Are you looking to make the most of the Christmas rush by setting up a business for the festive season? You are not alone; each year, thousands of people all across the UK start Christmas side-hustles or even launch a new venture to boost sales from the outset. However, turning an idea into a properly structured business quickly can be challenging. In this article, we look at some of the questions you may have about setting up a business for the Christmas period.
You will be required to pay tax on your business unless you earn less than £1000 in any tax year. The low earnings tax exemption can be useful for those who are just looking to make a bit of extra cash, but if you are planning to earn a serious income from your business, you should be prepared to inform HMRC and pay tax on your earnings.
Again, if you plan to make more than £1000 in any tax year, you will need to register your business with HMRC. In addition, there may be additional registrations required depending on your sector and local area. For example, certain food businesses must register with their local council.
There are benefits to both setting up a company as a separate entity or operating as a sole trader.
A sole trader may be the best option where the following apply to you:
If you choose to operate as a sole trader, you will be liable to pay income tax and national insurance on your earnings. You must complete a self assessment and pay the tax you owe by deadline, which is 31st January.
There are many advantages to setting up a limited company. With a limited company, your business will operate as a separate legal entity. You will be able to set up bank accounts and take out loans in the name of your business, and you may also save money on tax. There are, however, drawbacks to operating as a limited company, including the level of administration involved. Limited companies are required to file a confirmation statement and annual return each year. This can be complex, and you may need the assistance of an accountant to do so.
If you set up a limited company and only plan to trade for the festive season, do you need to close the company? The answer will depend on what your plans are for the future. There is no obligation to dissolve the company. Instead, you can register the company as being ‘dormant’, allowing you to use the company again in the future. If you are considering trading the following year, you shouldn’t dissolve the company just yet. If you do not plan to trade again, then you should let Companies House and HMRC know that you wish to dissolve the company.
When you are a sole trader, the money you earn is your own. You do not need a separate bank account, and all of the profit your business brings in is classed as income. Basically, as soon as the business makes money, you can spend it.
On the other hand, if you choose to set up a company, there are strict rules about spending the money you bring in – even if you are the only person in the company. As the company is a separate legal entity, the money does not belong to you under the law. You must pay yourself out of the company. There are several ways to do this, including paying yourself as an employee, paying yourself dividends as a shareholder, or a combination of both. Which is the best way will depend on your specific circumstances.
The advice we give is tailored to your needs and is designed to ensure that, from the moment you begin to trade, you have everything you need from a legal perspective to run your business as effectively and efficiently as possible — which is far better than trying to assemble everything in a piecemeal fashion as you grow and develop. To find out more from our commercial solutions team please contact Marcin Durlak on 0330 107 0106 or email business@imd.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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