Strong Fundamentals

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Laying the financial foundations for your business

When starting a business, there are many things you need to think about from an organisational and financial perspective. I work with the early stage startups that Forward Partners invests in, to ensure that they are fully set up and have the financial infrastructure in place to do business.

I’ve pulled together the key things to bear in mind when it comes to corporate finances, so that you can ensure that you’re ready to trade from day one. It’s so much easier if you start off on the right foot, rather than trying to organise these things after the fact.

1 - You need a company

The first thing you’ll need to do is physically set up your company. The cheapest way to do so is to use the Companies House webfiling approach. It costs £12 and the Companies House website walks you through each step of the process:

https://ewf.companieshouse.gov.uk/runpage?page=welcome

I’ve compiled a list below of the information you will need to supply to set up your company:

  • A suitable company name

  • Decide where your registered office will be  (This is public record so you should carefully consider if want to use a home address and have this as public record)

  • Who is going to be a director of your business

  • Decide what the share capital will be and who will be the shareholders (it is usually an idea to allot  a small number of shares on incorporation as the share capital needs to be paid by the shareholder). Any additional shares can be allotted at a future date.

  • Decide who are the PSC (Persons of Significant Control) of the company - These are usually people with 25% shareholdings but this is not always the case.

  • Decide whether you are going to use standard memorandum and articles of association    

Once a company is incorporated, you will need to submit the following on an annual basis:

  • Annual accounts

  • Compliance statements

In addition to this, it’s worth bearing in mind that there are also other filings that need to be supplied to Companies House for every change made to the company (shares, articles of associations, directors).

Most filings can be done online through your Companies House webfiling account (directors appointment, director resignation, compliance statement, allotment of shares).

Some forms do still have to be submitted on paper and by post to Companies House.If you are ever in doubt , Companies House helpdesk are usually very helpful. They can be contacted on 0303 1234 500.

2 - You will need to register for taxes

You should to create an HMRC Gateway which will enable you to add the taxes to view, as and when they are created.

Corporation Tax

  • Corporation Tax - This will automatically be done once you create a company at Companies House.

  • Your Unique Tax number is a 10 digit number that will be contained in any correspondence received from HMRC with respect to Corporation.

    • The first Corporation tax return will be due 12 months from the date of incorporation and you will need to attach a full set of statutory accounts.

PAYE

If you are planning on employing people in the business, you will need to register a PAYE scheme with HMRC.

    In terms of the information you will need to register for PAYE, the following will suffice:

  • Directors personal details (Address, UTR Number,  National Insurance Number)

  • Company information (registered office, registration number)

  • Expected number of employees in the next year

  • Date you will be paying your first employee

  • Bank accounts details

Once registered with HMRC, you will need to run a payroll (weekly, monthly…) and submit an RTI file on a monthly basis informing HMRC of the PAYE, NIC, Student loan deducted from employees. It's also worth noting that PAYE/NIC and Student Loan deductions are payable by the company on 19th of the following month.

It's also a good idea at this point to get your payroll software in place or to outsource the accounting function (depending on what works best for you and your company). 

Possible payroll software providers that you may want to consider include the following:

  • Xero Payroll

  • Quickbooks Payroll

  • Sage One payroll

  • Clearbooks Payroll

VAT

VAT is not a compulsory registration for UK businesses until your turnover exceeds £85K.

  • Points to consider on whether you decide to register for VAT:

    • Once registered you can reclaim VAT paid on goods and services purchased for use in your business. However, you will need to charge VAT on all UK sales from date of registration

    • Service Purchased VAT can be claimed 6 months prior to VAT registration so can be a consideration with respect to the timing of your VAT registration.

    • Consider your pricing with and without VAT before registering for VAT. Who are your customers? Are they VAT registered business or are they individuals who cannot claim VAT.

    • You will need to prepare a periodic VAT return (Usually quarterly) so make sure you keep good VAT records.  

When you are ready to register for VAT, the below list comprises key information that you will be required to provide:

  • The VAT number of any business which the director(s) of the new company have had involvement in the last 2 years
  • Each director’s personal details (Address, UTR number,  National Insurance number)

  • Company information (registered office, registration number)

  • Predicted turnover in next 12 months

  • Predicted EEC sales and purchases

  • Date of VAT registration

  • Your company bank account details

3- You will need to keep good accounting records

From the beginning, you should keep good accounting records for the company. There are a few ways this can be done:

  • Outsource the accounting function  

  • Use a suitable accounting system

    • Xero

    • Quickbooks

    • Sage Online

    • Clearbooks

All accounting systems cater for different types of business so you should review the functionality before deciding which one to pick. There are also usually discounts available so it’s always worth shopping around for the best price once you have chosen the software package you want.

  • Spend time on setup

    • If you can set the accounting software up well (i.e direct bank feeds, creating bank rules, chart of account and report formatting) - This will save you time going forward - A little bit of pain now will reap rewards in the future!  

4- Other things that are often forgotten

  • HR Management

    • Keeping track of employee data (e.g. salary, time off, sick days, next of kin) can be a task but there are some useful software that make this much simpler:

      • Charlie HR

      • Clearbooks

  •  Insurance - Make sure that you have adequate insurance in place.

    • If you are employing staff, then you should have Employment Liability Insurance

    • If you are selling a service - you should have Professional Indemnity Insurance

    • If you are selling goods - you should have Product insurance

    • And the insurance list goes on; forget to secure adequate insurance and regret it at a later date!

  •  Data Protection

    • If you hold sensitive personal data, you have a duty to protect this data. At a basic level should do 3 things:

      • Have a privacy policy

      • Register with ICO

      • Protect Personal data

  •  Company Register

    • These should be available for inspectional the Company registered address. These can be in the form of a physical register or as an electronic register

Following the above simple steps in the earliest days of your business will ensure you’ve met your obligations both legally and to your own employees and directors. Whilst financial planning and infrastructure may not be the most exciting part of the startup journey, it’s absolutely vital to ensure you are not vulnerable or in breach of regulations later down the line.     

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