What kind of business should I be?
You can be a sole trader, a partnership, a limited company or a co-operative - the choice is yours. But before you begin trading, you need to decide which legal form of business is best for you. This decision will affect the way you are taxed and the accounting records you will have to keep. Even if you are going to work on your own from home, think about whether there might be advantages in forming a partnership or a limited company. Get advice on this if necessary.
What do I call my business?
If you are going to trade on your own, or as a partner, read 'Business Names - Guidance Notes' before you decide on a name. You can get this from the Companies Registration Office. It tells you how you can name a business, and what you are not allowed to use without permission or proper entitlement, such as the words 'Royal', 'Authority', 'International' and so on. It also explains the regulations you must meet if you are going to trade under a name which is not your own.
Or you can use the services of Business Names Registration Pic. They will make sure the name you have chosen meets these regulations and will send you the documents you need. They will also put your name on their register to protect you against copying.
If you decide to use a business name, you must display certain information in a prominent place where you work (even if you are working from a shed in your garden). This information must also be on all business letterheads, invoices, receipts and so on. It is up to you what style you use, but it must include your business name, your own name and those of any co-directors or proprietors and your permanent business address. If you have any problems, your solicitor will be able to help you.
Company names
If you decide to form a limited company, you need to know about the rules and regulations explained in the booklet 'Company Names - Guidance Notes'. You can also get this from Companies Registration Office. Restrictions on names and the rules on what information you must give are the same as those for individuals and partnerships going into business. But you must also make sure that there will be no objection to the name you choose. This could happen if the name you want is the same as or similar to a name already being used. This is a fairly important point, because if you are told to change your name, it could cost your business a lot, and not only in money.
Patents, copyrights and trademarks
Copyright and patent laws protect your ideas from being exploited by a rival business. They also prevent someone using your 'intellectual property' without your permission.
If you have invented a real money-spinner which could be developed into a product, you might want to apply for a patent If you do, you will find it a very complicated procedure. We strongly recommend you talk to a patent agent. The Chartered Institute of Patent Agents or the Patent Office will be able to help you. (See 'Useful addresses' ) Remember, even if you have a patent, there could be a long and expensive legal battle trying to stop other people using it.
Another legal protection is 'copyright'. Copyright is the creator's or legal owner's rights in creative work like paintings, writings, photographs, advertising artwork, video tapes and TV commercials, even when these are made for a client. Remember this if you are using artwork or creative work of some sort. Unlike patent protection, copyright happens automatically.
When you have decided on a name for your new firm or product, or you have designed a logo, you can apply for the trademark to be registered. This will give you greater legal protection. The Institute of Trade Mark Agents and Trademarks Registry can help you.
How do the trading laws affect me?
There is a wide range of laws to protect consumers, employees, the general public and businesses themselves. So it is important that you have at least a basic understanding of the law and how it affects you and your business. Your solicitor should be able to tell you more about existing trading laws, but the following Acts of Parliament are important to all businesses:
- Consumer Protection Act 1987
- Trade Descriptions Acts 1968 and 1972
- Sale of Goods Act 1979
- Health and Safety at Work Act 1974
Whatever your business, as far as consumers are concerned, there are 3 trading standards which are almost bound to affect you:
- If goods are faulty, customers can have a full refund or part of a refund. Or you can agree to repair or replace the goods. A notice which says 'No Refunds' is not legal. In some cases, displaying such a notice can be a criminal offence.
- Goods must always live up to the claims you make for them. Fashion boots described as waterproof must keep out rain and protect people's feet against puddles. If you label goods falsely, you could be prosecuted and buyers would be entitled to their money back.
- Goods must meet certain safety standards. If a child is injured or poisoned by a toy, or there is an accident with a faulty kettle, you could be prosecuted and a large claim could be made against you for damages. Although these safety standards are not all part of the law, if you are in the kind of business where this could happen, it would be wise to get insurance cover.
Insurance
Insurance is essential from the start for almost all kinds of business. The purpose of insurance is to provide cover against risks. As small firms are particularly vulnerable to one-off disasters, an important management issue will be choosing appropriate insurance policies to reduce the effect of bad luck.
Insurance you must have by law
� Employers' liability
By law, any business that employs people, even on a part-time basis, must have this insurance unless they are specifically exempt. This will provide protection against your liability for accidental injury, death or disease to employees.
� Third party motor insurance
Business vehicles need at least third party insurance.
Recommended insurance
� Public liability
We recommend public liability for all businesses for example: plumbers, builders, carpenters and other self-employed businesses when contracting for work with companies or councils. This will provide protection against legal liability for accidental injury, death, or disease to members of the public or accidental damage to their property caused through business activities.
� Property
You need property insurance, including cover for fire and theft, to protect your business assets.
For further advice, you could contact your bank or insurance brokers.
Keeping records
You will need to keep records for your own sake, but you must also keep them by law to support your VAT, tax and National Insurance contribution payments and claims. If you are a limited company, there are further conditions to do with your annual report and accounts, records of board meetings and transactions in your company's shares.
If you are a sole trader or a partner, the tax rules are different but you will still need to produce complete financial records. Your accountant will know what to do.
If you plan to keep any information about people electronically, for example on a personal computer, you must register under the Data Protection Act 1984. Under this Act, computer users must follow 8 Data Protection Principles for using computers.
Before you choose a property, talk to your solicitor. and check with the local council. Make sure you are on the right side of the sometimes complicated regulations, like environmental health rules, which govern how premises can be used for trade. For example, if you are planning to start a food business, you must register the premises you intend to use at least 28 days before you open. You must take these rules into account even if you are trading from home, where, for instance, you might need planning permission.
