QUICK GUIDE TO SETTING UP A SMALL BUSINESS

Trade can be conducted through a limited Company or as a self-employed individual.

New Companies must be registered at Companies House. Detailed guidance is available here http://www.companieshouse.gov.uk/about/gbhtml/gbf1.shtml#one

It is possible to save tax by trading as a company, but there are many

other fees and expenses such as company accounts preparation to consider.

Company accounts are legal documents that must be checked over by a qualified accountant, whereas sole trader accounts can be in any format as long as they provide accurate tax records for HMRC. Detailed guidance on preparing accounts on spreadsheets is available here http://www.easybooks.741.com/http.startfromnothing.html or by using bespoke software here http://www.easybooks.741.com/http.softwareindex.html

There is tax legislation that treats the tax of very small companies as self-employed income that can be viewed at http://www.hmrc.gov.uk/ir35/index.htm , so it may not be financially beneficial for very small businesses to register a company.

You are not required to file returns and accounts at Companies House if you are trading as a sole trader.  All you need to do is register as self employed with the Inland Revenue (which can be done online at http://www.hmrc.gov.uk/sa/selfemp.htm ) and submit an annual tax return.  Tax returns for self-employed individuals are due by 30 September if you want HMRC to calculate your tax for you, and 31 January if you want to calculate your own tax.

Your first set of accounts as a self employed person will be due for the period from the day you started trading to the first 5 April if you are self employed. You will not have limited liability protection against legal action from creditors and customers if you are self-employed, but the Federation of Small Business http://www.fsb.org.uk/ can help with legal issues for a subscription fee of £100 per year.

If you have already registered a company, you must register the company with the tax authorities here http://www.hmrc.gov.uk/ctsa/regnewbusiness.htm.

They will give you detailed guidance on how to calculate and submit your tax return and can be done online too.

Employers are responsible for deducting PAYE tax and national insurance from the salaries of employees, including full time, part-time, contract, temporary, casual workers and directors and paying it to HM Revenue & Customs.

New employers must obtain the New Employers starter pack from HMRC on 0845 60 70 143 and will be supplied within two working days.

Before allowing any worker to pay their own PAYE and national insurance, check with your local HMRC office whether they are eligible for a self-employed status. HMRC will apply tests to their individual circumstances to determine if they are self- employed.

If you follow the instructions on preparing accounts on www.easybooks.com, you should have adequate records to prepare accounts for Companies House. Companies House Website offers detailed guidance on preparing accounts here http://www.companieshouse.gov.uk/about/gbhtml/gba3.shtml . It is best to do everything yourself and then ask an accountant to check it over for you.  easybooks@btinternet.com can recommend one if you like, and negotiate a good price for you.  It should not cost much for them to just check if anything is missing.

Companies House will send you the returns when they are required or forms can be obtained here http://ewf.companieshouse.gov.uk/

Just complete the boxes requested by them. They will also send you a due date for filing accounts, but it is likely that you may need accounts before the companies House deadline for tax.  

Ask HMRC for advice on when your tax is due.  They have all information for new business on the government website http://www.businesslink.gov.uk/bdotg/action/home?target=http%3A//www.businesslink.gov.uk/&ref=http%3A//www.google.co.uk/search%3Fhl%3Den%26q%3Dbusiness%2Clink%26meta%3D&domain=www.businesslink.gov.uk

Refer to companies act 1985 schedules 4 and 8 and accounting standards for detailed guidance on the accounting formats and notes required, or contact an accountant for professional advice. See also our professional summaries.

You may find an example of Memorandum and Articles useful.