Starting Up Guide.

Which is the appropriate structure for you? Below are the key factors to consider. They are many, but don't be daunted! We can walk you through in detail what each one means - here we give you an overview. It is possible to change your company structure down the line, so no worries if priorities change and a different structure becomes more appropriate. The factors are:

1. Where you are tax resident
2. Where your services or goods are supplied
3. Timing (relative to the personal tax year)
4. Tax efficiency vs admin time and monetary costs
5. Perception and liability
   

Your choice is between being a UK Limited Company or a UK Sole Trader.

Tax

This is usually the deciding factor and is the main reason that most large revenue businesses are incorporated, i.e. Limited companies. The difference in tax treatment has two main impacts:

1. A Limited Company generally has greater cashflow flexibility because the effective tax rate for profitable Limited Companies past a certain level is lower than for a Sole Trader. More cash available to fuel growth 🔥
2. For most revenue levels you'll be more tax efficient as a Limited Company. The tax savings typically outweigh the additional accounting costs. More cash in your pocket 💰

You can see for yourself by using our tax calculator tool to compare take-home with both both structures for a given level of profit.

Perception and liability

These are qualitative considerations. A limited company limits your liability in case of the business failing or facing legal action.

There is a (subjective) perception that a Limited Company is more professional and hence likely to be a better business partner.

Others

There are other considerations often mentioned, like easy of setting up and administrative burden. This is not a decision factor if you select a good accounting partner, as the time cost to you should not be impacted by the structure.

In the event that you wish to sell the business, Limited Companies are currently tax advantaged since owners may benefit from Entrepreneurs Relief

Conclusion

Generally, be a Limited Company, however if your expected annual profit is below c. £20,000 then consider being Sole Trader.

Your choice is between being a UK Limited Company or trading as a sole trader or incorporated entity in your home state.

UK VAT

One of the main considerations is UK VAT. If you intend to store goods in the UK, e.g. if use Amazon FBA fulfilment centres in the UK, then you have would have immediate VAT obligations as a non-UK company.

As a UK company you enjoy an £85,000 threshold before you have to register for and charge VAT. Note, this in isolation is not sufficient reason to establish a UK company (more on VAT for non-UK businesses later).

Tax

The UK tax authority will charge you 19% on your profit. Check how this compares to your own country's tax rate.

Legal and accounting regime

The UK has a relatively straightforward tax regime, which means that accounting services can be effectively outsourced to a good accountant with minimal impact on your time. ⏳

Payment gateways

The UK is a mature business environment for ecommerce and most payment gateways are accessible to a UK Limited Company.

Conclusion

A UK company is great for anyone looking to access various payment gateways, and possibly, but not always, to facilitate selling in the UK.

For ecommerce the answer is probably not.

Being VAT registered for most businesses is going to reduce your profit margin and does not add any value, except in a few specific circumstances outlined below. If these do not apply to you, then if you are a UK business you are advised to make the most of the £85k exemption and delay registration until required.

When it might make sense to register for VAT early

• You sell mainly zero-rated goods, i.e. you reclaim more VAT than you have to pay on your sales
• You are going to go over the threshold in the next 30 days in which case registration becomes a requirement
• Your key suppliers will only work with VAT registered businesses

Great, you've set up your business. Next up: banking and payment gateways. Businesses vary in their needs but these are the key consideration, in rough order of importance.

1. Account fees
2. FX fees
3. Ease of use
4. Set up time
5. Features
   

For the moment, our recommendations are Tide if you only do business in GBP, otherwise read our blog post for full details on which multi-currency / cross border account to use.

What do I need to know from an accounting perspective?

Your accountant will love you for keeping your business and personal spending separate. It is not crucial, but it will save you time when it comes to handling your bookkeeping. It also naturally makes it easier to keep on top of your finances. Most banks have native integrations with bookkeeping solutions so this is rarely a consideration. One of the reasons we use Xero for bookkeeping at Ecommerce Accountants is because of the breadth of integrations with banks for automating bank feeds.

Your business is up and running and you've got banking in place. When do you need to appoint an accountant, and what services do I need?

Most likely the answer is that you do not need to appoint an accountant straight away, except in a few specific circumstances. Either way, it is best to at the very least get a brief understanding of what you will need and when.

We've created an interactive guide to accounting services to walk you through the services and helpful tips about how they apply to ecommerce.

As you expand your business is likely to reach a stage where EU VAT and Sales Tax become relevant to your businesses. We can walk you through the requirements and introduce you to the best-in-class providers who share our dedication to protecting your time and making compliance simple and cost-effective. For most of these providers we have secured discounts for our clients. Let us know if you want to know more.

You've appointed your accountant (or you know when you need to). Time to get selling if you aren't already.

Our job is to make sure that your accounting and bookkeeping takes up as little of your time as possible, so you can focus on doing what you do best.

We consider every engagement a partnership, and we do what we can to see you grow, and making it simple for you to meet your compliance requirements.

We provide unlimited accounting advice as part of your engagement. Whilst every ecommerce business is unique, the regulatory challenges are similar. We've seen (almost) everything before, so you can be sure that your accounting partner has the experience to answer your questions accurately and quickly and provide guidance when you need it.