You need to look closely at business leases. Remember, they are not as easy to get out of os they are to get into. Use the checklist on the right to help you decide on the kind of premises you need.
What about my tax liabilities?
The amount of tax you need to pay will depend on a number of things, but you will generally pay less tax if you put business expenses down against your gross profit. (Another good reason why your records are so important.)
Your accountant will be able to help you reduce the amount of tax you pay.
Tax on profits and income
If you are a sole trader or in partnership, you pay income tax. If you form a limited company, you must pay corporation tax on the profits your company makes. You must also pay income tax on your wages. These will be paid by PAYE (Pay As You Earn) as you are an employee of the company.
Once again, your accountant can help you.
VAT (Value Added Tax)
Each year, the Government sets a level of turnover, and if your business goes over this level, you must apply for VAT registration. In some cases, it might be best to register even if you are below this level. If you have any questions about VAT you can read the official guide 'Should I register for VAT?' or ask your local VAT officer or accountant for advice.
VAT is simple enough if you pay VAT on all your supplies. This is what happens:
You charge VAT on certain goods and services, and send the VAT you collect to Customs and Excise every month or quarter (3 months). In turn, you may be charged VAT on goods and services you need to run your business, such as materials, legal fees, telephone bills and so on. If so, you can claim it all back In practice, you simply take the second 'outgoing' total from the first 'incoming' total. Then you pay or claim the difference. This does not apply to VAT on imports, which you must pay as soon as the goods enter the country. If this is part of your business, you may be able to arrange a special bond through your bank which would help you put off such payments. The VAT regulations change constantly, so you need to keep up to date with developments.
Remember, the VAT office take a firm line with businesses that pay late or do not register when they should.
There are a number of manual accounting systems available but, if you do have a computer for your business, you can ask a member of staff for the NatWest Book-Keeper CD Rom which will help you with your VAT return.??????????????
At first you may be able to run your business by yourself, if not, or as your business expands, you may need to employ people. If you do need to recruit employees, you should know your responsibilities as an employer.
What are my responsibilities as an employer?
Every employee, whose employment continues for one month or more, has the right to receive a written statement setting out certain details of their employment. This should be provided no later than two months after their employment starts.
This statement must include the following details:
- The name of the employer and the employee as well as their job title and job description.
- Their place of work
- The date the employee's employment and period of continuous employment began.
- Terms and conditions relating to hours of work, holiday entitlement and pay (including public holidays).
- The scale and rate of pay, pay intervals and methods of calculation.
- Grievance procedures.
- Sickness procedures, including sick pay.
- Pension schemes.
- Length of notice needed to end employment
- Any collective agreements.
- Disciplinary rules including the process and any appeal arrangements. (An employer with fewer than 20 employees does not have to give these rules.)
Discrimination and the law
Generally, when recruiting an employee, it is illegal to discriminate on the grounds of race, sex, disability and marital status, however there are certain limited exceptions. The anti-discrimination laws continue to apply to all other parts of an employee's job, including wages and holiday after the recruitment process. As an individual you could be personally liable for discriminatory actions.
Tax and National Insurance Contributions
If you employ anybody, either full-time or part-time, you are responsible for deducting income tax and National Insurance Contributions (NICs) from their wages, and you must also pay the employer's share of the NICs. If you are not sure about NICs, always consult the Inland Revenue. There are different tax and National Insurance rules depending on your circumstances.
When you take on someone you need to tell your local tax office. They will send you documents which show you how much you need to take out of each employee's wages, and where to send the money. You must record each employee's earning and tax and National Insurance Contributions and tell your local tax office about these amounts every year.
In the case of National Insurance, the contributions for your employee will be in two parts. You must pay one part and your employee must pay the I other. These contributions depend on how much you pay your employee. The Inland Revenue will collect them at the same time as they collect any tax. The Inland Revenue will be able to give you more advice on National Insurance.
Your own National Insurance depends on your circumstances. If you are a company director you will be treated in a similar way to your employees. You will be classed as an employee of your company and will pay contributions in the same way as your employees but, there is a special way to assess directors' National Insurance. Please contact the Inland Revenue for further advice on this matter. If you are a sole trader or partner you will need to contact the Inland Revenue. You choose whether to pay your National Insurance contributions every month by direct debit or every three months when you receive a bill. Your contributions will be charged at the same rate each week. You may also have to pay an extra contribution for any profit your business makes. This is assessed and collected along with your income tax.
Health and safety
You must make sure that, as far as is reasonably possible, the health, safety and welfare of your employees is not at risk whilst they are at work.
Contact your local Heath and Safety Executive for advice and information which will help you set up and maintain safe legal working conditions for employees.
Trade Unions
It is illegal to refuse a person employment because he or she is or is not a member of a trade union. You should know the various laws which protect your employee's rights to choose whether to join a trade union.
Dismissing an employee
We hope you will never have to take such a drastic step, but if you do, you must have a valid reason for dismissal and you must act reasonably and follow procedures. Failure to do so could lead to an unfair dismissal claim. Unless the dismissal is for gross misconduct. You must give the employee notice of dismissal as set out in their contract. Failure to give" proper notice may lead to a wrongful dismissal claim.
Sub-contracting
One alternative to employing directly is to subcontract some work. This may be more cost effective in ironing out short-term trading highs and lows, and might alleviate some of the responsibilities of an employer. However, legal responsibilities can arise in this respect, for example the transfer of undertakings regulations. You may need professional help in respect of such matters.
