CHAPTER 4

Taking care of company admin

When starting a business, there are a couple of points of company admin to be considered and acted upon. They revolve around:

• what type of company to form
• who to tell about your new company.

Type of company

There are three main types of company structure in the UK. They are:

1. Sole trader or self-employed – as a sole trader, you and the company are a single unit, which means your personal finances are linked intrinsically with the business. Setting up as a sole trader requires telling HM Revenue and Customs and completing a self-assessment tax return every year with a note of your earnings. This status comes with a minimum amount of admin. As a sole trader, you get to keep all the profits from the business but you are also liable for any debt.
2. Limited company– starting out as a limited company means you are an employee of the business, which has its own separate legal status. Should anything happen to the finances of the business, you aren’t liable personally. To form a limited company, you need to tell Companies House and HMRC, file annual returns and pay Corporation Tax. Limited companies exist in their own right, with the company’s finances kept separate from the personal finances of its owners, so your liability is limited.
3. Partnerships –this is where two or more self-employed people come together to form a partnership. HMRC views a partnership as: ‘Each partner is personally responsible for all the business debts, even if the debt was caused by another partner. As partners, each pays income tax on their share of the business profits through self-assessment, as well as National Insurance.’

Increasingly, people ask me about community interest companies and social enterprises as a form of company status.

• A community interest company is a limited company with a structure designed specifically for social enterprises.
• A social enterprise is not a legal term or form of company but instead describes a way of trading as opposed to the structure of the business itself. Social Enterprise UK is the national body for this type of company and describes the status as follows: ‘Social enterprises are businesses that trade to tackle social problems, improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community.’

The body states that, to be a social enterprise a company should:

• have a clear social and/or environmental mission set out in their governing documents
• generate the majority of their income through trade
• reinvest the majority of their profits
• be autonomous of state
• be majority controlled in the interests of the social mission
• be accountable and transparent.

There is a free guide on ‘How to start a Social Enterprise’ at www.socialenterprise.org.uk/advice-services/publications/start-your-social-enterprise, which offers this detail, plus a listing of funding sources, events and awards related to the sector.

Useful links include:

• Social Enterprise UK: www.socialenterprise.org.uk
• Setting up a social enterprise: www.gov.uk/set-up-a-social-enterprise
• UnLtd: https://unltd.org.uk.

A social enterprise was the status Daniel Roberts chose as a way of doing business in his smoothie start-up.

When it comes to the company status that most suits you, it is best to speak with a qualified accountant, as everyone’s situation is different. Your situation could be earning from the day job and starting a business in your spare time, starting a company that is selling to large businesses, or a new venture that involves lots of export and import. These factors could influence the most ideal company structure, so it is best to seek advice at the outset.

You can do this at no cost.

The Institute of Chartered Accountants of England and Wales (ICAEW) runs a programme for small businesses and start-ups to access up to three phone calls with chartered accountants, for free. It is called the Business Advice Service and you can search for an accountant local to your area, or specific to your sector.

The Business Advice Service online database can be accessed at www.icaew.com/en/about-icaew/find-a-chartered-accountant/business-advice-service.

Over 4,000 firms are participating in the Business Advice Service, giving an hour of their time, at no cost, to help start-ups at the earliest stage. When you’re working on a new product, thinking how to get it to market and calculating the finance required to make it work, you could do without having to worry about company structure and tax. This is where an accountant comes in; to help with deciding on the right status and then, as the business grows, more advice that’s suited to the stage you’re at.

Clive Lewis, head of Enterprise, ICAEW

As money starts to come into the business, I do recommend you hire the services of an accountant. Rules and regulations change frequently and accountants are the experts who follow the changes and can work on the finances at a fraction of the time it would take you. What you have to consider is this: could you be spending time on doing something more profitable, such as sales, marketing or making, as opposed to completing tax returns and calculating payroll? If the answer is yes, it is time to look for an accountant!

Who to tell about your new company

Whichever type of company is selected, the tax man will want to know about your new start-up.

HMRC (HM Revenue & Customs)

• As a sole trader – HMRC requests you register with them by 5 October following the end of the tax year for which you need to send a tax return so, for example, register by 5 October 2016 to send a 2015 to 2016 tax return. Register with HMRC and you will receive a Unique Tax Reference number to calculate tax and National Insurance.
  Register as self-employed at www.hmrc.gov.uk/sa/register.htm.
• As a limited company – register with Companies House (see below) and, if the company is liable for Corporation Tax, you should tell HMRC that the company is active within three months of trading.
  Register a limited company at www.hmrc.gov.uk/ct/getting-started/new-company/start-up.htm.
• As a partnership – similar to a sole trader, register to complete a self-assessment tax return but, as a partnership, you also complete a partnership supplementary page to show each partner’s share of profit/loss.

