Do I need Insurance for my Small Business?

You are legally required to take out Employer’s Liability (EL) insurance if you employee anyone, even on a casual basis. This is the only insurance that is illegal required to operate your business with in the UK. Some contractors will request you have EL insurance, ensure this is clarified in the contract between you before starting to work with them. If you have employees and operate without EL insurance you could receive a fine of up to £2,500 per day.

What is Employer’s Liability insurance? 

This is to cover you and the business if an employee becomes injured or dies whilst carrying out their duties at work.

How much does Employer’s Liability insurance cost? 

Your premiums will depend on the type of business and how many employees you have. For example, an office worker could be as low as £60 per annum whereas an employee working in construction could be just over £200. The average to cost to a small or medium sized business in the UK is about £120 per year.

Will my Employer’s Liability insurance pay out? 

You should read the whole contract through first and if you are unsure about anything ask the service provider or have a lawyer look over it. The main sections to focus on are ‘Insuring Clauses’ and ‘Exclusions’, this can help you clarify what is covered and therefore more likely to result in a pay-out.

Other types of insurance include… 

How much does it cost to add business use to my car insurance? 

If you are going to be using your own vehicle to carry out business activities you may want to add business use to ensure you’re fully covered. Premiums usually only go up by about £30.

What is Professional Indemnity insurance? 

This covers you if a client incurs a financial loss from your actions. This could include if you made a mistake or accidentally omitted something during your dealings with the company. The burden of proof lies with them but if a client does decide to take action against you, a case could be costly and time consuming, not to mention stressful. This insurance applies to many different types of businesses from consultant firms to graphic designers so even if at first you think this might not apply to you, it would be worth getting quotes.

Should I get Professional Indemnity insurance? 

This insurance is not a legal requirement in the UK but we would recommend considering taking out a policy if you feel this situation may occur in your line of work.

What is Public Liability insurance? 

Public Liability insurance covers you against customers and members of the public making claims if they become injured whilst at your business or as a result of your or your employees’ actions whilst carrying out their duties.

Should I get Public Liability insurance? 

If you regularly come in to contact with the public, we would advise considering this type of insurance.

How much does Public Liability insurance cost? 

The average cost of Public Liability for a UK company is about £120 per year however small businesses and sole traders can pay as little as £40 per annum.
There are many different types of insurance out there and we have only covered the three main ones for general business. If you work in a niche industry or with a specialised product/machinery having tailored insurance would be advisable. Always get several quotes to compare, carefully read your policies to ensure you are covered correctly and if in doubt ask a lawyer to look the contract over.

How to Start a Business (Limited Company)

8 steps to set up your limited company 

These steps will ensure you are compliant and correctly set up with the UK government as a limited company. You can operate as a sole trader which just requires you to register differently with HRMC.

1. Decide if forming a limited company is right got you 

Advantages of setting up as a limited company include; limitation of personal liability, professional status, beneficial tax efficiency and planning. However, drawbacks include; needing to do a more administration, publish your personal details publicly and you will have legal accounting requirements as a limited company. If you are looking to commit to a full-time, more professional venture that you will invest substantial time and effort in growing forming a limited company is a great option.

2. Register your business 

There are several steps to registering your business officially with the government, for advice and help with the process you can use a formation agent. They will save you time, money and stress so you can get to the fun part of running your new company! National Business Register have over 35 years experience forming companies, read more about their services here. You will need to decide on the name of your company, who and how many directors you will have and how many shares each director will have.

3. Employing someone as a limited business 

You will need to pay income tax and National Insurance contributions for each employee so will need to set up a PAYE. This government resource is a good directory for what you will need to cover if you have employees, it also takes you to details regarding your tax self assessment form – get bookmarking!
In terms of employment law – know your basics. A great site for basic legal documents is Rocket Lawyer.
ACAS is a goldmine of informative articles on everything from employment law to workplace Covid advice.
If you’re looking to contact a solicitor our accredited partners, Thursfields have the experience and legal expertise to guide you throughout the life cycle of your business. Read more here.

