Setting up a new business is a daunting and intricate process. It has several requirements that could be specific to the country you are in, type of the business, and how many people you employ. Therefore, it is necessary to understand the nuances of setting up a business in the UK before you take the plunge.
The UK promotes and encourages people to set up their businesses and take on entrepreneurship. As a result, there are millions of entrepreneurs, business owners, freelancers, and sole traders in the UK. The rules vary for the EU nationals and ex-pats; therefore, you should consider what you can and cannot do and the legalities before setting up a business in the UK.
Registering the Business
The first step to setting up a business is to register it legally with the HM Revenue and Customs (HMRC). There are many structures for how a business can be registered and set up, and you may need to choose the one that fits your company structure the best.
The individuals who plan to run the business individually and work as self-employed consider registering as a sole trader the most suitable choice. Sole traders keep all the profits, are personably liable for all business debts, and make their income tax and insurance arrangements. Freelancers are also categorised as sole traders in the UK.
Businesses in the UK can also be set up as a General Partnership or Limited Partnership. General partners involve two or more individuals who share the profits, losses, and liabilities equally. On the contrary, limited partnerships include at least one general partner who runs the business and is liable for all debts and at least one limited partner whose liabilities are limited to the amount he contributes to the business. You can also set up a business in the UK as a Limited Liability Partnership, Private Limited Company, Public Limited Company, or a Social Enterprise.
Business Permits and Licenses
Understanding the type of business, you plan to start makes it easier for business owners to set up and grow. The types of businesses vary depending on whether the owners want to enter manufacturing, service, or a hybrid business. Thus, setting up a business with tangible products, or one with intangible services, or a combination of both work differently and have varying requirements such as permits and licenses.
Additionally, it is also relevant to decide whether you wish to sell your products or services through physical brick-and-mortar locations or online. Setting up physical businesses require decision-making about the location, rental, leasing, and other factors, whereas online business set up revolves around building a website, creating an online presence, and online marketing.
Taxation on Businesses in the UK
The next step in setting up a business in the UK is to consider taxation. All companies in the UK need to register with the HMRC for taxation purposes and obtain a federal tax ID number and state tax ID number, if necessary. The type of taxes paid depends on the kind of business.
While sole traders and partnerships are liable to pay taxes on profits generated, incorporated limited companies and foreign companies with offices in the UK are required to pay corporation tax at the rate of 20% on gains. The corporation tax works more efficiently as business owners of a limited company are required to pay income tax in addition to corporation tax.
In addition to the tax on profits, the UK businesses are also required to pay VAT if they make more than £85,000. All companies, sole proprietorships, partnerships, or incorporations are required to file their tax returns every year.
When you decide to take on employees and become an employer in the UK, you get additional responsibilities. The process of becoming an employer after setting up a business in the UK includes setting up payroll for the employees, paying them salaries, and providing them with workplace pensions. You also need to inform HMRC about becoming an employer, register for employment insurance, and contribute towards employees’ National Insurance.
Along with setting up pension schemes for your employees, you may also need to set up a private pension for you. Since you are the business owner and your own employer, it is advisable to make have the same pension allowances as an employed person, to ensure that you retire in a tax-efficient manner, with enough money to live a comfortable lifestyle even after retirement.
As a bottom line, setting up a business in the UK comes with many legalities and responsibilities. They include deciding on the type of business, business structure, efficient taxation, and pension schemes. The requirements are more complicated if you do not belong to the UK but plan to start a business in the country. Additionally, you also need to hire employees and manage their payroll, pension contributions, and insurance policies. Therefore, it is recommended to hire a professional advisor to ensure that you set up an effective, legally compliant business.