How do I set up a Limited Company?

Assuming you’ve decided to set up a new company, how do you go about it?  If you’re still making up your mind, please check out this article or get in touch.

Setting up your own company is surprisingly easy to do. In fact, I don't offer this as a standalone service as it makes far more sense for people to do it themselves.

However, this is not the case for those of you who wish to create Community Interest Companies (CIC’s) or have bespoke constitutions - I'm afraid you’ll have more work to do.

Strictly speaking, you only need to do number 3 of the steps below to create a new company.  However, I’ve included other areas that you should perhaps consider if you want to get off on the right foot:

1) Your Company's Name

This is the trickiest part, especially if you wish to future-proof. This video might help get you started.

There are certain restrictions as to what you can call your company. One of the main hurdles is selecting a name that hasn’t been used. Here’s a tool to check for available names

Often people set up companies just to protect a name they might wish to use in the future. These are known as Dormant Companies.

In some cases, companies use a “trading as” which might suit their service better than the legal name they register with Companies House.

2) Do You Need a Domain Name?

At this point, you might also want to see if the domain name is available. This can ensure that the web address, email addresses, and company name are all aligned.

If you do, try and register the company and the domain name at the same time. It’s not unheard of for a related domain name to be suddenly purchased when a company is registered!

3) Registering Your Company with Companies House

This is surprisingly quick to do online from the Companies House website. Here’s the link

You’ll need your company’s:

  • Name

  • Address

  • Business activity – you’ll need to pick up to 4 Standard Industrial Classification (SIC) codes. Here’s a list.

You’ll also need to know:

  • The Directors (at least one)

  • The Shareholders (at least one)

  • Details of the shares and shareholdings

  • Who the Persons of Significant Control (PSC) are. Normally those with more than 25% of the shareholding

This might seem like a lot when written down but is quite quick to do.

Please bear in mind that this is only for a standard company limited by shares. Get in touch if you are unclear if this is what you require.

4) Setting Up a Business Bank Account

As a company is considered a separate legal entity to the owners, it needs to have its own bank account. This might take a while to set up so worth doing before you wish to start taking payments. Here’s an article with some thoughts on what bank account to choose.

If you are setting up a dormant company, I’d advise you miss this step for now. Receiving bank interest is considered a significant transaction and would mean you’d have to compile annual accounts rather than the much-simplified dormant accounts.

5) What About Your Brand?

Once you’ve created your business you’ll want to share it with the world. Branding is a key part of your business’ identity. It should be at the core of what you do, so definitely something to consider at the very outset. Here's a good place to start exploring this vast topic.

6) What Insurance Do You Need?

A key consideration before you start doing anything is insurance.

Here’s a handy guide to give you an idea of what you need to consider.

7) Registering with HMRC

Once you start trading you’ll have to let HMRC know within 3 months. Here the link

Before you do this, you'll need your UTR (unique tax number). This should be posted to your registered address within 10 working days of registering your company with Companies House.

There are 3 main types of tax you're likely to have to deal with and you’ll need to register separately for each one:

  • PAYE
  • Corporation Tax
  • VAT

8) Taking Control of your Accounts

You’ll need some way of raising invoices and recording your expenditure. Apart from compliance reasons, this can really help you stay in control of your business. At the very least -  just remember to keep hold of all your receipts and mileages.

Certainly, this is something that’s best to consider from the start. Book a call if you'd like to discuss this more.

Good luck with your new venture!


What are Trade Debtors?

If Income is the life and soul of the party, Trade Debtors are the damp squib

  • Income shows what has been invoiced.
  • Trade Debtors shows which of these invoices haven't been paid. Essentially, who still owes you money!

It explains the difference between what you have earned on paper and what you have received in the bank.

Clearly, receiving the cash is the most important part of the process so it's important to be on top of which invoices are unpaid.

Often both Income and Trade Debtors are used to calculate "Debtor Days", the number of days it takes on average for an invoice to get paid.  However, I believe it is important to look at the Trade Debtors on a customer by customer basis rather than as a solitary figure.  

For me, reviewing who owes you money should be a key business activity, an important part of the customer relationship.  There can be many reasons why invoices are unpaid: from invoices going missing or not being sent; to the customer not being able/willing to pay.

How you decide to deal with them will depend upon the customer relationship. However, by spotting problems early you have more options available and can ensure you don't (in extreme cases) spend time and resources on a customer who is unlikely to pay.  In short, it can help to stop you being a "busy fool".

Why Is a Simple Job So Expensive?

Upon giving someone a quote, I received the following response:

"Isn't that expensive? Don't you just have to stick in a few numbers?"

It was a relatively simple job, but I couldn't see how it could be offered at a lower rate.  In fact it turns out I was in line with what others were/are quoting.  It's true, if the task was a simple as sticking in a few numbers, a quote of more than a few quid would seem excessive.