4. Get an accountant 

It is advisable you get an accountant as a limited business. You are legally required to submit yearly accounts to HRMC alongside your self-assessment forms and Confirmation Statements. Ask friends, fellow business owners and find out more about our accredited accounting partner, Stewart Associates, here.
Remember to keep organised and maintain detailed financial records of everything to do with your business. It may be boring and the last thing you want to do at the end of a busy day but future you (and your accountant!) will love you for doing it. Download your accounting software to your phone to keep organised even on the go.

5. Do you need to register for VAT? 

If your businesses turnover exceeds £85,000 per annum you have to be VAT registered, register here. If you are under this threshold registering is an extra process however it does mean you can claim VAT back on goods and services you use for your business. If you are setting up as a limited company you are probably quite serious about making a go of your business so if you don’t register for VAT (which gives you the ability to claim VAT back on items purchased for your business) you are effectively paying 20% more than you should for anything that includes VAT (which is most things). Just remember to keep those receipts!

6. Understand your tax 

Tax is one of the main factors that sway people to form a limited business. As a sole trader you can pay between 20%-45% tax on your profits whereas a director of a limited company will pay 19%. However don’t go mad spending 81% of your profits, there are other costs, especially with employees (see point 3) limited companies are responsible for. This is where having an accountant comes in really handy. Also having accounting software such as Xero, QuickBooks or Sage will keep things organised on the go.

7. What insurance do I need? 

There are legal requirements for insurance but this decision is also influenced by the type of business you have and how much ‘peace of mind’ you want to pay for. We’ve outlined a few basic forms of insurance below to get you started.
Employers Liability Insurance – this is the only legally required form of insurance for a small business owner. This is to cover any employees that are injured whilst working for you. If you operate with no insurance and have staff working for you, there can be a penalty of £2,500 per day.
Management Liability Insurance (Directors’ and Officers’ Liability Insurance) – this covers the individual directors personally rather than the business as a whole. This can be helpful if things do go wrong as directors are open to having claims of malpractice brought against them with potential fines, disqualification (this will mean you won’t be able to be a director of a future company) and even prison sentences. When taking out this insurance check your policy covers insolvency and large shareholders (over 15%) as many policies do not protect you in these cases.
Public Liability Insurance – this is to cover customer injury. Accidents do happen and not having this insurance if you have a shop/salon etc could be costly. Also note some clients and suppliers may request you have this insurance as part of your contract with them.
Contents and Portable Equipment Insurance – this covers all the technology and physical belongings you use to operate your business. If you are running your business from home and have contents insurance it’s worth checking the wording of your policy as some do not cover equipment used in a commercial capacity.
Professional Indemnity Insurance – this is for businesses that offer advice or consultancy services. This insurance will cover you if a client of yours makes a claim against you stating they have incurred financial loss after acting on your advice. In these industries clients may insist you have this form of insurance and it will help bolster your professional reputation if you do.
Cyber insurance – this will insure you against any claims made if you have a data breach. You should consider this insurance if you hold large amounts of customers data and/or sensitive customer data. This may become more important as you grow and will be valuable to have as you build the data on your customers to optimise your marketing strategy and potentially increase your product/service offering.

8. What are your responsibilities as director? 

The term director does come with some legal responsibilities. Alongside ensuring your business is compliant e.g. has licenses with the local authority and/or the correct insurance for your employees there are some actions you will need to do.
Ensure your corporation tax is paid
File annual accounts with HRMC
Write the companies ‘articles of association’ when you form the company and then follow them. These can be updated after registering
Keep detailed company records and report any changes in a timely manner
Notify other shareholders if there is a possible conflict of interest where you will personally benefit from a purchase the business makes
If you follow these steps you will have a compliant and solid foundation from which to grow your business. If you’re still unsure, we’ve outlined the main differences between being a sole trader vs limited company for you. Alternatively if you’ve decided becoming a sole trader is the best option for you read our guide on how to set up as a sole trader here.

