Feb 22, 2012
Table of contents:
When setting up a new company in the UK it is important that you choose the correct structure that fits the purpose of your business. There are a few different company structures you can choose from, each with their own advantages and disadvantages. Each different structure also has a different set of responsibilities and tasks you must complete in order to follow legal compliance.
For each different structure you will need to supply different accounting records and you may have to notify different Government departments about your earnings, tax and revenue.
This might all sound a bit daunting, but it is extremely important that you understand the compliance in order to make the right decision for your company. Here is an overview of each of the different company structures, the advantages, disadvantages and what responsibilites each one will ask of you.
The following is an overview of each of the different options you have. Look out for more in depth posts about each structure in the future.
Registering as Self Employed is the easiest company structure to set up and it is the right choice if you are want to become self employed, particular if you are in the service industry like a tradesman of a freelancer. There isn’t much in the way of paper work to complete and paying your Tax and National Insurance is pretty straight forward.
Anyone can set them self up as Self Employed, but there are a couple of things to bare in mind. Firstly you can either trade as your name, eg. Philip Brown, or you pick a name for your business, eg. PBDesign. When choosing a business name, you have to ensure that it has not already been taken, it doesn’t contain any offence words and it doesn’t contain any misleading words of phrases. For example, you can’t call your self MikeRoweSoft!
You can search the Companies House database of company names here to find a name that hasn’t already been taken.
Depending on your industry, you may need a licence in order to legally run your business. For example, taxi drivers must has a taxi licence.
If you are going to be working from home, you may have to pay business rates or get permission from your local authority. This only really applies if you are going to be making lots of noise, altering your home or generally causing a nuisance to your neighbours. If for example, you are going to be a freelance graphic designer working from a computer in your spare room, you have nothing to worry about. If you are renting, you should also probably check that your landlord is ok with your running a business from the property.
Now that you are Self Employed, you will be responsible for paying your own Tax and National Insurance. To do this, you simply need to register with HMRC as Self Employed so they can set up their records. You will then need to complete a self assesment each year and send the amount of Tax you owe to the Government. If you use an accountancy package like FreeAgent this should be pretty straight forward.
If you think you are going to make over £73,000 you will need to register for VAT. If you don’t think you are going to make that much, you don’t have to register, but registration is voluntary so you may aswel do it sooner rather than later.
If you are going to become an employer you will need to collect Tax and National Insurance for your employees too. This is called a PAYE (Pay As You Earn) scheme.
If you are looking to set up a company with a friend or former collegue you might want to choose a Partnership as your company structure. You can think of a Partnership as a bit like being a Sole Trader, only there is two of you! This means that, much like a Sole Trader, the administration is relatively straight forward, but you and your partner are also personally liable for any debts your occur.
To set up a Partnership, you and atleast one other person initially invest in the company and you share the profits, losses, burden and responsibility. This means that if your Partnership gets into trouble, you will be personally liable to pay the companies debt.
The stress of running a company can strain even the strongest relationship. Whilst setting up a Partnership you can also set up a Partnership Deed, which basically is a contract that states the roles, responsibilities and how the company will be run. If the Partnership eventually comes to an end, a Partnership Deed can make that messy process a lot cleaner.
Each member of a Partnership has the responsibility of paying their own Tax, National Insurance and dealing with HMRC by completing a Self Assesment.
Setting up a limited company is by far the most complicated legal structure to create, but it does off advantages over the being a Sole Trader or a Partnership. You can register your company online here for about £20.
When setting up a Limited Company, you must nominate at least one Director and allocate shares. There are cetain restrictions on becoming a Director of a company, and you should get professional help if you are daunted about the legal obligations that are involved.
As with becoming a Sole Trader or setting up a Partnership, there are certain restrictions when choosing a company name. You can’t have a name that is too similar to an already existing company, and you can’t have any words in your name that might suggest an affiliation with a Government department or misleading words like “International” if you are a domestic company.
Like the other legal structures, you will need to pay Tax, National Insurance and VAT (if applicable) to HMRC. You will also need to pay Corporation Tax on your income and profits.