Questions start-up businesses always ask

When clients set up a new business it is the start of an exciting but sometimes daunting adventure. Here are some of the questions they tend to always ask:

Pre-trading expenditure

Before the business is launched entrepreneurs generally incur expenditure on buying equipment, branding, developing their website, printing letterheads and other marketing materials.

This is pre trading business expenditure which can be treated as though it occurred on the first day of trading provided it would be allowable if it had actually been incurred on that date. You do have to be careful with capital expenditure as this may qualify for capital allowances in order to obtain the appropriate tax relief.

Should I be VAT Registered?

If you are below the VAT threshold, then you will have a choice as to whether to register for VAT or not.

If your sales are to VAT registered businesses, then it may be attractive to become VAT registered as you should be in a position to recover the VAT you have suffered on your costs.

Also from a profile position it may be advantageous in becoming VAT registered as this may add credibility to your business status in the market place.

If you decide to become VAT registered what is the position for pre registration VAT?

The general position is that you should be able to reclaim VAT on goods you have acquired in the last 4 years provided you still hold the goods and for services within 6 months.

Maintaining books and records

With the introduction of Making Tax Digital it is advisable that you consider using accounting software (we recommend Xero) to maintain your books and records for the following reasons:

·     It should be easier to produce your sales invoices and email them to clients with your own branding.

·     You can have a live bank feed into the software which facilities better cash flow control.

·     Customer statements can be easily emailed to your clients.

·     Producing the VAT Returns should be straight forward and filing them from the software under MTD should be effortless.

·     You can set up tracking so that you can monitor the profitability of the different services/products you sell which is extremely helpful in making business decisions in the future.

Should I set up as a company?

If you operate as a sole trader one of the major risks is that if you face financial difficulty then any assets you personally own, such as, your home, bank accounts etc., maybe at risk as well.

By operating through a limited company this minimises this risk as generally everything stays within the walls of the limited company

Also, it is often mentioned that a limited company adds more credibility to your status as a business and some potential customers only want to work with companies.

It is important to get the shareholding correct from the beginning and you will need to consider the percentage split between, for example, husband and wife companies. This is due to the fact that any dividends declared will be allocated in the proportion to the percentage of shares held. So careful tax planning needs to be performed to ensure that, in this example, the husband and wife equalise all their taxable income.

You may also want to consider A and B shares which should allow you pay out different amounts of dividends. For example, if the shares were just A shares and 2 individuals own 50 shares each then a dividend of ￡10,000 would have to be allocated ￡5,000 each. If there were 50 A shares and 50 B shares, then you could declare ￡10,000 dividend only to the A shareholder.

How to extract money out of the company?

The most common method of extracting money out of the company is as follows:

·     Set up a payroll scheme and pay the minimum salary

·     To extract the rest of the money as dividends

If the salary is set at the right level, then it will be deemed that you are continuing to make national insurance contributions.

Any dividends declared should be supported by Board Minutes and Dividend Vouchers to minimise an attack from HMRC.

4 ? steps for a successful business

Whether you are a new business or an established business it is very important to consider the following 4 key areas to help develop and grow your business:

1.    Vision Statement – where do you want to be in 3 years’ time

2.    Brainstorm the following 3 concepts:

a.    Operations

b.    Marketing

c.    Finance

3.    Time blocking – set aside 2 to 3 1 hour uninterrupted slots in your diary each week to look at the key areas of your business, such as, strategic planning, staff sales meetings etc.

4.    Develop a 12-week strategy plan that identifies the problem, action needed to be taken, assign responsibility and measure the outcome.

You may wish to look at our business health check questionnaire and see what your score is!

This is an excellent way of bench marking your current position and is helpful for starting the process of developing your 12-week business strategy plan