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By miguel-ingles
- In Uncategorized
When forming a company in the UK, its directors must make certain decisions and must avoid some mistakes to improve the chances of managing a successful business. In this article, I explain several common mistakes that people make when forming a company in the UK.
1. Common Mistakes when Forming a Company: Not Conducting a Market Research
Conducting a market research should be the first step during the formation of a corporation, even before than formalizing its registration with the Companies House. With them, you can find out which needs nobody covers, if there is demand for certain types of products or services, who are the target clients and what are their characteristics and expectations, what business rivals the business will have to face, etc. Therefore, not performing these analyses puts an enterprise in a vulnerable situation full of uncertainties.
There are several ways to do a market research.
- By analysing customer consumption data.
- Reviewing users’ opinions about a product.
- Conducting surveys and interviews with users on social networks.
Even for businesses already established in the market, that understand their economic activity in detail, conducting a market research can save them a lot of time and money.
2. Common Mistakes when Forming a Company: Selecting the Incorrect Legal Structure
Companies in the UK can choose from multiple types of legal structures. The most common choices are public or private limited companies, partnerships, limited liability partnerships and sole traders. Each one has its own characteristics, advantages and disadvantages. For example, some have limited liability and others unlimited liability, not every structure pays the same taxes, and some must register with the Companies House.
Selecting an incorrect legal structure can lead to higher tax payments or the loss of legal and financial protection against potential business debts. Therefore, it is advisable to consult with experts in the field that will advise directors about which option is appropriate for their specific case.
It is possible to modify the legal structure of a company once it is established. However, this leads to doing again all the paperwork and the payment of certain fees. In addition, it ensures that the corporation will benefit from the advantages that they obtain from the desired structure. Thus, it is essential to choose the correct the legal structure at the stage of the formation of the company.
3. Breaching the UK Tax Rules
Taxes in the British country can be somewhat confusing for foreign entrepreneurs. On the one hand, all companies that exceed an annual turnover of 90 000 GBP (107 500 EUR) must register into VAT and report the money each quarter that they have collected as such to His Majesty’s Revenue and Customs (HMRC).
On the other hand, registered companies have to pay the Corporation Tax, while sole traders and partnerships must pay the Income Tax. In both cases, they present different rates according to their annual income. Moreover, the enterprises must pay them annually.
Not paying these taxes on time can lead to different legal problems for both the company and its directors. One possibility is that the HMRC demands to contribute the undeclared amount on time plus interests. Another option may be the seizure of assets or the dissolution of the business. Finally, although it is the least probable, the managers who engage in defaults or tax fraud may be prosecuted.
4. Underestimating the Importance of Marketing
Marketing is not only useful for promoting a number of products and services. You can also use it to make your company better known to potential customers and to create a brand image. This last element is especially relevant because it demonstrates the clients that a business is of recognized prestige and whose goods are of quality. Therefore, undervaluing the importance of marketing in the UK market can have catastrophic consequences for a business’s economic activities.
There are multiple ways to carry out a marketing campaign. These go from email marketing to referral and affiliate marketing. Other strategies would be improving the SEO of business websites or paying to advertise through Google Ads.
In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.