It does not have to be huge, but just sets out the objectives for the future and how these are going to be put into action. It should be a working document reviewed and updated regularly. If you review the business plan weekly you are more likely to achieve it…….fact!

If you would like a preliminary discussion, we offer a FREE initial consultation without obligation.

Read on for guidance on some of the issues that need to be considered before trading begins.

There are many forms that your business can take:

• Sole trader
  This is the simplest form of trading. One individual trading in their own name.
• Partnership
  Two or more individuals trading as a business. We would recommend in any partnership that a Partnership Agreement is put into place from day one, including what may happen if the partners no longer wish to work together in the future. The general position in partnership law is that each partner is jointly and severally liable for the partnership debts. It is therefore important that you know and trust your business partners.
• LLP
  A Limited Liability Partnership is structured rather like a partnership, but has the benefit that the members’ liability is limited.
• Limited Company
  A limited company is a business entity separate from the owner/owners who merely own shares in the company. Directors are appointed by the shareholders and run the business day to day. In many small companies, the owners are also appointed as directors, but this need not always be the case. The advantages of a limited company are limited liability and potential tax savings when reasonable profits are made. Other benefits include prestige and the readiness of banks to loan money. The disadvantages are the costs of having company accounts prepared and having to disclose more information.

You will need to register yourself with HM Revenue & Customs (HMRC), irrespective of the business structure. This is to notify them that you have set up in business and are going to trade.

Information on registering a new business with HMRC is available from their website www.hmrc.gov.uk. In addition to this, we have a dedicated tax department available to assist you and they can be contacted on 0845 408 1724.

If your turnover is over £67,000 in a rolling 12 month period, you need to register within one month from the end of the month in which you exceed the £67,000 limit. Thereafter you will charge 17.5% VAT (output tax) on your invoices to customers and pay this over to HMRC after deducting VAT (input tax) on expenses you have suffered.

If you are a sole trader or partnership you can withdraw money from the business bank account. These payments are classed as ‘drawings’. These are not taxable. Your tax bill will be based on your profits before drawings. No special minutes or notice is required for drawings, the only requirement is that they are described as drawings and posted to the correct account in the business records.

Paying yourself in a Limited Company is slightly more formal. There are two options:

1. Salary – If you are paid a salary the company operates PAYE and NI and deducts tax and NI at source. This is paid over to HMRC.
2. Dividends – Should the company have made sufficient profits, dividends can be paid. Dividends are paid out of retained profits, after the company’s tax bill. This can be tax efficient in certain circumstances.

For a business to get off the ground or to enable expansion, it may be necessary to employ staff. It is the employer’s responsibility to deduct income tax and national insurance and operate a Pay As You Earn (PAYE) scheme. You can start this process by telephoning HMRC and requesting a PAYE starter pack which contains all the appropriate instructions. Many of our clients use our specialist payroll department to relieve themselves of the burden of dealing with this.

You will also need to familiarise yourself with employment law.

If you are a sole trader or partnership, your profits or your share of the partnership profits are assessed to income tax and you will be required to submit an annual Income Tax Return. The time limit for this is 31 January after the end of the appropriate tax year. (The tax year ends on 5 April each calendar year). However, should you wish HMRC to calculate your tax bill for you, the deadline is 30 September.

The tax bill is based on the profit for the accounting period or year ending in the tax year at various rates according to the level of profits. Therefore, a year end of 31 March 2006 will be taxed in 2005/2006. If this was the first year of trading and showed taxable profits of £20,000, the tax bill, say £3,000, would be due on 31 January 2007.

In subsequent years income tax is due in two instalments. This is usually based on the previous year’s results and due by 31 January in the tax year and 31 July following the tax year end. Any further tax is payable by 31 January following the end of the tax year.

National Insurance contributions must be paid by both self-employed and partners. This includes a flat rate (currently £2.10 per week) and a profit related contribution.

The company’s tax return is due for submission 12 months after the company’s year end, and in the case of most small companies, the tax will be payable nine months after the year end.

Business expenses are expenses incurred in the running of your business. As such, they are deductible from the business income received, ensuring you only pay tax on the profit. Certain expenses may have an element of ‘private use’, i.e. for the benefit of you as proprietor as opposed to the business.

If you are a sole trader or partnership, an element of this expense is ‘added back’ in the tax computations, i.e. it is not allowed as a deduction against profit. Typically this would relate to:

• Telephone
• Motor costs
• Light and heat, etc

In a limited company, if the company bears the cost of private expenses, this gives rise to a ‘benefit in kind’ and additional income tax and National Insurance will be due.

Relief is available for the extra costs of using your home as an office. But if one room, or part of your home, is used ‘exclusively’ for business purposes then tax may be due when your house is sold. If this is to be avoided, it is important to ensure that any room used for business also has other uses.

Annual accounts are needed for a business. If you are a sole trader or partnership the requirement is only for a profit & loss and, possibly, a balance sheet. If you are a limited company a full set of accounts and disclosures are required which can often run to 10-15 pages. However, if you are a small company, an abbreviated set of accounts can be filed at Companies House.

You are classed as a small company if you meet 2 of the following 3 criteria:

1. Turnover <£5.6m
2. Gross Assets <£2.8m
3. Employees <50

Similarly, if you are a small company and meet the first two of the above criteria you are not required to have an audit, which is an independent check of your figures and systems.

In your business plan you will need to consider your forecasts and your cashflow.

There is a saying 'Sales is vanity, Profit is sanity, Cash is reality'.

It is important for any business, especially a new one, to keep a close eye on cashflow. You need to review this on day one and structure your affairs wherever possible to maximise cash reserves. The biggest reason for failure of a new business is poor cashflow.