A HouseBeautiful Home Business. Emma Jones
Self-employed
As it sounds, self-employed means working for yourself; you keep records and accounts of your own activity, and, in acting alone, get to keep all the profits – but are also solely liable for any debts.
If you set up as a self-employed sole trader you don’t need to register with Companies House or take on any of the accounting duties that come with being a limited company (outlined below).
Partnership
If you’d like to be self-employed but want to work with a friend or colleague, consider a partnership. It means that two or more people share the risks, costs, profits and workload.
Partnerships do not have to file accounts at Companies House but there are filing requirements with HMRC. A limited liability partnership or LLP is structured in the same way as a normal partnership but, as it sounds, limits the liability of each partner. An LLP has the same filing requirements at Companies House as a limited company.
Limited company
Limited companies exist in their own right, with the company’s finances kept separate from the personal finances of its owner(s).
Limited companies have filing responsibilities with both Companies House and HMRC as noted below but it’s now much easier to launch a limited company as there is no longer a need to appoint a company secretary, so you can be a limited company with a headcount of one, which many small businesses are!
TIP { Take advice
The status of your company will affect how much admin you have to do and the kind of financial records you must keep and file. Take advice from your accountant or local tax office on which one to choose as much depends on the type of business you will be running.
Being social
Should you decide to start a social enterprise – a business trading for social and environmental purposes – there are additional legal structures to consider, including:
community interest company (CIC)
industrial and provident society
charitable status.
To find out more about launching a social enterprise or creating a community interest company (CIC) visit:
Social Enterprise | www.socialenterprise.org.uk
CIC Regulator | www.cicregulator.gov.uk
TIP { A friendly guide to legal structure
Check out GOV.UK’s friendly guide to the best legal structure for your business at: www.gov.uk/business-legal-structures
Companies House
When registering with Companies House there are two options from which to choose. You can buy a ‘ready-made’ company from a company formation agent, such as Companies Made Simple, who form a company on your behalf for a fee of £16.99 and in three hours, or ‘incorporate’ a company yourself by sending documents and a registration fee to Companies House. If you decide to complete registration yourself, download the form from bit.ly/ezw1S.
HM Revenue & Customs
The rules on registering a new business with HM Revenue & Customs are pretty clear-cut. You are required to register as soon as you start earning from any business activity. As above, you can choose to register as self-employed, as a partnership, or as a limited company. Each category has its own filing requirements, as outlined below.
Sole trader/self-employed
The calculation of tax due and National Insurance owing is done through self-assessment.
You either need to complete form CWF1 or call the newly self-employed business helpline. This should be done within three months of undertaking your first piece of self-employed work in order to avoid a fine.
Form CWF1 | www.hmrc.gov.uk/forms/cwf1.pdf
Helpline for the newly self-employed | 0845 915 4515
It’s not onerous to complete the form and, once registered, you’ll be classified as self-employed and sent a self-assessment tax return each year, which you complete, showing your income and expenses from self-employment as well as details of your employment elsewhere (if applicable).
You will be subject to tax and National Insurance on any profits you make, but the good news is that any losses incurred can be offset against your employed income (if you have any), which could even result in a tax rebate.
Depending on your turnover and how straightforward your tax affairs are, you may be able to complete the Short Tax Return (SA200). However, this cannot be self-selected, nor is it on the HMRC website; HMRC will send it to you automatically if they think you qualify, based on information given in the previous year’s return. If you have turnover below £68,000, it’s likely that you will qualify. As ever, though, it will depend on individual circumstances, and the law (and various criteria it uses) may change!
Self-assessment tax return deadlines are as follows:
paper tax returns should be received by HMRC by 31 October of tax year ending 5 April.
online tax returns should be completed by 31 January (giving you an extra three months).
Useful links
‘Thinking of working for yourself?’ | www.hmrc.gov.uk/leaflets/se1.pdf
Helping you understand self-assessment and your tax return | www.hmrc.gov.uk/sa
Partnership
According to HMRC, a partnership is where:
“Two or more people set up a business. 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.”
In terms of filing requirements, each partner should complete a partnership supplementary page as part of their individual self-assessment tax return. This is in addition to a partnership return, which has to be submitted by one nominated partner and show each partner’s share of profits/losses.
The deadlines for partnership tax returns are as follows:
paper tax returns should be received by HMRC by 31 October of tax year ending 5 April
online tax returns should be completed by 31 January (giving you an extra three months).
Limited company
As mentioned, a limited company’s finances are distinct from the finances of their owner(s). What this means is that the company is liable for its own debts, not the individual owners, as is the case if you are self-employed or in a partnership. As mentioned earlier, you can form a new limited company by registering with Companies House (www.companieshouse.gov.uk)