STARTING A BUSINESS? CAN YOU AFFORD NOT TO READ THIS?

seanStarting a business is like any major life event, as is the case with planning a wedding or moving house, there is likely to be euphoric highs and nail biting lows. You could steam in like a rhino and deal with the damage limitation later, or you could get the right advice and support straight from the off.

In this article I hope to explain the basics of business start-ups. For that, we must start at the very beginning – are you eligible to set up a business in Jersey? The answer is ‘yes’ if you have lived in Jersey continuously for five years, or are Entitled, Licenced, or Entitled to Work. You are also eligible if you are the spouse of someone who is Entitled, Licenced, or Entitled to Work.

Your next decision is key, as you have to identify whether you should be a sole trader, partnership or limited company. They all have their own attributes and features as described below:

Sole Trader: it’s just you

  • Set up can be cheaper and simpler
  • You can produce simple accounts
  • You can form a limited company later
  • You are personally liable for all your business debts
  • Your ability to raise money is limited
  • An application for a business licence is required via the Population Office
  • You can register a trading name with the Jersey Financial Services Commission for a small fee
  • You need to advise the Taxes Office and Social Security department

Partnership: you are going into business with at least one other

  • Two or more self-employed people work together as partners, sharing profits
  • Setting up can be simpler and cheaper than a limited company
  • You can produce simple accounts
  • You can form a limited company later
  • You may be able to raise money by introducing new partners
  • A ‘sleeping partner’ will contribute capital and have a share in the profits but will not be part of the management of the business
  • You are liable for all the partnership business debts even if the other partner was responsible for incurring them
  • A partnership agreement is recommended
  • An application for a business licence is required via the Population Office
  • You can use your own names or register a trading name with the Jersey Financial Services Commission for a small fee
  • You need to advise the Taxes Office and Social Security department

Limited Company:

  • This is a separate legal entity, distinct from its shareholders, directors and employees
  • Increases credibility
  • Your liability is limited to the amount you agree to invest in the company by buying its shares. Except for personal guarantees (e.g. company’s bank overdraft)
  • Does not eliminate liability for ‘wrongfully’ or ‘fraudulently’ trading: you would be personally liable as a director in these circumstances
  • Can be easier to raise large sums of money, or to sell part of the business
  • Can be easier to deal with succession issues as ownership is passed on to family members / others
  • Tax advantages
  • It’s more costly to set up than a sole trader or partnership
  • Annual costs will be higher requiring the completion of an annual return
  • There will be some costs in winding up the company when ceasing to trade
  • An application for a business licence is required via the Population Office
  • You need to advise the Taxes Office and Social Security department

If you are going to be self-employed (whether via a sole trader, partnership or company) you must register with the Social Security Department before you start trading. A self-employed person is ordinarily liable to pay Class 2 contributions; there are two bases of Class 2 contributions for new businesses.

The next stage is to contact the Taxes Office to advise them of the change in circumstances: sole trader, partnership, limited company. Sole traders will need to produce self-employed trading accounts. If you set up a limited company, your director’s fees and dividends will impact your personal tax liability.

If you are employing staff, you will need to register for the Income Tax Instalment System (ITIS). Additionally, if taxable turnover is likely to exceed £300k per annum you will need to register for GST (Goods and Services Tax) and complete quarterly GST returns thereafter. You will also need to complete bi-annual manpower returns.

Your liabilities do not stop there and you must consider the policies you need to adopt and the level of insurance required. You will need adequate insurance to protect against any claim made by a member of the public (public liability insurance) or a client (professional indemnity insurance). If you are employing staff you also need to have employer’s liability insurance in place. If you are holding data on clients and even your employees you will need to notify and register your business with the Data Protection Office.

All employees are employed under the minimum requirements of the local employment laws, so you will need to understand what is expected of you, to remain compliant. You are required to put in place an adequate Health and Safety Policy if employing five or more staff and there are strict guidelines on employment contracts and how the payroll is administered.

It’s vital to seek guidance from an accountant early on to ensure you have the correct advice and structure in place from day one. This will save you time and money and offer an extra supportive network to your new business that you will need from time to time. Once you’ve dotted the i’s and crossed the t’s you can really start to enjoy what you have created. Just make sure you do what you enjoy – in my experience this is the backbone of every successful business.