From my previous post on the subject I gave a general overview of getting set-up as a business. Here's some more specific detail. Though this applies to the UK, I think the principles are the same.
Set up the Limited
Company
Either do this through Companies House or via a company that
does this for you. I recommend doing this with a company who deal with
everything. It costs a bit more but is hassle free. Registration and set-up
takes about 2 weeks.
You'll need a company address, Director and Secretary (who
can be the same people). Be aware the company address is public so you might
want a virtual office address. You will get a Registration Certificate with the
company name and registration number on it. You'll need these later.
When you set up the business make sure you sign-up for
Online Filing (if it's even an option NOT to now, I think it's mandatory) and
ID Protection so no fecker can change your company details on the sly.
Example:
Register for VAT
You can ether register for Flat Rate or Standard Rate. You
need to do this via the 'Government Gateway' services on the Companies House
website. It takes about 1 week to get registered and you'll be issued Gateway
ID, Pass, etc. and a VAT Certificate. As with the company registration certificate
scan it and keep it safe as you will need this all the time too.
If you use Flat Rate (14%) you can charge your clients 20%
and pocket the other 6%. I've never done this and having an overriding moral compass that doesn't let me skim like this I don't approve. That said, I know several contractors that do it. The other benefit is you don't need to calculate VAT
paid out because you can't claim it back. That's the trade-off for using Flat
rate.
Personally, I have always been Standard Rate, so that I can
charge and offset VAT. Through the year any VAT paid is taken away from VAT
collected on invoices and the difference paid to HMRC. If you buy anything business
related, goods or services then offset the VAT. Never screw your VAT up - more
on that later.
Company Bank Account
You MUST have a company account as business money/transactions
must not be done through a personal account, ever. I use Santander as there
were no fees, but some people don't like them as customer service can be pretty bad.
I've had no problem with them so far. Register online, it
takes about 2 weeks to get set up. You'll get online banking, company paying in
book and cheque. File them away, I bet you never use them given you have online
access.
Take a note of your company account number, sort and IBAN
(International Bank Account Number) as you'll need these later for clients to
pay you.
Never, ever, ever, .... take out any money that is VAT or
business/ corporation tax. You *can* as a director loan, but do it even once
and HMRC will have their eye on you. I've also seen this being a deep hole you
can get into as you try and pay VAT and Corp tax on time. More on that later.
Get Insurance
You'll need Liability Insurance as a minimum. That's the
insurance you lean on when a client says you screwed up and need to pay back
fees plus damages. You might also need
Public Liability insurance and Employee Liability Insurance, but not at first.
I use Simply Business brokers, check them out to get an idea: Simply Business
Appoint an Accountant
You'll need to do Book Keeping and Accounts when running
your business. My recommendation is don't even think about skimping on an
Accountant service. I use SJD Accountants and the advice they give you will
save the fee they charge and the same again. What's more they're a source of
ongoing advise on tax thresholds, VAT and other HMRC related goodness. Add to
that, even if you do your own books and draw up your own accounts you still
need them certified by an accountant before passing to HMRC. So don't bother;
keep your books and pay for an accountant. As at June 2018 SJD is £140 a month including VAT (which you off-set of
course) which is cheap.
All Set Up
At this point you have an incorporated business, that's VAT
registered, insured, operating with a bank accountant and an appointed
accountant. Yay! Now all you need is clients ;]
Doing your books
Do your books monthly and sweat over the small things. Your
accountant will want them quarterly (see below) but do them monthly. You ARE
going to want to record accurate details of every transaction no matter how big
or small, there is no other correct way of doing this. Every fricken penny. You
don't get frustrated with the tedious detail, you will never think 'It'll be
ok' or ' I'll just square it off by doing this...'. Get it right 100%. I've
seen sloppy accounts from other contractors too many times and it's scary. This
will be hard and concerning at first, but after the first year it gets pretty
routine.
A month of books will take you an evening. So 3 months of
books will take you nearly a week…wait what? It will take longer because you'll
have to remember what that odd receipt was, you'll forget an invoice or won’t
find it, etc. Do your books monthly. OK, lecture over!