This makes it an interesting question. Let's explore why even a simple job does come at a price:

What Numbers and Where?

Much of accountancy could be perceived to be "sticking in a few numbers". The key is knowing what the numbers should be, where to put them and what they mean.

It's not just the numbers - in some cases just knowing to put a tick in the right box can save a company thousands.  Bringing this expertise to the party is where true value can be added rather than mindlessly typing in numbers.

Setting Things Up

If an accountant agrees to act for you, there are various steps they need to take to get everything set up.  Apart from their own internal systems and processes they have to comply with various legislation, such as running anti-money laundering checks, and getting authorised as your agent with HMRC.

This all takes time and effort.

When Problems Arise

Unfortunately problems can arise that are out of our control. Sometimes sins of the past, perhaps ones you didn't know about, can pop out of the woodwork.

Rather than shrugging their shoulders, many accountants take responsibility for these issues. They will help to resolve them and check that there is nothing else that could present an issue in the future.

While this gives you peace of mind, it passes on the risk to your accountant. Your accountant's grey hairs come at a price.

Keeping up the Standard

When running a business we all have standards and should stick to them.

Sometimes this is to comply with regulating bodies, sometimes it's just because we want to offer a quality service.  This makes it impossible to do a "five minute job" in five minutes.

If you have a simple job that needs doing and are confident taking care of things yourself, this might be a good option.  After all, you will not have to go through all the steps an accountant would have to deal with.  However, if you are unsure or don't think you'll get round to it in time - perhaps consider getting some help.

The Undercover Social Enterprise

This Christmas I was given a stool by my mother-in-law. It was a quirky stool comprised of several pieces of wood that slotted together. Turns out that it is made from recycled wood by people with mental or physical disabilities. What is more interesting is that my mother-in-law had no idea of the social aims of the company that made it. She just thought it was a nice item.

There are possibly many businesses whose customers don't realise they are social enterprises. In some cases the businesses might not know it themselves. After all, some start off commercially minded and then look beyond just making a profit.

Combining a commercially viable product or service with social aims is the key to a great social enterprise. This is often not an easy task.  Especially when an organisation's aims may be at odds with this. For example, making services more accessible to those that can't afford them. It can be a difficult balance and being profitable is a vital component.

It ensures a business can look after its employees, service its customers, and even do a bit more....

What Business Bank Account?

This is not a blog about charges, rates and services. After all, that would probably be out-dated by the time I press “publish” and other sites do it better anyway, such as:

Problems with opening bank accounts

What I want to address are the horror stories small organisations have when it comes to opening a business bank account.

Worst case I’ve encountered was eight weeks and numerous lengthy phone calls to open an account, where the application finally got turned down when the bank revealed that there needed to be more than one signatory.

The sad fact is that many of us have heard these stories about almost every bank there is. So what to do?

My advice would be:

Pick a bank where there is a Business Account Manager

Seriously, having an individual who is responsible for guiding you through the bureaucratic process of opening a bank account is almost a necessity. For the hour it takes you to have a meeting with them, you’re likely to have your account opened within a week.

There may well be issues, but you’ll have someone to help negotiate them for you. The fact that there are issues even when you work with these guys shows how fraught the process can be.

They may well be many other factors to consider such as ethical banking and cost, but I believe this is a good criterion to add into the mix to save you much time and anguish.

How Do You Measure Trust

It's often said that what gets measured improves.  What about the more intangible things though?  How do you measure those?

What about trust?  Is there a metric to measure this?  I'd suggest that there is: Turnover.

While there are many things that can drive a company's turnover (classically price and volume), trust is possibly the most overlooked.  People need to trust that you will deliver on what you say you will, before they buy.  Without trust there is rarely a sale.

When you decide to buy something, what factors do you consider?

Do you consider whether you trust the vendor?

Do you trust them to deliver what they promised, sort any problems that occur, not to overcharge?

There are probably instances when we pay more to a supplier we can trust rather than risk going with a cheaper option.  It can determine whether we are happy to pay up front or are willing to try a new service.  It's a reason why companies can value their brands so much.

Trust is a key component of a successful business.  It can lead to repeat custom and recommendations.

Perhaps it's worth considering what "trust" means to our businesses and how we can improve it.

Limited Company vs Sole Trader

When you decide to start a business, one of the first choices you need to make is whether to create a Company or operate as a Sole-Trader.  Often people are pushed towards the company option, but should this really be the default option?

For me it's a fundamental decision and many things should be considered.

What is a Company?

A Company a legal entity (separate to the owners) created for the purposes of carrying out your business. Whereas being a Sole-Trader means you are running a business directly as yourself.

Clearly, creating a new legal entity means more work and most likely more professional fees.