Sole Trader vs Limited Company

What are the pros and cons of setting up as a Sole Trader vs a Limited Company? 

We’ve gone through the basic considerations for both and directly compared them so you can get a clearer picture on which is best for you. Areas to consider when setting up your business include:
Financial Liability
Status & Professionalism
Finance Options
Publishing Personal Details
Business Name Protection
Tax Requirements
Administration Requirements
Employment
Insurance
Sole Trader 
Limited Company 
Financial Liability 
If your business runs up any debt you are legally required to cover it, this may mean even selling personal assets.
Financial Liability 
By setting up a limited company your business becomes a separate legal entity. Therefore if the business does run up debts the business, rather than you personally, are responsible.
Status 
You can build a great reputation as a sole trader and many customers won’t know the legal ‘status’ of your business or, to be honest, care! They are there for your amazing products and service after all.
Status 
Having said that, some suppliers & clients may feel more secure dealing with a company that has gone through the formation process. Once you get larger and becoming more prominent it may be time to form a limited company.
Finance Options 
Along with being financially liable for the business, raising funds may be more difficult. Options as a sole trader include; savings, friends & family lending, go fund me pages, and some banks will loan you money however you may be considered too ‘high risk’ and refused. But if your over-heads are low and your cash flow good this may not be a concern for you.
Finance Options 
You will have more financial options open to you and be more likely to be approved for a loan from a bank or lending organisation. All the options of a sole trader will be available to you along with more official routes. If you need a premises to operate from, need to buy equipment or require some start-up cash to get you going forming a limited company will make it easier when applying for finance.
Personal Details 
Increased privacy. Your personal details won’t be published on Companies House.
Personal Details 
You will have to publish your name (as a director), the names of fellow directors and your business address on Companies House. You can limit the amount of information out there by registering with a secretarial business service eg business address but some details have to be made public.
The Name of Your Business 
Business name protection. As a sole trader you may be worried about others operating with a similar name to take advantage of your good reputation, advertising efforts and word of mouth promotion from customers. You can take out Business Name Protection here with NBR to stop this from happening.
The Name of Your Business 
No one can use the exact same business name as you, they legally won’t be able to form the company. However this doesn’t cover you in every situation, they could add an ‘s’ to the name or ‘solutions’ etc so their name ends up being very similar to yours. You can take out business name protection to stop this, find out more here.
Tax 
Tax can be substantially higher for sole traders, especially when you’ve established the business and are pulling in a good amount of money. Sole traders can be charged between 20%-45% tax on their profits (minus allowable business expenses).
Tax 
Tax for limited companies is lower and they are generally considered more ‘tax efficient’. They are required to pay only 19% on their total profits (minus allowable business expenses).
Administration Requirements 
There is less paperwork to do as a sole trader. You will still want to have an accountant but in terms of legally required documentation there’s less than a limited business.
Administration Requirements 
More paperwork to do with legal annual documentation having to be submitted. As with being a sole trader getting an accountant is a great idea, they will be able to help you with all the paperwork and requirements.
Employment 
You can employee people as a sole trader. Make sure you have insurance and are set up correctly with a PAYE scheme and pensions with HRMC. This is were an accountant will come in handy.
Employment 
As with a sole trader you need to set up a PAYE scheme with HRMC for any employees you have and take out the right insurance to cover them.
Insurance 
As a sole trader you are less likely to have to need different kinds of insurance but check out our ‘Sole Trader’ article where we outline the basic forms of insurance to consider.
Insurance 
As a limited company you may want to take out insurance. We have covered the basic forms of insurance in our ‘Limited Company’ article. One to particularly consider, as a limited company, is individual director insurance.
We hope our battle of the businesses has helped you make the decision which is best for you. Remember the hardest part is taking the first step, get out there, even if everything isn’t perfect and try!
Start.Biz have packages to suit any size and type of business. Get in touch here with our friendly, expert team today to discuss your personal circumstances and set up a solid infrastructure for your business.

