One of the key decisions you will need to make for any new business is whether to operate as a sole trader or through a limited company. We will discuss the pros and cons of each in more detail separately but for this article we are going to look at what you need to do to set up a limited company.
Step 1. Incorporate a limited company. The usual route is to purchase an existing shell company, one which has been created just for this purpose and which has not yet traded.
You would then file a change of name ( assuming you didn’t want to keep the existing name ) as well as change of registered address,members and directors. Alternatively you can start from scratch and create the company from the ground upwards. Costs should be between £100 to £150 to have an accountant do this for you.
Step 2. Open a business bank account.It is much easier to separate your business and private affairs this way. Bank statements will need to be kept for 6 years.
Step 3.Companies house will notify HMRC on incorporation. You will be issued with a CT41G which basically asks what the business does, when did it start trading and who are the Directors.It will also provide you with a URN or unique reference number for all tax correspondence.
Step 4. You now need to register with HMRC to use their services online.Once they have received the application they will issue an activation code. Let your new tax advisor have this code so that he can notify HMRC that he will act for you. You will receive a second activation code which should be passed to your tax agent.
Step 5. VAT. If your sales are £79,000 or more then you must register. See here.
The rules are slightly more complex when you start to approach the limit so do check the reference or seek advice. If you are dealing mainly with VAT registered businesses then it might well be worth registering even though you are below the limit.
Step 6. Drawing money out. Hopefully you will make profits and generate funds to allow you to take money out either as a salary or as dividends. The salary route requires the operation of PAYE and you should register for a PAYE scheme. There is software available to simplify this.