We were recently approached by The Fermenter’s Guild to write an article for their members on the top things to consider when setting up or growing their business.
Only after we finished, did we realise that the article really is applicable to not just fermenters, but to many different types of business, regardless of stage in their lifecycle…
With fermented products growing ever more popular in recent months, and this industry growth set to continue, from hobbyists to big brands, we take a look at what budding fermenters should consider when starting their business.
Here Are The Top Questions We Have Been Asked By Fermenters:
When Should I Register With HMRC?
This does depend on which legal entity you choose. If operating as a sole trader, to register with HMRC in time, you have until 31st October following the end of the financial year in which you began trading to do so. You would then have until 31 January the following year to submit your tax return and pay any liabilities due.
What Is The Trading Allowance?
If your total sales in a financial year are less than £1000, you may be better off using the trading allowance to offset against any profits, rather than totalling all your expenses. If this is the case, you would not have to register with HMRC yet. If however, your expenses are greater than your sales, you may be wise to register in any case in order to offset the losses either against future profits, or tax paid as an employee if possible
Which Legal Entity Should I Choose?
Sole trader or limited company – there are many pros and cons to both. A sole tradership can offer increased flexibility & lower set-up costs, while a limited company offers more protection and greater tax efficiency, but can be a little more complex.
What Records Do I Need To Keep For My Accounts And Tax?
We would definitely recommend investing in good accounting software. It’s a very useful tool to help you keep all your records neat and tidy. Very soon, new legislation ‘making tax digital’ will be rolling out for almost all businesses – so I’d advise getting this sorted sooner rather than later.
When Do I Need To Register For VAT?
In short, the legal threshold is when your turnover reaches £85k in a 12 month period. There can be benefits to voluntarily registering for VAT before this. Such as, being able to claim back VAT on most goods or services purchased from other businesses e.g. you can claim on your packaging, or your ingredients etc.
What VAT Rate Should I Use?
VAT is complicated when it comes to any foodstuffs – food supplied for catering is always standard rated, but most food used for human consumption is zero rated. There are however a number of exceptions, with alcohol, other fizzy drinks (so Kombucha), confectionery and some savoury snacks being standard rated.
Do I Need A Separate Business Bank Account For My Small Business?
If you register as a limited company, you will need a separate limited company bank account. Starling bank is one of the best options for a small business and does not charge fees, unlike other traditional banks. If operating as a sole trader, there is no legal requirement to have a separate bank account. But I would advise having one to help keep accountancy fees lower & save you stress once ‘making tax digital’ comes into effect.
Can I Claim Back The Costs Of Equipment Which I Had To Buy Before I Started My Business?
Yes, you can. Simply mark these expenses up as ‘pre-trading expenses’ and let your accountant know. You can either draw the funds back out of your business account free of income tax, or your accountants will credit the balance to your ‘Director’s Loan Account’ for you to repay yourself at a later date.
What About Further Investment As I Grow?
How you account for your capital investment depends on whether you’re a sole trader or limited company, but you can always claim for expenses provided that the items are bought to be used ‘wholly and exclusively for business purposes.
For example, as a limited company – for larger purchases of brand new equipment, bought before 31 March 2023 you may qualify for Super Deduction which is equivalent to 130% tax relief!
For non-qualifying expenditures, you may be able to utilise your ‘Annual Investment Allowance’ to offset the full cost of investment against profit for the year in which the purchase is made.
And finally, get yourself a good accountant from the start – make sure you choose someone who will be happy to support you from start-up and as you grow, and who will be on hand to answer any questions you may have during the course of your journey…
