In the overall business population in 2015, there were:
- 1.8 million companies (32%),
- 421,000 ordinary partnerships (8%).
- 3.3 million sole proprietorships (60% of the total),
You must choose a ‘structure’ for your business and it will define your legal responsibilities for:
- The paperwork required to get the business started
- The taxes you’ll have to manage and pay
- How you can take the profit the business makes
- Your legal liabilities if the business fails or makes a loss.
Remember, the type of company you chose is not about the size of the business but more about what level of legal liability you are prepared to risk (see further below).
Let’s assume that we are talking about setting up your business just for you and a couple of friends/others.
The first question you must ask is – “Do I intend to make a profit?”
This is an important question because you can form an ‘unincorporated association’ if your setting up a small club or group and don’t intend to make a profit. There are also separate rules for Charities.
If you are going to be “for–profit”, there are 3 basic types of company:
- Limited Company
- Partnerships (Ordinary and Limited Liability Partnerships)
All businesses are regulated by the Companies Act 2006 and HMRC regulations.
This course assumes that you are starting a business to make a profit and so we will cover Ordinary and Limited Liability forms of the Partnership business structure.
What is a partnership?
A Partnership is where several people, normally who have a common practice or profession, form a business from which the profits are shared between the partners in equal or pre-agreed shares as set out in a Partnership Agreement.
- Each partner reports business earnings, expenses and profits through their personal tax returns.
- Each partner shares the business liabilities – financial and non-financial.
- In addition, a Lead Partner is responsible for the Partner reports but the business itself has no tax liability.
Limited Liability Partnership
A Limited Liability Partnership (LLP) is a nuanced version of a Limited business between a Partnership and a Limited Company.
An LLP is where the Partners are limited in their business liability but the LLP doesn’t attract any of the tax advantages of a Limited Company.
Therefore, the LLP has the advantage of reducing the personal liability of the partners while retaining the simpler personal tax, reporting and profits regime in the proportion set out in a Partnership Agreement.
Who are they good for?
Partnerships are good for professionals who share common or complementary skills and wish to provide those as services to others – typically a group of experts who want to form a consulting practice.
In order to be as accurate as we can, some of the content has been taken from official websites and is available under the Open Government Licence v2.0, except where otherwise stated.
Starting a Partnership
Why would I form a partnership? To share costs and leverage my expertise with colleagues!
Starting and registering your Self Employment
Letting the taxman know you’re now self employed is required under law – this is how you get started and ready to tell him!
As a self employed partner, you can use your personal accounts to run your business. However, you must keep your personal and business accounts separate – here’s how.
Self-employed financial reporting
What records do I need and what do I need to report and how? You must keep records of your business income and expenses.
Expenses and Allowances
What can I claim against the tax I pay from the business? Can I still claim some expenses on a personal basis?
How do I account for vehicle expenses? There are 2 key methods – actual costs and fixed costs. Both methods must be adjusted when using a company vehicle exclusively for the business, using for business and personal use (say your own car).
Annual Investment and Write Down Allowances
Woah – this sound complicated. Well its not and these ‘capital allowances’ are an important aspect of your business finances. Capital expenditure is the money you spend on items you would expect to last several years and they are referred to as assets – because they have a resale value.
National Insurance Contributions (NIC) & Tax
There are different types of NIC – which types or types must I pay? Can I get exemptions?
Pre-trading Expenditure Tax Relief
Before you start there will be preparatory expenditure – keep a record, some get tax relief.
Entrepreneurs Tax Relief
Entrepreneurs’ Relief means you’ll pay tax at 10% on all gains on qualifying assets.
General Information and Tips
This section contains practical help on things like ‘How do manage my time?’, and ‘where you can get software to help your business?’