I get a lot of phone calls from people who’ve been trading for six months, sometimes a year, and they’re suddenly panicking because they’ve got no idea what they owe HMRC or whether they’ve been doing things right. I never make anyone feel bad about it, but I always think the same thing – I wish they’d called me on day one.
Starting a business is exciting. You’ve got a brilliant idea, you’re ready to make it happen, and the last thing you want to think about is tax returns and record keeping. I completely understand that. But here’s the thing – the decisions you make right at the start will affect your business for years to come, and getting proper advice early on can save you thousands of pounds and a whole lot of stress.
One of the first questions people ask me is whether they should set up as a sole trader or a limited company. There’s no one-size-fits-all answer to this, which is exactly why it’s worth having a proper conversation about your specific situation. Being a sole trader is simpler to set up and you’ll have less paperwork to deal with, which makes it attractive when you’re just testing the waters. You keep all the profits after tax, and if things don’t work out, you can just stop trading without too much fuss. The downside is that you’re personally liable for any debts the business runs up, and once you start making decent money, you might find yourself paying more tax than you would as a limited company.
A limited company gives you that protection between your personal finances and the business, which can be really valuable depending on what you’re doing. You might also pay less tax overall once you’re earning above a certain amount, because you can take a combination of salary and dividends rather than having everything taxed as income. But it does mean more admin, annual accounts that need filing, and generally a bit more complexity. For some people, that trade-off is absolutely worth it from day one. For others, starting as a sole trader and then incorporating later makes more sense.
Then there’s VAT registration to think about. You have to register for VAT once your turnover hits £90,000, but you can register voluntarily before that if it makes sense for your business. If you’re selling mainly to other VAT-registered businesses, being VAT registered early can actually be beneficial because you can reclaim the VAT on your expenses and purchases. If you’re selling to the general public, though, adding 20% to your prices might not be the best move when you’re trying to get established. Again, it depends entirely on your circumstances.
What really matters is keeping good records from day one, regardless of how you’re set up. I’ve seen so many people scrambling through shoeboxes of receipts or trying to remember what a mystery bank transaction was for six months ago. If you’ve got a simple system in place from the start, even if it’s just a spreadsheet or a basic accounting app, you’ll thank yourself later. And if you’ve got an accountant on board early, they can set you up with the right tools and show you exactly what you need to be tracking.
People often worry that they can’t afford an accountant when they’re just starting out, but honestly, you can’t afford not to have one. The cost of getting things wrong – whether that’s paying too much tax, missing out on allowable expenses, or facing penalties from HMRC – usually far outweighs the cost of proper advice. Plus, when you know you’ve got someone in your corner who understands the numbers, you can focus on actually building your business instead of lying awake at night worrying about whether you’ve done your tax return right.
Starting a business takes courage, and I love seeing local people take that leap. But you don’t have to figure out all the financial stuff on your own. A good accountant isn’t just someone who fills in forms once a year – they’re someone who helps you make smart decisions from the very beginning, who explains things in plain English, and who gives you the confidence to grow. So if you’re thinking about starting up, let’s have a chat before you do anything else. It might be the best business decision you make.