FAQ

Frequently Asked Questions

If you want to start working as self-employed, you must register with HM Revenue & Customs, but first make sure you have a National Insurance Number. After the registration, you will receive your Unique Taxpayer Reference (UTR) and HMRC will set up the right tax and National Insurance contributions records. You should keep your UTR safe as you will need it when completing your Self Assessment tax return.

This depends upon what your contract says or what your working arrangements are. You can be employed and self-employed at the same time. When defining your employment status, you should refer to the following questions:

A self-employed person:
Runs own business and decides about the type and time of its work
Bears responsibility for the success or failure of the business
Have more than one customer at the same time
Can hire people
Takes care of the main equipment needed to perform business activities
An employed person:
Has to perform the tasks imposed on their own
Is told how, where and when to do your work
Works within fixed hours
Work for just one person at a time
is not in charge of the business nor takes responsibility for it, that is the employer’s task
is paid a regular wage or salary

You may need to register for VAT if you are doing business in the UK as an individual, a partnership, a company, an association, a charity, a local authority or any other organisation or group of people acting together under a specific name.

You must register for VAT if:

  1. Your VAT taxable turnover is more than £82,000 (the ‘threshold’) in a 12 month period
  2. you receive goods in the UK from the EU worth more than £82,000
  3. you expect to go over the threshold in a single 30 day period
There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).

Note that you cannot register for VAT if you sell only goods or services that are exempt from VAT or you are not in business according to the HMRC’s definition.

If you are doing business in the UK but your turnover is below the threshold for registration, you may register for VAT voluntarily. Remember to regularly check if your turnover has exceeded the threshold and you need to register.

You may find it beneficial to be able to charge VAT on your sales and claim back VAT on your purchases in various ways. By way of example, if there is a zero VAT rate for the items you sell but you buy standard-rated items, HMRC will give you a VAT refund. Note that if you voluntarily register for VAT, you have the same rights but also responsibilities as in the case of compulsory registration.

If you need to close your business you should plan it carefully. First of all, it is important that you inform HMRC of your intent. Only then will you be able to settle matters related to tax and National Insurance. In some circumstances it is possible to extend the deadlines for payments or even to claim back some tax or National Insurance.

  1. Self-employed and business partners should complete an online form.
  2. Shareholders may still have to file Company Tax Returns and pay Corporation Tax while closing the business. You will need to account for any capital gains made in the closing process through your Company Tax Return.
  3. Employers must also submit a final Full Payment Submission (FPS) when running their final payroll, in addition to the standard procedure. It is important that you pay all outstanding PAYE tax and National Insurance deductions on a timely basis.
  4. VAT-registered businesses will need to deregister from VAT.

CIS stands for the Construction Industry Scheme. CIS regulates the procedures of making payments to subcontractors by contractors in the construction industry. However, businesses outside the industry which involve in construction in the way that they spend much of their funds on construction may also fall under CIS.

If your company or organisation is liable for Corporation Tax you’ll have to complete and file a Company Tax Return for each accounting period. You generally must file a return even if your company or organisation hasn’t made any taxable profits.

A Company Tax Return includes:

  1. your return form - including your self assessment of Corporation Tax payable and signed declaration
  2. any return supplementary pages as appropriate
  3. your company or organisation’s accounts (known as ‘statutory accounts’), tax computations and any other appropriate information or documentation
You’ll find more about what else you need to file as part of your return later in this guide in the section on ‘What you need to deliver with your Company Tax Return form’.

Capital allowances enable you to deduct (‘write off’) the cost of your company’s capital assets such as machinery, computers, equipment or vehicles against your taxable profits for Corporation Tax.

Instead of deducting the full cost of the item as an expense from your taxable profits in the year you bought it, you deduct a portion of that cost over a period of years.

Capital allowances replace the deprecation charge in your company’s financial accounts. Capital allowances reduce your company’s taxable profits.