At this point I should declare a "conflict of interest": While I am trying to present an unbiased round up of things to consider, I am an accountant. This means I'm perfectly placed to help you with the additional burdens of running a limited company....

Tax Advantages

This is the usual reason given for creating a company. The advantages in this regard are diminishing with various changes to the tax system. However, the use of dividends and being able to keep your income within certain thresholds can help manage your tax burden.

My personal views are more along the lines that "the Tax Tail should not wag the Business Dog"

It's also important to mention that a sole-trader can carry any losses back against their income in prior years. Worth considering for a fledgling business struggling through the initial years. You can always turn your sole-trader business into a company at a later date.

Limited Liability

A Company is a separate legal entity. So, any liability is limited to that company.  There are exceptions to this, such as if there is evidence of deliberate wrong doing.  As the liability is limited, it's not uncommon for business owners to be asked to personally guarantee any bank loans.

Other Considerations

Here are some other things to think about regarding going down the company route:

Status - being a Company can give a more professional appearance. Some businesses have a policy of only dealing with Companies.

Reset the clock - creating a new entity means that there is no track history.  This can affect things such as insurance and regulation.

Accounts are public - your annual accounts need to be filed with Companies House and are available for the public.

The Key Question

For me it all boils down to one question:

"Are you running a business trading your own work or looking to create an organisation bigger than yourself?"

If you are looking to create something bigger, with succession planning and staff, perhaps the Company route is the way to go.

If your business consists of only you doing your own thing, then it might make sense to keep things simpler as a sole-trader.

The Paper Chase: Why “Show Me The Money!’ Isn’t Always The Best Policy

In business as in life, we like to get what’s owed to us: to receive reward, pecuniary or otherwise, for our painstaking endeavours. But sometimes, just sometimes, demanding a due payment is not the best policy.

I shall illustrate this point by telling you a story. A story about a long-term, mutually beneficial business arrangement that soured overnight. 

The story starts with your protagonist (me!) lifting an envelope off the welcome mat one fine morning. Scanning the contents of the letter within, I quickly came to the realisation that I had forgotten to pay our window cleaner for services rendered. That fact was not troubling in and of itself. Rather, it was the tone of the letter – which included a list of additional charges, such as interest on the amount due – which ruffled my feathers!

Where my first emotion had been guilt – neglecting to pay on the spot isn’t something I make a habit of – I now felt somewhat chagrinned at the letter’s snotty officiousness. As a longtime client of the window cleaner in question, I felt I deserved the benefit of the doubt, or at the very least, a little leeway. Draw my attention to the error, certainly: but don’t penalise me financially.

The incident got me thinking about how we handle clients who don’t, ahem, cough up on time. How we calibrate our mindsets to plot the best course of action. Ultimately, we want our money. But at what cost?

There are two ways of looking at it: sympathetically or unsympathetically. Either our client has absentmindedly forgotten to pay, or he/she is an outright chancer who needs a severely worded reminder.

Most of us find chasing payment uncomfortable. But perhaps the best policy to adopt is one of tolerance: to assume non-payment has been an oversight on the part of our client, an honest mistake rather than a taking of liberties. Treat the client like a friend or business partner rather than a cash cow to be bled dry. 

“What happened with the window cleaner?” I hear you ask. Well, you’ll be glad to know that I settled my bill. I also hired a new window cleaner. Which is my point: a long-term customer can quickly become an ex-customer if you don’t treat them with the respect they deserve.

The key question to ask is whether the non-payment is a matter of ‘can’t pay’ or ‘won’t pay’. With this in mind, I’ve written some handy tips.

•    Try to ensure no-one owes you more than you’re willing to lose
•    Price your services fairly – so it’s not a crippling blow if you walk away from a contract
•    Send friendly chaser emails to tardy clients

And some slightly harsher options – but one’s you might wish to consider…

•    Price adjustment (simply charge late payers more – not as punishment, but to compensate for time and hassle of chasing payment)
•    Withholding service or payment in advance
•    Stop working with them

If you’re dealing with a particularly difficult customer, and all friendly attempts to elicit payment have failed, you can always take the matter to the small claims court. After all, even those with saintly reserves of patience can get sick of chasing an unpaid bill!

If there’s one take-home, though, it’s this: unnecessary bluntness in securing payment can irredeemably damage your reputation. Be friendly, be fair and treat your client as you wish to be treated. It can, and will, pay dividends

The Tax Conundrum: Why Paying More Should Be Celebrated

Paying tax is something none of us relish. Whether we’re employers or employees, we consider ourselves squeezed from above, beholden to a wolfish higher power. Upended like cartoon figures, shekels spilling noisily from our pockets and into the government’s capacious coffers. 

‘Our hard-earned money!’ we protest, aghast at the generous cut the Treasury has taken. ‘What a waste!’ 

