1: Self employed or Employed?

What is the difference between being self employed and employed?

Starting work 2: special rules for certain types of worker

Are you starting new business or is it a 'gig' job?
Will the tax rules treat you as employed or self employed?

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.


Starting work 3 : how employees are taxed
.

How are employees taxed?

Starting work 4: how the self employed are taxed
.

What are the tax rules if you are self employed?

Trading vehicles

Running a new business:  understanding what 'trading styles' or 'trading vehicles' can you use?

 

Am going to be running a business? Is it a trade or an investment activity?

Is your intended business a trade, a profession or vocation, or an investment activity? The distinction is very important not only for tax purposes but also for setting up the right ownership structure.

Which trading structure is suitable for me


All things considered so far: which structure is going to work best? A sole trader, in partnership or running a company?

Partnerships

Can you explain the different types of partnerships?  A concise comparison of the different types of partnership recognised in the UK.

Sole trader v limited company
:

 "At a glance"  can we compare the tax and legal treatment between being a sole trader and running a company?

 
Sole trader v limited company: tax differences and savings

From a purely tax point of view, it is more efficient to run your business as a sole trader or as a company?

Will I pay less tax if I work via an LLP?

Different types of trading structure all have their own tax advantages and disadvantages: what are the key issues if you run a LLP?

Company start-ups index

These guides are for subscribers.

 Article & Link  What you get


How to start a company

How to form (incorporate) a private limited company and the points you need to consider.
Issuing shares How to issue new shares in a company together with a summary of some of the pitfalls if an issue fails to qualify for tax purposes.

Share capital: what's an ordinary share?

It sounds like daft detailing: however, set up the wrong type of share classes and you may lose all your tax reliefs

Share certificate
 

A template for creating share certificates

Shareholder Agreement

A basic template listing some of the key points that shareholders may wish to agree on.

Setting up different share classes: family companies

 Sometimes founders and owners may create special share classes for themselves. This guide explores the issues, pitfalls and planning points.

Director's Service Contracts

Top tips on creating a written service contract (as required by the Companies Act 2006)

New director registration forms

To register with Companies House and with HMRC

Which investment relief? IR, ER, SEIS or EIS

 

You are bringing in shareholders and investors: start here:

  • What is the difference between Entrepreneurs' Relief (ER) and Investors' Relief?
  • How do they compare to investments in Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)? 

Seed Enterprise Investment Scheme (SEIS)

 Under the SEIS, a taxpayer may invest up to £100,000 in a qualifying new start-up business and be eligible for income tax relief of 50 per cent.

Enterprise Investment Scheme (EIS)

The EIS provides investors with tax incentives in the form of a variety of Income Tax and Capital Gains Tax (CGT) reliefs to investors provided you invest in qualifying shares in an unquoted trading company.
 
Employee share schemes

 Start here is you are thinking of issuing shares or share optoins to any new, existing or potential directors, employees 

Enterprise Management Incentives (EMI)
 

 EMI is a tax incentivised share option scheme: it may be a simpler and more cost efficient alternative to directly issuing shares to directors and employees
 
Investors Relief

This is capital gains tax relief on the disposal of shares: investors need to be given the right kind of shares and meet certain conditions in order to meet this special relief.

Business Investment Relief

A special tax relief to encourage investment in the UK from overseas

Setting up share classes: directors and employees

Companies often create special classes of share to attract and reward directors and employees: this guide covers the key basics.
Entrepreneurs' Relief This is a CGT relief which is available on the disposal of business assets, including a disposals of qualifying shareholdings in trading companies or trading groups by an officer or employee. It is recommended to know the rules for this relief rules when you become a shareholder.
Research & Development (R & D) Relief 


Find out all about Research & Development and Patent Box tax reliefs:

  • R & D guides (subscribers) and answers to FAQs for our regular paid subscribers.
  • R & D Zone (extra premium content) contains fully worked through case studies together with practical know-how, R & D report templates.

 

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