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The Accountants for Growth

The ways to start up your business

The ways to start up your business

Starting up your business…..often a mind boggling concept, especially for individuals who have previously accrued a CV solely served as an employee. What heightens this strain and stress for new business owners is the dramatic tax implications from getting this start up wrong!

Every individual’s financial circumstance is unique to the next, and therefore it is imperative that any person thinking of starting up a new venture, should seek guidance from their accountant first.

To help you on that journey, please find below the essential pros and cons of three common business structures to consider before embarking on that new enterprise;

Option 1: Setting up as a sole-trader

This is very common for “one-person” low profit businesses. The reason for this is due to its simplicity with regards to compliance submissions. From registering with HMRC under self-assessment on Day 1, all that is needed on-going is to complete a self-assessment return once a year.

One common misconception amongst sole traders is that you are taxed on the drawings you take. This is irrelevant, as it is in fact your business profit achieved in any given tax year that is subject to taxation.

Looking to the risks associated with sole traders, the main concern surrounds personal liability for potential business failings. As a sole trader there is no legal separation between an individual and his or her trade, meaning should the business face any hardship, such as a legal dispute, then the proprietor’s personal assets such any vehicles or even their home could be used to settle any liabilities owed.

As an accountant, our job is to monitor your profitability during the year through real time tax planning so that we can advise you on various actions in order to legally minimise the tax paid year-on-year.

Option 2: Setting up as a partnership

As the name suggests, this structure involves an ownership of at least 2 individuals.

With regards to compliance submissions, there is little difference with setting up as a sole-trader. Each partner has to submit a self-assessment tax return with the additional submission of a partnership tax return.

The key benefit with this method is that typically the total profit generated by the business is split amongst all the partners. For example if a partnership of 2 equal members achieved a year-end profit of £40k, then each individual partner would be taxed on £20k on their self-assessment tax return. Noting the current income tax brackets this in turn reduces tax liabilities paid to HMRC collectively, and is common amongst husband and wife partnerships.

The important risk to note is the legal ramifications associated with partnership exits. In particular where one partner wishes to leave the partnership and therefore seeks remuneration for his or her stake in the business. This can create much dispute and escalating legal costs unless an official partnership agreement is in place from day 1.

As an accountant, we would at inception advise and organize the formation of this partnership agreement so that all partners are protected in the face of future ownership changes.

Option 3 – setting up as a limited company

This is quite often undertaken as a subsequent action, after previously trading as a sole trader or partnership.

Reasons why business owners choose this option are;

(1)   Minimizing tax – unlike sole traders whereby business profits are subject to income tax brackets, small companies only ever pay tax at 20%. In addition, as a director and shareholder of the company, the business owner can draw money via a dividend which attracts lower tax liabilities than compared with taking an official salary.

(2)   Legal protection – touching back on the risks of a sole trader, one benefit of trading as a company is that you the business owner and your personal assets are protected should the company fall in difficulty.

Looking to the downsides of setting up a company, this literally has to do with the increased compliance. As a company, there is not only a requirement to submit a company tax return each year to HMRC, but also the responsibility to submit formal accounts to Companies House as well as an Annual Return. As a director and shareholder there is still the responsibility to continue to file self-assessment returns (the same as with a sole-trader and partnership).

As an accountant, we are here to alleviate those headaches, by not only completing and submitting your accounts and tax returns, but also acting as the company’s agent to liaise with financial regulatory bodies on your behalf.     

In summary…..

Every business is unique, and by that token every business therefore needs bespoke advice in order to ascertain the correct structure to embody. We at James, Stanley & Co Ltd specialise in supporting SME businesses by taking away the pains of setting up their businesses in order for those individuals to go out and make money!

If you would like find out how we can help you, please call on 0121 706 8585 or email us at 


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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal or accounting advice and should not be relied upon as advice. Please see our website's terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact us and one of our accountants will be happy and able to advise you on your own particular circumstances.

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