Companies House

Limited companies are registered with Companies House. If you have decided to set up as a sole trader, you do not need to contact Companies House. There are three ways to register the business with Companies House: online, via a company formation agent or by filing papers. The process and cost of each are shown in the following table.

• Local authority – when starting a business from home, the local authority will want to be sure you are not going to be a nuisance to neighbours! If the house is going to remain pretty much as a residential property, with you quietly going about your business within it, then you will not need planning permission and so do not need to inform the local authority. The test to determine planning permission asks if there will be excess noise, traffic or visitors to the house, as a result of you running a business in it. If you are expecting disturbance around the property, you might want to think about setting up outside the home. Either way, keep the neighbours on side by letting them know what you are doing.

• Landlord – when starting a business from home, you may wish to inform your landlord, so you are not in breach of any clauses in the contract saying you cannot run a business from the property. On 15 August 2014 the Government announced a special package to make it easier for people to start businesses from home, including a model tenancy agreement stipulating that landlords cannot withhold consent for running a business from home.
• Mortgage – similarly, your mortgage may state that the house cannot be used for a business purpose. Telling the provider may put your mortgage at risk, which is why very few business owners do inform their mortgage provider. My hope is the mortgage industry will see that self-employment is a safer bet than employment and not jeopardise those who decide to start a business from their residential property.
• Insurance – with stock and computer equipment at home, and possibly customers visiting, it is better to be safe than sorry and upgrade your domestic home insurance to a home business package.
• Health and safety – there is no requirement to contact a health and safety officer (unless you are in the food business, as above) but do carry out a voluntary health and safety risk assessment, which is free and easy to do. Identify any risks in the workplace, such as electric cables from computer equipment, risk of fire, etc. and take steps to limit these risks. You do not need to record or display the risk assessment, unless you employ more than five people. Visit the Health and Safety Executive website for further details, www.hse.gov.uk/simple-health-safety/workplace.htm.

A useful link is:

• Government guidance on starting a business from home www.enterprisenation.com/homebusiness.

Source: Shutterstock.com, © Evgeny Karandaev

I will always remember profiling Richard Baldock, the 5 to 9-er who went to tell his boss he was starting a business making a new desk-based product, and her immediate response was to place an order!

If your new business is something that competes with the day job, tread with care. Reputation is everything and you do not want to damage it before you have got going.

When I wrote the book Working 5 to 9 back in 2010, I spoke to many 5 to 9-ers who had received a promotion in their day job on account of the new abilities and confidence that had come from starting a business, which goes to show becoming your own boss can be good for the career, too!

Intellectual property

Something to protect from the outset is your intellectual property (IP). This can be anything from the company logo or font, a product design, or process you have devised. There are four forms of IP and they differ in level of cost and protection:

1. Patents – the highest form of IP protection, and the most expensive! This is needed if you have come up with a new invention or way of doing something. For example, Alison Grieve developed a retractable finger receiver incorporated into the underside of a bar tray that stopped it from tipping. She called her invention Safetray and needed patent protection for this unique invention. Protecting a patent can cost thousands of pounds and often requires the services of professional patent attorneys. www.ipo.gov.uk/types/patent/p-formsfees.htm
2. Trademarks – this is to protect words or logos that distinguish you in the marketplace. Search for existing trademarks on the Intellectual Property Office website (www.ipo.gov.uk) and you can apply online, too. The cost to register a trademark starts at £170.
3. Copyright – used extensively in the creative sectors, copyright protects assets such as song lyrics, software or photographs. Copyrighting your work means no one else can reproduce it without your permission. The upside is it is free and you do not have to apply. I once heard a presentation from Johnny Earle, founder of highly successful fashion brand, Johnny Cupcakes, reflecting on how he started in business on a budget. Keen to protect his style and brand, Johnny would include the copyright logo on his t-shirts, which cost nothing and, he hoped, dissuaded imitators from copying. It worked and, when he had budget, Johnny upgraded his IP protection to invest in something more sturdy!
4. Design – this is how a product looks and the Intellectual Property Office explains the benefits of registering: ‘A Registered Design grants exclusive rights in the look and appearance of your product. You can stop people making, offering, putting on the market, importing, exporting, using or stocking for those purposes, a product to which your design is applied.’ Registering a design also means you can make money from selling the design. It costs £60 to apply to register a single design and £40 per design for every additional design.

Useful links include:

• The Institute of Trade Mark Attorneys: www.itma.org.uk
  @itmauk
• The Chartered Institute of Patent Attorneys: www.cipa.org.uk
  @TheCIPA
• Anti Copying in Design: acid.uk.com
  @ACID_tweets

Angie Spurgeon’s business is based on selling designs and this artistic entrepreneur is now successfully selling to national retailers including Waterstones and the National Trust. It was on maker marketplace, Folksy, that she was first discovered.

Total cost of taking care of company admin:

Total costs incurred to date: