Ready, set, go! The importance of setting firm financial foundations for your start up

Our new Catalyst Centre tenants were fortunate enough to have accounting experts from Fiander Tovell LLP speak to them about the importance of considering company structure and taxation from the outset of any start-up operation. Andy Jay, Andrew Jackson and Dean Weale made a lot of interesting points based on their experience with working with start-ups businesses and below we’ve highlighted three key points that start-ups should consider to ensure they have the foundations for success.

The Advantages of Limited Companies

Fiander Tovell’s first piece of advice was to set up as a limited company. The benefit of setting up a limited company is that it’s responsible in its own legal right; everything it does and its finances are separate to your personal finances and this is quite distinct from being a ‘sole trader’. Therefore you think as the business not as yourself! Focus on making your company a success using your skills, experience and judgment whilst following the company’s rules.

As your company moves into making profit it will begin to pay taxes. If you are not a registered limited company then it will mean you personally will be liable for paying taxes: this will inevitably result in you paying 45% tax as income tax, rather than 20% tax through the business at current corporation tax rates for small businesses.

Another key advantage of remunerating yourself and other directors through a limited company is that your income and the company’s profits are kept quite separate and this helps to ensure that cash is retained in the business to facilitate its growth.

Find out more about how to start a limited company at https://www.gov.uk/government/publications/starting-a-limited-company

The Importance of Statutory Accounts

Limited companies are legally required to create a set of statutory accounts for HM Revenue & Customs and these have to be filed with Companies House for each accounting period (usually every twelve months). These accounts have to include the basics such as a ‘balance sheet’ (which is a company snapshot listing assets and liabilities) and a ‘profit and loss account’ (which shows revenue minus costs of sales, overheads and expenses). These reports are the basis for tax responsibilities and are out in the public domain for anyone to scrutinise so it is vital that they are prepared accurately and in a timely fashion.  Companies are fined for late submissions, and, as a Director, you are responsible for any such failures. Working with an accountancy practice who understands SMEs and start-ups is highly recommended.

Consider Research & Development Tax Credits

The government’s R&D Tax Credit scheme is an incentive designed to encourage innovation and increased spending on research and development. Many start-ups are unaware of R&D Tax Credits, mistakenly thinking they are difficult to qualify for, not worth the effort, or perhaps many entrepreneurs aren’t even aware of them.  However, they could help reduce your company’s tax bill and could therefore prove to be a lucrative way to raise funding for your business.  For an overview, visit: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief

A word of caution however: if a start-up receives a grant or subsidy such as Innovate UK’s SMART award, with a view to help with an R&D project, it can hinder any subsequent application for R&D Tax Credits. This will depend on the specific company and the particular grant so the best thing is to obtain specialist advice to establish whether grants or R&D Tax Credits are the best way to raise money for your development programme.

Catalyst Centre tenant, Simon Wickes of Cynaptic said: “I find the complexities of law and taxation quite hard to get my head around when there’s so much else to consider at this stage of starting my business. I found this seminar really helpful in simplifying business finance and it’s certainly made me think about the importance of doing it all 100% right from day one.

Thank you to Andy Jay, Andrew Jackson and Dean Weale from Fiander Tovell LLP, Chartered Accountants (http://www.fiandertovell.co.uk) for leading the discussion on finance for our Catalyst Centre tenants.

Next week the tenants will be taking a well-deserved break from seminars but we will be putting them through their paces the following week with React Communications’ Managing Director, Layla Stacey, discussing how to pick players for your team.