Setting up a new business can be daunting and the To Do list endless. Here are 5 things that you need to do to get the financial side of your business up and running:
- Register with HMRC
You need to tell HMRC that you have become self employed. You can do this online here. You will receive your Unique Taxpayer Reference (UTR) in the post within about 2 weeks from HMRC. This is a 10 digit number which you need to keep safe, as you need this to be able to file your tax return.
You should register with HMRC as soon as possible after you start trading, and by 5 October following the end of the tax year in which you started self-employment at the latest.
- Set up a Separate Bank account
It is always a good idea to have a separate bank account that you just use for your business. Not only does it make preparing your year end accounts easier, it makes sure that you account for all your business expenses, gives you a clearer idea of how your business is doing, and if HMRC were ever to enquire into your affairs, gives them less scope to start asking other questions!
As a sole trader, you don’t need to set up a “business” bank account. You just need to have an account in your name that you use solely for business purposes. If you have any business related DD’s (mobile phone/subscriptions) move them over to this account.
- Set your prices
Presumably you want to make money out of your business, so you do need to think about what you are going to charge people for your services. I’m not going to cover various pricing strategies here, but it is important to have think about all the different types of costs that are going to be involved with running your business, and to make sure that your prices will generate enough income to cover them.
You also need to consider the amount of “admin” time that is involved in running a business. Running that “hour workshop” won’t just take an hour of your time, you need to plan it, advertise it, deal with the finances of it, follow up etc so you need to build all this time into your pricing strategy.
- Keep your records
You need to get this organised from the start. Unless you are going to be raising only a handful of invoices and have very few expenses, I would definitely consider using a cloud based accounting package. These are subscription based, so you need to take this cost into account, but packages start at under £10 a month, so are well worth the cost. At Wilkins & Co, we use Xero with our clients, but there are many others to take a look at as well.
Make sure you are aware of the types of expenses that you can claim against your business and keep records of all these, as you will need them to prepare your accounts for HMRC, or to pass to your accountant.
- Put Money Aside for Tax
Being self employed as opposed to employed, no-one pays your tax for you!
It is your responsibility to pay HMRC your tax and NIC. You will do this by preparing a set of accounts for your business and sending HMRC a tax return. Your accounts will generally be prepared to the end of the tax year (5 April), and then you have until the following 31 January to submit your tax return and pay your tax and NI.
It is therefore a good idea to put money aside as you go along to pay your tax bill. It is very easy to see money in your business bank account, and take it out and spend it – and then realise you have a tax bill to pay at 31 January that you have not budgeted for. How much you should put aside does depend on your personal situation, and what other income you may have in a tax year, but 20-30% of your profits put aside should cover your tax bill for the year. Do check with an accountant though for personal advice on this.
- Did I say 5 things – oh well!
No 6 could be the most important – talk to an accountant!!! You can contact me at email@example.com.