Blue Dot Consulting

When you form a company there are five pieces of financial administration to put behind you before you get out there and make money.

We’d recommend you use a company formation service (such as ours!) to set up your company but once it’s formed there are five financial administration steps you need to get out of the way before you can settle down to the business of making profitable sales.

These steps may sound like a lot of work, perhaps because they all come at once, but they’re really very easy and the sooner they’re out of the way the better.

1. Open two company bank accounts and get a debit card

Your company is a separate legal entity from you and needs its own bank account. You can probably get a free banking deal for 12 or 18 months, but definitely get a debit card and put some money into the bank account (a loan to the company) which the company can spend.

The debit card acts as a very useful audit trail and makes bookkeeping easier (particularly if you lose the odd receipt). It also means that the company is spending its own money instead of you having to reclaim out of pocket expenses, which cuts out unnecessary administration and reduces (perhaps eliminates) the burden of P11D reporting.

If your bank won’t give you a debit card from day one then go to a different bank.

The second bank account is one you can use to save for tax payments such as VAT, PAYE and corporation tax.

By putting enough money aside for tax, your main bank account becomes a very good barometer for the health of your profits and success of your credit control.

 2. If you’re B2B – register for VAT voluntarily

B2B businesses should, by and large, be indifferent to VAT and with good bookkeeping (see below) VAT simply is not a problem. Also, from a marketing point of view, a VAT registered business always come across as more professional and reliable than one that isn’t.

This is step 2 because you need to have a bank account before you can register for VAT.

By registering voluntarily for VAT you can reclaim the VAT suffered on the products and services you buy – stationery, IT kit, rent etc. You effectively get a 20% discount!

Yes, you have to add VAT to your sales invoices but if your clients are VAT registered they reclaim the VAT so they’re no worse off.

As a small business, you can register for VAT under the flat rate scheme and you may be better off as a result. But be careful as there are circumstances in which the flat rate scheme can leave you worse off!

If you’re a B2C business you might want to delay VAT registration until your sales approach the level where you have to register – currently £73,000 in any twelve month period.

 3. Register as an employer – if only for yourself

Once you begin to hire staff, you need to register as an employer and run a payroll, but even if it’s just you at the moment you might want to register anyway.

Everyone in the UK is entitled a Personal Allowance – the amount you can earn before you start to pay tax. So there’s a lot to be said for registering your company as an employer and paying yourself through the payroll an amount that at least covers your Personal Allowance – currently £7,475.

This payroll cost, plus employer’s national insurance, should reduce your company’s profit and thereby reduce the amount of corporation tax you pay.

 4. Send off your corporation tax details (CT41G)

When a company is set up HMRC are notified and they will send you a form CT41G.

This is a fact-finding form for HMRC and contains your company’s Unique Tax Reference (UTR) – which you must keep because you can’t file a corporation tax return without it.

Complete and return the CT41G and you won’t have to think too much about corporation tax for at least a year.

If you’re appointing an accountant for the company it’s a good idea to notify HMRC that Bloggs & Co are your agent for tax purposes and that HMRC can talk to Bloggs & Co about your company’s tax affairs.

The accountant will help you do this, using form 64-8, and if you wait until the VAT and payroll registrations are complete then the 64-8 can be used to cover all three taxes.

 5. Hire a bookkeeper

Get your bookkeeping done properly from day one. You’ll know where you stand financially and a competent bookkeeper will stay on top of the VAT and PAYE for you.

Good bookkeeping throughout the year will make the production of annual accounts for Companies House and your corporation tax return easier, cheaper and there will be fewer surprises.

If you don’t know much about accounts now is the time to learn and in any event make sure you’re getting monthly management accounts, cashflow and credit control information.

Develop good financial habits now and growing your business will be a whole lot easier in the months and years ahead. Ignore the numbers now and you could well go bust without really trying.

Summary

At the outset, dealing with these financial issues can make it seem as if all you’ve done is open a never-ending stream of red tape and hassle.

In reality it’s not like that. Once you deal with these five steps you really can spend most of your time making money, which is why you formed the company in the first place.

Health warning:

Our blog is intended to be a broad-brush look at a subject that offers insight and information to the reader. It is not a substitute for taking professional advice on an issue that is specific to your business.