Limited Company FAQs

WHAT IS THE BENEFIT OF LIMITED LIABILITY? 

Limited Liability protects the owner of a Limited Company from personal loss as the company is a separate entity and hence has its own profits and debts. This is unlike the owner of a business (sole trader) as his business debts would in fact be his personal debts.

HOW DO I CHECK IF MY CHOSEN COMPANY NAME IS AVAILABLE? 

You can check the availability of a Limited Company name via our online search service. When choosing your name there are some factors to consider. It needs to be unique and must not be offensive, constitute a criminal offence or give the impression that the company is connected with the Government or a Local Authority. If you have any queries, please contact us and we will be able to offer expert advice.

WHAT INFORMATION DO I NEED TO SUPPLY FOR THE NBR TO FORM MY LIMITED COMPANY? 

1) the company name.
2) the people:
3) – names and addresses of the shareholders
– names and addresses of the directors
– dates of birth
– telephone numbers
4) – town of birth
– mother’s maiden name
5) a registered office address
6) – company objectives / activities
– the number / type of shares being issued

CAN I FORM A LIMITED COMPANY AND TRADE USING A DIFFERENT NAME? 

Yes, although it may be wise to protect your trading name using our Business Names Protection service before commencing business so as not to infringe on an existing trading name and to ensure protection of your name for the future.

CAN I FORM A LIMITED COMPANY AND LEAVE IT DORMANT UNTIL I WISH TO TRADE? 

Yes, once the company is formed and the company officers are in place, the company can remain dormant until you need it. However, on the anniversary of its incorporation you must file a confirmation statement and dormant accounts (“nil” if it has never traded) with Companies House. You must also remember to keep Companies House informed of any changes within the infrastructure of the company as they happen e.g., if there are changes in Directorship or Registered office address. This requirement is also the same for companies that are trading, and we can assist you with these ongoing matters.

WHAT OFFICIAL DETAILS AND PERSONNEL DO I NEED IN ORDER TO FORM A LIMITED COMPANY? 

To form your company, you will need at least one director and at least one shareholder (these can be the same person). A UK registered office address is also required. This can be your address, or we can provide you with a registered address service.

WHAT ARE THE COSTS INVOLVED? 

To set up a new company costs £135 inc. VAT and a full company kit.

WHAT IS INCLUDED IN A FULL COMPANY KIT? 

The cost includes all formation fees and expenses and the unique National Business Register full company kit. This comprises of a smart attaché case containing 6 copies of the memorandum and articles of association, the certificate of incorporation, we complete the company register, PSC (Person with Significant Control) information, director forms and share certificates, plus any extras as required.

HOW LONG WILL IT TAKE? 

To form a new company takes around 24 hours. Our expert team are on hand to advise what is best for you and guide you through the process so if you have any questions get in touch.

LLP FAQs

IS AN LLP A BUSINESS OR A COMPANY? 

The general answer is both, technically it’s a company, but has tax advantages of a business and limited liability.

WHO CAN BECOME AN LLP? 

Any profit seeking commercial business and professional firms. This type of formation is most commonly used by professionals looking to go into business together; for example, law and accountancy firms.

WHAT IF THE BUSINESS RUNS UP DEBTS? 

Registering as an LLP means you are protected against debts the business incurs and any debts a ‘partner’ may also incur.

DOES THE LLP HAVE TO FILE ACCOUNTS LIKE A LIMITED COMPANY? 

As technically it is a company it must file company accounts although these are usually filed in a brief, modified form for small companies.

WHEN WOULD I HAVE TO FILE ACCOUNTS? 

Your accounting period would be 12 months from the end of the month in which your company is formed, you must submit those accounts within 10 months after the end of your financial year. (The actual accounting period can be changed in the first year using form LL AA01).