There are different methods and rates for calculating capital allowances for different types of assets. There are also special schemes such as the Business Premises Renovation Capital Allowance and Enhanced Capital Allowances for expenditure on energy-efficient items.

Capital allowances often change each year in the Chancellor’s Budget.

Capital Gains Tax is a tax you pay when you make a profit by way of selling assets (e.g. shares or property). Your Capital Gains Tax may be reduced by a tax-free allowance and some additional reliefs. There are also some circumstances under which no capital gain tax has to be paid.

In most cases you do not have to manage your finances on your own. You may authorise an accountant to act for you. In fact, some entrepreneurs find it too complicated or time-consuming to deal with financial matters by themselves. You can avoid many misunderstandings or mistakes if you authorise an accountant to do it for you. HMRC requires a special form for this purpose. Note that you are still responsible for your own tax affairs at all times.

Like any other business you have to consider your online setup as the same kind of entity. You will need a business plan, competitor research, geographical target zone and survey your service or product to ensure it is in demand.

If you are starting an online business from home then VAT registration is required in the UK once your threshold reaches or exceeds £82,000.

Online businesses have different laws to abide by. You should familiar yourself with the data protection legislation, and include a strong privacy policy (as well as making sure your website code/script abides by this).

Many potential start-up businesses are daunted by the prospect of writing a business plan. But it is not a difficult process – and a good business plan focuses the mind as well as helping to secure finance and support.

The business plan will clarify your business idea and define your long-term objectives. It provides a blueprint for running the business and a series of benchmarks to check your progress against. It is also vital for convincing your bank – and possibly key customers and suppliers – to support you.

Your business plan will help you flesh out your idea and get a better feeling of whether you are ready to go ahead. Taking time to complete a thorough business plan before you start your business will reduce the risk of you missing something.

A plan will also be required by your bank and other lenders before they offer you credit, business loans or overdraft facilities.

It is important to outline all of the main points to give you and others a clear snapshot of your business idea, or where your business is heading.

Completing the plan will help you think methodically and sharpen your ideas about your business concept. The plan will also enable a stranger to grasp your business idea without getting bogged down in unnecessary details.

Templates are available on various websites.

The following is not exhaustive but a thorough business plan will normally include the following:

Executive Summary
Business Overview comprising brief history of your business or why you have decided to start one, purpose of the business, products and services. Your current position, competitive advantages, strengths and weaknesses of your competitors, a brief overview of your plans to grow the business.

Business Strategy for the next year/3/5 years, your specific objectives and goals, tactics, steps you need to take, resources you will need. Outline strategic threats or opportunities in the short to medium term and outline the business core values.

Marketing – market research undertaken and marketing plans, how you will reach your customers, how you will use technology, how you will actually promote your business to clients, your marketing budget and how you will build credibility.

Team and management – structure and experience, external advisors, management systems.

Financial budgets and forecasts – Cash flow forecast, profit & loss forecast, balance sheet forecast, capital expenditure budget

If you wish to trade and do not use a limited company you will be personally liable for the debt of your business. If you have assets or savings they are vulnerable to a claim made against you.

By trading through a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested in, loaned to or are owing to the company. The company has a separate legal identity from its owners and directors and unless they sign a personal guarantee for its debts they are not liable for these

There are a number of advantages in becoming a limited company, such as :-

  1. You can give a share of the business to others eg family.
  2. It may be easier to attract people to invest money in your business.
  3. Obtaining bank loans may be easier.
  4. There is no higher rate tax bands.
  5. In the event of a partner leaving or somebody dying it is easier to continue the business.
  6. It is easier to sell the business.
  7. You have better standing in the public eye.
  8. It can assist in the protection of a name.
  9. People have more confidence in your business as they can check up on your company on the public records at Companies House.
  10. Subcontractors and agency workers will find it easier to obtain work.
The main disadvantages of becoming a limited company are the extra costs of preparing of annual accounts and some loss of financial privacy.

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