Setting up business in the UK
Great Britain is a popular country for setting up and developing a business. There are relatively straightforward rules and regulations relating to organisation and management of businesses, well established banking infrastructure, and relatively transparent tax legislation. In the next series of articles, we will share with you our knowledge and expertise in relation to your start-up and beyond. My name is Darren Bull, and I am the senior accountant here at RSL-LAW. I will briefly take you through each key stage from evaluating your business idea and choosing the business structure to choosing office space and finally launching your venture. Here at RSL my-self and our business consultant Laurie Evanson-Goddard work hand in hand to guide and assist your every business and accountancy need.
Business Plan and Business Structure
Once you have decided what kind of business you want to start, market research should be the next important part of a start-up’s preparation and business planning. Fundamentally, an effective research plan involves two elements: desk and field research. Here at RSL we have an excellent team that can hold your hand through every step of this process.
Laurie often reminds our clients about the need to understand clients, their needs and wants, how product/services will be delivered, how big or small should the team be, whether there is a need for premises, where should business be located, and how much initial and projective costs will one need. All these, and other consideration, should be incorporated into your first business plan. It is important to have a professionally prepared business plan to avoid errors. Main point of a business plan is to explain your business idea, spot potential problems and set out your goals. Typical business plan contains the following information which might vary on case by case basis: Business Strategy; Economic Case; Financial Section and Project Plan.
Before you choose your business structure and spend your first pound on developing your business, you should have a very clear idea about taxes you and your business will be required to pay in the UK. Let’s have a look at the main tax liabilities, if you choose to conduct your business through a limited liability company (Ltd), which is the most efficient structure in many circumstances. As it stands at July 2016:
Corporation Tax on profit made by a Ltd company – 20%.
Capital Gains Tax on profit received after the sale of an asset, for example, property – 18% and 28% depending on income.
Income Tax – this is tax on your income received from your business like salary and dividends. The current income tax rates are: 20% on income from £11,000 to £43,000; 40% on income from £43,001 to £150,000; and higher rate of 45% on income exceeding £150,000. Dividends above £5,000 can be taxed at 5%, 32.5% and 38.1%.
Stamp Duty on Share sales – you pay ‘Stamp duty’ at the rate of 0.5% of the value of the chargeable consideration on each document to be stamped. In other words, on each share.
Choosing the right business structure
Choosing the right business structure is very important. For your convenience, I summarised some of the main legal vehicles, through which you may want to conduct your business, below:
Low cost, easy to set up;
Very little financial reporting.
Personal tax liability;
Sole traders may lack credibility in the market.
Bear in mind the above considerations;
More potential to raise finance.
Bear in mind the above considerations;
Partnerships mean more participants, hence increased potential for disagreements.
LIMITED LIABILITY COMPANY (LTD)
Your liability as a shareholder is limited to the value of your shareholding;
Favourable tax structure is possible.
Increased administrative and regulatory demands;
Most of the corporate and statutory documents are public, including accounting records.
LIMITED LIABILITY PARTNERSHIP (LLP)
Advantages of limited company and partnership combined.
Profit taxed as income as opposed to Corporation Tax rates;
Partners must disclose income;
LLP must start to trade within a year of registration.
There are a lot of considerations to take account of when starting your business. Take your time, talk to an expert and get professional advice. At RSL we are only too happy to assist you with the set up of a business structure that is right for you and with other business related questions.