If you’re just about to start a small business, you’re probably not yet considering a registration. While it’s definitely understandable that you’d like to avoid paying taxes on your first year or so, getting legally registered should still be part of your early goals. Contrary to what you may believe, being a legitimate business doesn’t actually cost you more money.
In the U.K., you may register your small business as any of the three legal structures: sole trader, limited company, or partnership. Each structure has its own policies regarding taxes, company names, etc.
To know which structure is right for your small business, consult solicitors from reputable firms. These professionals will help you ensure that you’ll be complying with your city or country’s business laws.
Why It Matters to Register Your Business
If you’re planning to open a business bank account, you’ll be asked to submit proofs of your business’s existence. By being registered, you’ll have the appropriate documents to show, making you qualified for the new bank account.
Having a bank account under your brand or company name gives you a stronger professional image. It boosts your credibility, especially if you’re B2B business supplying for mega corporations. Meanwhile, registered B2C businesses are typically given discounts by their suppliers, something unregistered businesses don’t normally get.
If you register as a limited company, the perks are even greater. You can pay lower taxes, the rate being only 19%, which is considerably lower than a sole trader’s personal tax rate of 20% to 45%.
In addition, companies can borrow funds easier than sole traders. Your registration documents will verify that you’re qualified for a business loan, but if you’re sole trader, you can only show proofs of your self-employment.
If you’ll be hiring employees, being registered will allow you to make pension contributions before your taxes get deducted. This means your contributions will be tax-free, as it qualifies as a legitimate business expense.
When your business grows, you may also start selling shares, including your own, to obtain funding.
And the best benefit of all is most probably the fact that company owners aren’t personally responsible for their business’s losses. That’s because your business is considered a separate entity, unlike a sole proprietorship (trader), which is recognized as self-employment.
How to Register Your Business
The basic requirements for registering a limited company are the following:
- Company name
- Business outline
- U.K. office address
- Brief summary of the nature of your business
- Breakdown of the share capital distribution
- Names and I.D. numbers of the director(s), secretaries, and initial shareholders
- Memorandum of Incorporation
- Articles of association
If you’re a sole trader, these are the documents you have to prepare:
- A proof that you earned more than £1,000 from self-employment within a given period
- A proof that you’re self-employed
- A plan to make voluntary Class 2 National Insurance payments
For a partnership business, the registration requirements are only the following:
- Company name
- “Nominated” partner/s
- Registration with the HM Revenue and Customs
Note that like sole traders, business partners are also personally responsible for the business’s losses. Hence, registering as a limited company is the most advantageous.
As you register your business, check if you’ll need licenses or permits, and an insurance. Also, find out if you’ll be required to follow special rules, which typically exist for online retailers, importers, exporters, and collectors or users of personal information.
Taxes may be a burden, but penalties for non-compliance and being unregistered are heavier. Besides, a legitimate company name will certainly make you earn your customers’ trust, which can put you under the limelight and bring forth a surge in profits.