Understanding setting up your business legally (UK) and all about taxes for your business

So you want to start a small business? But what do you need to start your business professionally and legally in the UK?

1: if you earn over £1,000 you have to register your business with the government (HMRC) This means filling out a self-assessment form every January. Choose if you want to be a sole business, or an LTD. The GOV website is quite straight forward, but if this makes you anxious have a trusted friend to help you.

2: If you earn over 12,500 you have to pay 20% tax on your earnings and this increases for the more you earn.

3: You will be required to keep records of what you have bought and spent, what you have earned, your bank statements, invoices, investments you have made, any email and messages to clients and suppliers regarding your business, bank slips for any payments made, your appointments dairy and PAYE for any staff. Keep yourself organized, should HMRC wish to see your paperwork.

4: If you work from home, you may need a work permit- you may need building permission if you plan to change a room or garage into a workspace. You can ask your local council about this and your mortgage advisor. You may not be able to work from home if you rent, or have a high traffic (lots of visitors to your home) You may also have to pay business rates.

5: Health and safety: you will have to make sure you comply with any health and safety measurements. For example if you use electrical equipment it will need to be PAT tested once a year by a trained electrician. If you make food, you will have to have a food hygiene certificate, if you handle chemicals you will need to follow COSH guidelines ect.

6: Data protection and insurance: if you have a website, it needs to have a privacy policy and if you keep your clients records you should be registered with the ICO. You can get privacy policy templates from offline. Make sure you have insurance to cover yourself, should anything happens – you don’t want to be caught out!

We cover all this in our ‘from concept and beyond’ as well as our financial planner in our shop if you need help to understand how to set up your small business.

What on earth are taxes in business? Yes, this can be a bit overwhelming if you are new to business.

If you have a small business and you are earning over £1000, you are required by law to register your small business. Then if your business earns over £12.570 a year you will have to pay 20% of that into tax with the government.

SOLE TRADERs and LTD’s: The accounting tax year starts in April, until the following April and then you will have to fill in your self-assessment by January 31st, to HMRC for the previous year. This means if you start your small business in July 2023 you will start your records for that month and year, until April 2024 and submit your tax return in by January 31st 2025, for the year of 2023-2024 and so forth. If you earn under £12,570 you will not have to pay any tax.

Understanding tax: If your earnings fall between £50,001 and £150,000, you’ll pay 40%. A 45% rate applies to businesses with a taxable income of £150,000 plus.

INCOME TAX: This is taken from your personal income, if you are a LTD business, this will come through the business PAYE. If your s sole trader, this is taken on the profits you have made from your business year.

NATIONAL INSURANCE: this will be taken via PAYE if you are an LTD company, or through your self-assessment like your income tax if you are a sole trader. Your NI is to pay for services and for your national state pension.

If you have to pay corporation tax, this is done on the profits you have made on your business, 9 months from accounting tax, so usually this is January 1st. Corporation tax is currently set to 19% (2023) Sole traders do not have to pay corporation tax, but LTD’S do, as well as any company that has a UK branch worldwide and groups.

VAT: This is for business who earn over £85,000 and is an added consumption value tax. This is usually at the rate of 20% and is paid quarterly. If you don’t earn over £85k you will not have to register as VAT and pay this additional tax.

You may also have to pay business rates, this is done by your local authority and are due Feb-March for April tax year and are determined by the ratable property value of where you work.

If you have a partner in business, they will be required to pay their share of the tax from your business.

We hope this helps you understand taxes and the legal requirements in the UK that you need to set up your small business.

Check out our shop for an ultimate financial planner for beginners! - it’s a must have to get your money organized as a small business owner.

We hope this post gives you the information you need to feel inspired, empowered and educated.

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