If you are considering setting up in business then the following might help. For any young artists or arts organisation knowing how to operate as an official business can provide the next step in your creative career. But it is not necessarily right for everyone and there are other options, particularly if you work in partnership or as a collective that you might like to consider and do some further research on - such as becoming a cooperative, a social enterprise or community interest company (cic). Young artists have asked us about next steps and whether it is easy to ‘set up a business’ so we have put together what we think are some handy tips to consider if you think becoming a registered sole trader - more ‘business like’ is the next step for you. UK Young Artists is not a professional business advice company - there are many organisations (both national gov.uk and local) out there that would be able to give you professional advice.
We have tried to provide a concise overview of what you would need to consider if you are looking to register you business and take those next steps in your careers.
In this article, we will be covering:
3 Simple Steps to success in registration
The different categories and ways of registering
The pros and cons of each category
Tax return forms
Other bits and bobs
3 Simple Steps to successful registration
There are 3 main things to take into consideration whilst setting up your business.
Decide on the best legal structure for your business - we will go into more detail about this below.
Business Name - you can register your company name at companies house for free.
Categories and ways of registering
There are a few different ways you can register as self employed:
What: A sole trader describes any business that is owned and controlled by one person, although they may employ workers.
How: You’ll need to register for Self Assessment (tax return) and Class 2 National Insurance as soon as you can after starting your business. You can register online through .gov website by clicking this link
You will then get a letter with your 10-digit Unique Taxpayer Reference and be enrolled for the Self Assessment online service at the same time.
Sole traders have much less paperwork to file than businesses run as limited companies. They have to file only one document with HMRC each year (the Self Assessment Tax Return), and none to Companies House.
More control for you
You keep all the profit
Liability. Sole Traders do not have a separate legal existence from their owner who is personally liable for the firm's debts.
Access to finance. Sole traders often find it difficult to raise finance to fund their business but there are a number of grants you can apply for, for example The Princes Trust
Decision Making. All decisions are made by the sole trader which means that the success or failure of the business rests on the shoulders of one person.
What: A Limited Company describes a type of business structure which has been incorporated into a legally distinct body or person. If you choose to run your business as a limited company, the business will be legally distinct from the people who run it. The business will also have separate finances from the owner's personal finances and be able to own assets and keep any profits it makes after tax.
1. The company must be registered at Companies House and the company’s annual accounts must be filed at Companies House
2. A Confirmation Statement must be submitted every year to ensure Companies House records the most up-to-date information about the company. It currently costs £13 to file your Confirmation Statement online, or £40 if you choose the paper route.
3. HMRC must be informed if the company has any profits or taxable income on an annual basis.
4. Every limited company must complete an annual Corporation Tax return (CT600).
5. All company employees must pay income tax and National Insurance Contributions (NICs) on any income they receive.
Status - the term 'limited' gives the company a bit more weight so it appears to hold more esteem and seems bigger, both for potential investors and consumers.
Investors are more inclined to take a chance on limited companies as their investment has more protection than a sole trader or partnership.
Security - as such, banks also tend to favour limited companies and they are given the chance to take out extra security by lodging a 'floating charge' over the company's assets. That means that if the terms and conditions of the loan are breached, the bank has the first claim on the assets.
Dividends - the dividends of a limited company are not subject to national insurance and are at a lower rate of tax than self-employment income.
Effective tax rates - if you intend retaining some of the profits within the business, then it might be best to go limited as this reduces the tax rate.
Liability - banks will still require personal guarantees from the directors, which means that the directors can still be liable for the company's debt.
Administration - directors are also expected to deliver statutory documents to Companies House, so anyone failing to do this is subject to late filing penalties and could be deemed to have carried out a criminal offence.
Less privacy - becoming a limited company means accounts and other details are held on public records so anyone, including competitors, can access company information, although it can be restricted.
Withdrawals - making withdrawals from the company can also pose a problem in terms of tax as it is difficult for shareholders and directors to separate their finances from those of the business.
