When considering launching a start-up it’s natural to focus on all the fun stuff such as designing a logo and building a website. But setting up my own business, the second time round, also reminded me of the many other ‘less exciting but equally important’ processes that should get sorted at the very start of your entrepreneurial journey.

Following my top ten tips will take the stress out of ensuring your start-up adopts an appropriate structure, operates legally and takes full advantage of all the relevant tax efficiencies.

  1. Business structure

The limited company question is fundamental – to be or not to be?

Some consider setting up as a sole trader to be more straightforward. For tax and legal purposes you are the business, which means tax reporting comes with less compliance but it also means fewer opportunities for tax efficient planning. Also, sole trader business debts are actually personal debts, with your home and other personal assets potentially at risk if the business fails.

In the digital age setting up a limited company is not expensive and has never been easier, with new incorporations typically processed by Companies House within 72 hours. The company is its own separate legal entity, meaning your personal assets are protected. There is more compliance, and slightly higher accounting fees, but many more tax planning opportunities.

In the modern era limited companies are generally the best route for most new businesses. Aside from the above points, many clients will insist their suppliers (you) operate as a limited company as part of their procurement processes. And then there is the IR35 ‘disguised employment’ regime to consider – more on that soon.

  1. Business name

This can be as fun as it is tiring! Let your specific business idea and direction be your guide – are you looking to create a unique brand with national or worldwide reach, or a portfolio business where your name will be a unique selling point. Bear in mind that a company name can be changed easily at Companies House, and that a company or business can have several ‘trading as’ names, so there is always room for flexibility.

I’d also recommend spending time assessing the usability of your domain name at this early stage, and how this links with your business name, as well as whether .com, .co.uk or .org would suit your business best.

If you’re building a brand with a logo existing trade marks can also be considered at this point, to avoid any unwelcome changes as the business develops.

  1. Tax registrations

Whichever business structure you choose it will need to be registered with HMRC.

Sole traders set up after 5 April 2020 must register with HMRC by 5 October 2021 at the latest. Limited companies are automatically registered for corporation tax as part of the Companies House incorporation process.

VAT and PAYE registrations are not automatic and need to be registered for at the appropriate time, as referred to below.

  1. VAT

Valued Added Tax is a sales tax and charged on a significant number of goods and services that we buy every day. Businesses with annual revenues in excess of £85,000 need to register, after which they must make a quarterly submission to HMRC to pay over the VAT collected on sales, less the VAT paid on costs.

If you are a B2C business, or providing services to the third sector, care needs to be taken to consider the impact of VAT on your pricing structure from the beginning to avoid any unnecessary changes once you register.

  1. PAYE

Pay As You Earn registration is required as soon as the business begins making salary payments to employees, which includes you as a company director if you set up a limited company. The business is then responsible for making all income tax and National Insurance deductions from employees in each pay period, and then paying them to HMRC by the 22nd of the following month.

Once operating with employees the business also has a legal requirement to assess and register each employee within an auto enrolment pension scheme.

  1. Regulation

Many businesses do not need to be registered with a specific regulatory authority, however for some there’s a mandatory requirement. For example, if you’re providing legal, accounting, tax or financial services related products and services you should also look into registering with relevant professional bodies.

  1. Bank account

As a limited company is its own separate legal entity you’re required to operate using a business bank account that has been set up in the name of the company. As a sole trader this is not required, however it is strongly recommended so that you can ring-fence the business transactions and have a clear divide between business and personal finances.

  1. Accounting software

Under the Making Tax Digital regime, most VAT registered businesses are now required to use an online accounting system to submit their quarterly returns. Even where this is not required online accounting tools are now considered essential for the efficient management of business finances. Systems such as Xero, Free Agent, Kashflow and Quickbooks can pull transaction data directly from your business bank account, and their mobile apps allow for point-and-click uploading of receipts and invoices.

With services such as GoCardless, Stripe and Shopify making payment collection radically easier for small businesses, time spent on financial management can be much more efficient.

  1. Insurance

Before you start trading discuss your business and client base with an insurance broker to ensure that you have the level and value of cover in place that is specific for your business. Professional indemnity cover will be a must for most end clients when delivering professional services, and employer liability insurance is a legal requirement once you have employees. Other common cover relates to product liability and public liability.

  1. Accounting and legal

Deciding when to hire an accountant or lawyer is a key decision for most small businesses due to the increase in costs. Ask for recommendations from friends, colleagues and other entrepreneurs and take time to find the best fit for your business. Finding a professional who has worked with start-ups and growing businesses will be beneficial as they are often more open to formally engaging at the right time for you, and many offer fixed fees.

Also, an accounting team who can provide assistance with areas such as R&D tax credits and investment rounds means they are no longer seen purely as a cost centre.

Ben Sheils, associate accountant and financial planner

All writer’s opinions are there own and do not constitute accounting, tax or financial advice in any way whatsoever. References to specific taxes are correct at the time of writing. If you need specific advice please contact the author or a qualified professional.