Starting a business in the UK is quick and relatively simple. However, it is very important to choose the legal form of business. It is worth considering what legal form fits your business and where to register a company. Since this will depend on your taxes or duties in relation to Companies House. This decision will affect what documents you need to store. The choice of legal form will also affect the kind of your responsibility as from a business decision – the responsibility of the entire property or for the contributed funds. Depending on the legal form the are different possibilities of acquiring further capital. English law offers entrepreneurs a variety of legal forms. The most common form is a legal company LTD – limited company, PLC- public limited company, LLP – limited liability partnership, and the simplest one – self employer. In this article we are going to present you with self-employment and company conducted in the frame of LTD form.
Self-Employment is the simplest form of business, and we recommend it to anyone who is just taking first steps in business. It is a one-man business. To start a business as a self employed you must register with the HMRC , the company does not report to the register at Companies House. As a self employed you must register within three months of the start of operations. This is the easiest and quickest way to start a business. You work for yourself, you are your own boss. You make all the decisions. However, you are also responsible for these decisions. Your company does not have legal personality and therefore you are responsible for your company’s liabilities with all its and your own private assets. As a self-employed, you are required to submit an annual tax return, pay tax on income and insurance premiums. Taxation year ends always at 5th of April.
Taxes:
· For year 2013–14: £9,440 income is exempt from tax.
· Income Tax rates 2013-14:
o 20% tax rate applies to income GBP 0.00 – GBP 32,010.00
o 40% tax rate applies for income above £ 32,010.00
o 45 % – Over the income £150,000 you have to pay additional rate
Social security contributions (National Insurance). They are divided on two classes:
· Class 2 which you have to pay by direct debit.
· Class 4 is paid through your Self Assessment tax return.
Standard rates without exceptions of Premiums in the fiscal year 2013/2014 are as follows:
o Class 2 – annual net income to £ 5,725 – the rate of £ 2.40 per week
o Class 4 – Net income:
§ between £ 7,775 to 41,450 – 9% of sum within mentioned profits
§ above 41,450 – 9% of profits between £7,755 and £41,450 and 2% over that amount.
If as a self-employed person you reach in the past 12 months sales of £ 79,000 (amount has effected from 1 April 2013) you are obligated to register as VAT payer. All bills and documents you are required to stop for a period of five years. As a self employed you can hire employees.
The most important merits of this form:
- · Simple tax approach
- · If you want to work with somebody you can choose who you work with. But remember the whole responsibility for your contracts lies with you (for your financial liabilities and quality of your work)
- · You own working hours, it simply means that you decide how much efforts and time you want to put in your business. You can bring together family life and work responsibilities.
- · it is great Self-Satisfaction when you are able to manage your company properly.
Company LTD is a company in which the liability of shareholders is limited to the contributed funds. The company therefore has its own legal personality. To register a company you must specify the company’s address. This is the address which will be used for correspondence with Companies House and HMRC. This correspondence must be checked on a regular basis, because they usually remind of the required returns through the post. The registration requires only one person (who performs both functions of the Director and Shareholder), the function of the Secretary is optional and is not required in the UK. Formal requirement is that the Limited Company must have a minimum of one director and one shareholder. Name of the company must end with Limited or Ltd. The financial year of the company begins from the date of registration. You can change the dates of fiscal year. At the end of the fiscal year, the company is required to account for tax in HMRC and to submit financial statements and annual report to Companies House.
In the case of LTD there is no requirement as to the minimum amount of initial capital contributed. Most small entrepreneurs invest £ 1,000 as initial capital divided into 1,000 shares, whereby the value of each share is 1.00 £. An LTD company participates in the corporation tax.
Basic Tax Rates (2013):
- 20% corporate income tax with an income of no more than £ 300.000
- From £ 300.000 – 1.500.000 it is based on marginal tax rate – tax counted with relief when your income is among above rates. The idea of this is to change the amount of the tax which you have to pay along with an additional pound of income.
- 23% tax for companies with revenue of more than £ 1,500.000
- The Director is responsible for the submission of annual reports about the status of the company and any changes in its structure and the obligation to submit annual tax returns.
The most important merits of this form are:
- Limited liability – shareholders are responsible for the actions of the company to the extent of the contribution
- Minimized taxes
- The possibility of obtaining foreign capital
- Protection of company – Companies House will not register another company with the same name
- A more reliable form of activity – the register of companies and their status is given to public, every potential customer can check with Companies House for example information about the company status, address, financial reports, etc.
- No limit as to the minimum initial capital.
If you are not sure which legal form suits your business Target Accounting can provide you professional advice. Book your place right now and take advantage of FREE CONSULTATIONS where you can find out how to set up a business, register a company or move into self-employment
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