Quarterly Submissions
(VAT)
Every 3 months your accountant will want your books (your
accounts) sent in for review by a certain date. They will look over VAT
figures, dividends and salary paid to date, etc. and send you a VAT Return
along with any advice on whether you're paying yourself too much salary and
dividends.
Your quarterly VAT Return is a CALL TO ACTION, jump on it!
There are two components, the return you must go to the HMRC site to fill in
(remember when you registered for VAT?) and the VAT payment. The SAME DAY you
get your VAT return details from the accountant, do the return online and pay
the goddam VAT.
The return is no more than about 10 fields, already filled
in by the accountant, that you fill in online and hit submit. If you miss the
return date you WILL be on HMRC radar. So just do it and pay the VAT that day,
it's a 10 minute job.
Annual Accounts
At the end of the year, the accountant will pull together
the formal accounts for the year. You'll get a Full and Abbreviated set, not
much difference at our scale to be honest. However, they will ask you to review
and confirm they can do the submission, review and then let them. HMRC trust
verified accounts more than you or some mate sending them in. You also need to
have your business bank accounts statement for the year sent along with the
accounts to HMRC. Yup, glad you have a neat Business account now right, even if
it is a legal requirement ;p
The accountant will assess how much Corporation Tax you have
to pay. Oddly, end of year accounts are in the April/May timeline, but Corp Tax
isn't due until January (usually, your accountant will advise as it depends on
if you changed your 'filing date' (hint: don't). I have no idea why the delay,
who cares. As with VAT, once you know the figure and can pay it (and you can
because the money was always in the bank right?..) - just pay it.
Note on VAT and Corp Tax Payments: You pay both via an
online transaction from your business account, to a HMRC account that is given
online in the VAT / Corp Tax areas of the Gateway services section of the HMRC
website. Your accountant will also know these details. However, you only need
to go online and submit a return for VAT. Your accountant submits your end of
year accounts and HMRC advise on the Corp Tax owed.
Annual Return
At the end of the year you also need to do an Annual Return.
That is an online document where you state Directors, Company Secretary, Paid
up Shares, Classification of Business, Confirm Address, etc. If nothing changes
in the year you can skip through, make the Return, pay your £15 and you're
done. Again, a 10 minute job. Just think of this like a Companies House business
listing. Literally just admin for HMRC records.
Annual Directors Tax
Return
As a Director you WILL have to do an annual tax return,
where as an employee you might be asked some years. There's a bit more detail
needed like investments, dividend, account interest. It's tedious as crap but
most comes from your bank and business accounts. Your accountant will advise
you of the need to fill this in and set you a deadline. I find it takes a
couple of evenings to pull the details together (trawling bank accounts to find you made 14p interest in the year is so much fun). Fill it in, send it back to
you accountant and authorise them to submit.
Paying your Personal
Tax Bill
A few months after sending in your personal tax return,
usually January like Corp Tax, you get a personal tax bill. This is your tax
bill for taking salary and dividends. As always - get the bill pay the bill -
ASAP. Unlike VAT and Corp Tax, personal tax must be paid from a personal bank
account, as
it's your bill not the company's. But no sweat - because
every time you take dividends, you should set aside the personal tax you'll pay
on them. Then at the end of the year just pay it to HMRC. Like VAT and Corp
Tax, this was money that was never yours, so no biggy. Hive it off each month
and stick it into a separate account. If you have a personal account you never
use, then great, use that.
So now; every month you do your books to keep track. You
take your dividends and hive off your personal tax. Each quarter you do a VAT
return and pay the VAT balance. Each year you do Annual accounts to calculate
Corp Tax and pay it ASAP. You do your Personal Tax Return to calculate your
personal tax and pay it ASAP. You then do your Annual Return to give admin
details to HMRC.
And that's the business and HMRC formalities. Sounds a lot,
but actually it gets pretty routine.
Next, let's talk about actual money management.
Mark
I copied this image off the Companies House Website...
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