Of course, such objections are only natural. But aside from the obvious mitigating factor – that tax is a fact of life, essential for the maintenance of public services – we must face down another truth: that paying more tax can actually be a good thing!

Bear with me for a second. It might seem alien to you to consider the positive implications of tax, but if you’re not Amazon or Starbucks, making greater profits generally means paying more tax. If your tax bill impels your eyes to water, the natural corollary is that your margins are in fine fettle.

Looking at it another way, what would you rather do: make modest profits while paying next to no tax; or boost your bottom line while contributing more to the public purse?

Naturally, one shouldn’t cloud or conflate the issue. Paying more tax is not a catholicon. Any businessperson worth his or her salt wants to pay what they owe; they do not, for a second, wish to incur tax liabilities unfairly. But ‘saving tax’ should never be your primary concern. And the line delineating the acts of saving tax and evading tax can often become dangerously blurred.

Furthermore, one should avoid racking their brains by incessantly asking how they can ‘save more tax’. This can all too easily become an overriding obsession that diverts your attention from where it should be: on running your business. Focus on what you can control and ignore the distraction of chiselling at your tax liabilities. Why look to recoup nickels and dimes when you can concentrate your efforts on increasing profit? 

A mania for saving tax doesn’t only place a premium on your time, but it can have the opposite effect to the one intended: namely, it can cause you to incur greater costs than you aspired to save!

Imagine, for instance, that a desire to slash your tax bill leads you to incorporating your business. Six months down the line, admin costs, professional fees and subscriptions to regulatory bodies have rocketed, meaning you’ve now squandered more money than you’ve saved. And all you wanted was to save a bit of tax!

There’s also another small matter to consider – the fact that HMRC change the rules on rates, reliefs and allowances every year. There’s every chance you could spend weeks realigning your tax liabilities, only to find that a rule change has invalidated any advantage you may have gained. This very thing happened to multiple sole traders ten years ago, after incorporating their businesses to claim the now non-existent corporation tax allowance.

The take home is this: so long as you are tax-efficient, you shouldn’t worry about paying more. So long as your house is in order, and your records meticulous, you will pay what you owe. If your business is motoring, and you are tax-efficient, you are bound to incur a good deal of tax. In and of itself, this is not a matter which should induce a headache. 

Recondition your attitude and look to the future. Your business will thank you for it.

The 5 Steps of Auto-Enrolment

Thought I'd write a bit about auto-enrolment (AE).  Going to try and keep it short but the main message is:  DON'T LEAVE IT TO THE LAST MINUTE!!!

The general advice is to start thinking about this 12 months before it needs to be in place. The are various tasks that need to be completed in order and can each involve a lot of waiting around. This means it can take 6 to 8 months to go through the steps below.

There are companies that will get you set-up but they are expensive with fees ramping up the closer you get to your implementation date. It's not unheard of for these companies to refuse to take on jobs that are too close to the deadline or at best making it clear that fines are going to be issued!

What is it anyway?
To "encourage" people to save for their retirement the government has introduced Auto-Enrolement.
This makes it a legal requirement for employers to offer a contributory pension scheme.
There are fines for non-compliance, which start at a £400 "wake-up call" and scale up!
Automatic enrolment doesn't apply when a company or individual are not considered an employer.

If you think this is you it might be worth getting in touch.

Here's a link to notify the Pensions' Regulator.

What needs to be done?

This is when you need to have implemented. It's based on PAYE number and size of organisation.
Here's a tool to find out yours if you haven't yet been notified.

For an AE pension both the employer and employee need to contribute to the pension scheme. The employee can opt out (but not the employer).
There are three minimum levels which are set to rise as AE rolls out. These depend on the category of employee. Clearly this is going to have an impact on your business.

You need to offer an appropriate pension scheme. Unfortunately if you have an existing pension scheme it might not be eligiable for AE.

There are different classes of employee as far as AE is concerned. This will effect what needs to be done on an individual level.
You'll then need to contact your staff and get them enrolled on the pension scheme if appropriate.

Within 5 months after your staging date you'll need to submit a statement of compliance to the Pension Regulator.
This is to confim that your Auto-Enrolment system is fully compliant and in action"

So that's it then....

Not quite, you have to maintain appropriate records, ensure pension contributions are made, ensure you remain compliance as your workforce changes and keep up to date with any changes in legislation.

Every 3 years you'll need to "re-enrol" which basically means checking your organisation is still compliant, checking that no opted out employees wish to enrol and then submitting a declaration of compliance to the regulator.

Good Luck!

This is a quick guide to give an idea of what is involved and is greatly simplified. As ever the devil's in the detail and it's important to get things right for your specific circumstances.
We aim to get things as accurate as possible at the time of writing but legislation can change!
If you have any questions or could do with a bit of guidance dont hesitate to get in touch