Starting a company prematurely

**bobsmithldn** · 25 July 2006, 09:28

In fact, I would set it up now for a number of reasons:

1) When you do find a contract, you can have all the details to hand and you will be able to move quickly w.r.t. signing the contract (Company #, VAT #, etc.). You can also use this time to think about the structure of the company (directors, secretary, shareholdings, etc.). VAT registration takes a couple of weeks, I think.

2) When you start contracting - for example, in three months time, the last three months of your contracting will fall into a subsequent corporation tax year and hence you can delay paying approx. £5K until a subsequent year (every little bit helps), assuming £500 a day and approx. £85K-odd profits.

Hope that helps.

**ladymuck** · 25 July 2006, 11:24

premature incorporation!

**XLMonkey** · 25 July 2006, 12:39

Originally posted by Kess

I'm keen to form the company a.s.a.p., but would this be silly if it's not going to see any active use for a couple of months? (presumably even though the company is idle it would still require the services of an accountant etc.).

you don't need an accountant if you aren't trading. The relevant reporting forms get sent to you in the post directly, and if there's no trading, just fill in nil. You can get an accountant and so forth once you have your first contract.

Originally posted by Kess

Conversely, if I don't set up the company now but jump the gun and incur some valid expenses in the meantime (e.g. cost of computer equipment, setting up a web site, etc.) could these be claimed back retrospectively once the company is created?

you can claim back retrospective establishment costs for a period of up to 6 months prior to company formation (provided that you have receipts etc).

generally, it's a good idea to establish the company (and register for VAT) in good time, but not essential.

The reason it's a good idea is this:
- takes a long time nowadays is getting a company bank account. New money laundering regulations were introduced a couple of years back that require some fairly lengthy credit checks to be undertaken before you can have a co. bank account. (can take anything from 4-10 weeks to complete the credit checks, which can be a pain in the ass if you want to start invoicing a week after you have established the company)
- often takes a long time to get VAT registered (sometimes as little as two weeks, more often 8-10 weeks), and you definitely want to be VAT registered and on the flat rate scheme if you are a contractor.

but if you can't be bothered, then it's not essential -- both of these things can be sorted out once you've started, although they involve a bit of extra admin

**Kess** · 25 July 2006, 14:15

Thanks for all the answers and advice. It sounds like it's worth going ahead and setting up the company right now.

Kess

**TheMonkey** · 25 July 2006, 20:05

Yeah definitely. I formed too late and ended up with about £5k's of cheques and no bloody bank account.

**Kess** · 27 July 2006, 11:25

A follow-on question...

Is there any legal problem forming a company while I'm still a permanent employee of another company? And what happens if I start to use my new company (e.g. incurring start-up expenses and touting for work) before resigning my current post, as I'm effectively an employee of two companies at the same time - I guess my tax return could get rather complicated?

**Pondlife** · 27 July 2006, 11:29

Originally posted by Kess

A follow-on question...

Is there any legal problem forming a company while I'm still a permanent employee of another company? And what happens if I start to use my new company (e.g. incurring start-up expenses and touting for work) before resigning my current post, as I'm effectively an employee of two companies at the same time - I guess my tax return could get rather complicated?

I wouldn't have thought so. There wouldn't be any revenue goinig through the company until you working through it. Once you've resigned from your permie job and had your first invoice paid, put the start up costs through Your Co as expenses. Then the world's your lobster.

**XLMonkey** · 27 July 2006, 12:38

Originally posted by Kess

A follow-on question...

Is there any legal problem forming a company while I'm still a permanent employee of another company? And what happens if I start to use my new company (e.g. incurring start-up expenses and touting for work) before resigning my current post, as I'm effectively an employee of two companies at the same time - I guess my tax return could get rather complicated?

Yes, there probably are. You need to check your employment contract, but most full time contracts require you not to take on directorships in other companies without first notifying (and confirming acceptance) from your current employer. It's a hangover from the days when "gentlemen" ran companies and "common people" worked for them.

In practice, the odds of your current employer bothering to check with Companies House, or even complaining about it if they found out about it, are minimal. I did it, made not a blind bit of difference.

On the subject of tax returns...you are not an employee of two companies. You are an employee of one and a director of another. You have to put down both on your tax return, but it only gets complicated if you are paying yourself a salary from the new contracting company prior to leaving your current employer. This is unlikely....

**VectraMan** · 27 July 2006, 15:33

Originally posted by Kess

And what happens if I start to use my new company (e.g. incurring start-up expenses and touting for work) before resigning my current post, as I'm effectively an employee of two companies at the same time - I guess my tax return could get rather complicated?

Last year I took a sabatical from my permie job to do a contract (through an umbrella). Because I didn't officially leave my permie job I was on both payrolls at the same time, and didn't have a P45. All it meant was that I was then stuck on emergency tax and so overpaid £1500 last year, which in theory you get back after doing your tax return. In theory as I'm *still* waiting to get back from the IR.

Starting a company prematurely