HOW MANY PEOPLE ARE NEEDED TO FORM AN LLP? 

A minimum of 2 people.

HOW IS AN LLP TAXED? 

The same as a normal partnership.

CAN I TRANSFER FROM A PARTNERSHIP TO AN LLP? 

Yes, it’s straightforward and we can assist you, but basically the act is designed to enable you to become LLP without tax implications.

IS STAMP DUTY CHARGED ON TRANSFERRING ASSETS? 

Stamp duty is not charged if the assets are transferred into a new LLP.

I RUN MY BUSINESS FROM HOME CAN I STILL HAVE AN LLP? 

Yes, there is no legal restriction at all.

PLC FAQs

WHAT ARE THE BENEFITS OF A PLC? 

The shareholders of a PLC have limited liability. Capital can be raised through issuing shares and the business can be floated on the stock exchange or other alternative investment market (note this is not a necessity of forming a PLC). PLC’s can also offer you spread risk, more finance options and increased status. These can all help enabling future expansion and increased powers when negotiating with suppliers.

WHAT ARE PLCs USED FOR? 

Mainly for high-profile and larger companies trading internationally.

HOW IS A PLC DIFFERENT TO A LIMITED COMPANY? 

A PLC must issue a minimum of 50,000 x £1 shares, and a quarter must be paid up. A limited company only need issue 1 x £1 share.

WHAT IS THE LIABILITY OF A PLC? 

With a limited company as above the liability would only be from £1 payable to creditors. With a PLC the liability would be £50,000 minimum.

CAN I PUT GOODS, EQUIPMENT OR VEHICLES INTO THE COMPANY INSTEAD OF MONEY? 

Yes, you can introduce capital equipment up to the value, which then becomes a company asset and you would have no further liability if it has true valuation.

IS A PLC MORE RISKY THAN LTD? 

Yes, if not run properly. If you are just starting out or have a small to medium sized business, we would not recommend forming a PLC.

COULD I HAVE A LTD COMPANY AND A PLC? 

Yes, some clients use the PLC for the trading image and the Ltd for the risk element and contractual obligations. Both companies must be run totally separately.

IS CREDIT EASIER TO OBTAIN? 

Yes, because anyone dealing with the company knows you have assets of at least £50,000.

DOES MY PLC HAVE TO BE FLOATED? 

No, not at all, most PLCs are privately run and controlled. It is up to the Directors to float the company and issue more shares.

CAN I OFFER SHARES TO THE PUBLIC TO GET INVESTORS IN? 

Yes, this would be an option available to you. Our expert team are on hand to advise what is best for you and guide you through the process so if you have any questions please get in touch.

Which Type of Limited Company is Right for you?

Limited Companies 

Limited liability can protect the owner of a company from personal loss or even bankruptcy, which a sole trader could not avoid. Take the stress out of making it official and form your company with the National Business Register here.

PLC (Public Limited Companies) 

Owning a PLC offers prestige and perceived status. PLC companies do not have to be listed on the Stock Exchange or Alternative Investment Market and many PLC shareholders/directors choose to retain control over their company at all times. Form your PLC with the National Business Regitser here.

Guarantee Companies 

Guarantee companies are usually run for the benefit of members of a club or association to raise funds for the benefit of others. The “guarantors” give a personal amount they will pay in the event the company fails and owes debts. If they wish, members can give an unlimited guarantee and be responsible for all debts. Can also be used for flat management. Form your guarantee company with the National Business Register here.

LLP (Limited Liability Partnerships) Companies 

An option for companies with two or more owners, the partners can limit their personal liability and avoid putting their personal assets at risk. Mostly used by accounting and law firms. Form your LLP with National Business Regitser here.

CIC (Community Interest Company) 

This is a limited company with extra features to mark it out as a Social Enterprise. CIC’s are easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community rather than private individuals. Form your CIC with National Business Register here.