Accountancy fees - one expense bound to be higher for limited companies is the accountancy fee as reporting requirements tend to be bigger.
An unincorporated association is a membership organisation. It can be whatever its members want it to be, and carry out whatever activity you choose. It is the easiest, quickest and cheapest way for a group to set itself up. This structure is suitable for groups such as playgroups, pensioners associations, film clubs, arts groups and campaigning groups.
This structure is simple and flexible. You do not need to have your constitution approved by any outside body.
An unincorporated association is cheap to run
If your aims are not charitable, and you don’t get any grant funding, you won’t need to submit accounts or reports to anyone outside your group
If your aims are not charitable, you have no obligation to any regulatory body and there are no particular rules about how you should run your group (so long as your activities are generally lawful)
You can still apply for a business bank account as an unincorporated group
- Some funders only give money to charities. You can overcome this problem by being a charitable unincorporated association.
Your group has no separate legal existence – it is a collection of individuals. This means that:
Individual members of your management committee are personally responsible for the group’s obligations and debts, and are liable if, for example, it is sued. While it is possible to insure against this liability it is often difficult to claim on such insurance. If you feel you may need insurance you may be better to look again at your structure and choose some form of incorporation.
The group cannot enter into contracts – if it wants to rent premises or employ people, this is done, in the eyes of the law, by individuals on behalf the group
The group cannot own property in its own right.
Tax Return Forms
HMRC usually contact you in April or May (just after the financial year end). Simply put, the purpose of a tax return is to make sure everybody has paid the right amount of tax. You can claim back tax on certain business expenses. This applies to things like mileage allowances, specialist clothing or equipment, subscription to professional bodies, or household expenses if you work from home.
Filing your tax return for the first time can feel a bit daunting, but overall it is actually quite a simple process. We recommend that you keep on top of your finances throughout the year by:
- Number your invoices and keep them all in one folder on your computer. If you have lots of them, you may want to sort the folder into sub folders by month
- Keep all receipts for business expenses (train tickets, lunches, research events/trips etc) and number them to correspond with a spreadsheet (next bullet point!)
- Keep a spreadsheet of your income and expenditure. Decide on a method that works for you to keep this up to date, for example you may want to update it with any expenses/income every two weeks, or you may want to do it as and when they occur
- If you have more than one job, and one of them pays you under PAYE, you will need to declare your earnings from this job on your tax return, so keep your pay checks and add a separate income line in your spreadsheet for these earnings and how much tax you have paid on them already
- When the time comes to fill in your self assessment you will be able to use all the information recorded in your spreadsheet to fill out the form. There are various other questions and tick boxes that you'll have to answer, but each comes with an explanation.
- Remember to keep the receipts for any business expenses that you've declared for seven years as HMRC can call on you at any point to provide them!
You'll first need to register online here
You can find out more information here
Other Bits and Bobs
Business Bank Account This isn't essential if you’re a sole trader but it will help to keep your accounts in order. Any bank can offer this option but be careful as bank make charges for these accounts.
If you are a company/collective/group and you apply for funding from Arts Council England, you would need a business bank account for the funding to be paid into. Sometimes these can take a bit of time so make sure you plan this in when writing your application to ACE.
Get Compliant - make sure that you satisfy all regulatory issues eg. health & safety, licensing, data protection.
Marketing and Communications - develop a brand identity, set-up a website and think about promotional material. Set up communications and ensure that your customers can easily contact you by phone, email and social media platforms.
Insurance - make sure to shop around to compare quotes, you may need public liability insurance or to insure goods and equipment if you are an artist. Try AXA to compare quotes
If you would like any further information or support with registering your business, or have any questions in relation to this article, you can contact:
The Hive (NTU students and alumni but also open to public) on 0)115 848 4354 or by emailing here.
Enterprise (Loughborough University students but also open to public) here
Be The Boss (Derby University students and alumni) here
The Career Development Service (Leicester University students and alumni) here
The Innovation Centre (DMU University students but also open to public) here
We hope this helps you on your journey to becoming your own boss!