Friday, 19 January 2018

Developing a Small Business in the Creative Media Industries Assignment 2

Developing a Small Business in the Creative Media Industries Research

Sole trading is when a person is self-employed, this means that there is not legal structure to their job. Creating your own business (a small business) is usually done as self-employed work, this puts you liable for all debts and taxes that need to be paid. When profits are made within a self-employed company, the owner must pay tax for any of this, this is taxed through the form of "National Contributions", these are listed in different classes, these classes are normally class 2 and class 4, and this can be found on the HMRC website. All records of income and suspense must be kept. When self-employed you need to be registered with "HMRC" (known as revenue and customs), there is a £100 penalty that would have to be paid if you do not get registered within 3 months on owning the company whilst trading.
Advantages of Sole Trading is that it is a very easy method of setting up a new small business. You have complete charge over your company so you pick the wages and the expenses. You also can make any financial or non-financial decisions within the company you want.
Issues are that you can end up with huge debts, if regulations are not met. Sole Trader companies also struggle to become big companies that makes lots of money.

A Partnership business is where 2 self-employed business owners work together, effectively owning the business together. This means they have to share profits, losses and decisions. Usually before the partnership is decided an agreement on who gets what in the business is made, for example who gets what percentage of profit although this is normally organised evenly this can be made uneven for certain reasons. Like sole traders tax regulations have to be taken to account, any profits made are taxed and they must register with the HMRC.
Benefits of this method is that you don't have to make all the decisions and do the work all yourself, as you have the partner to work with, so overall more work can be achieved and decisions are usually made more effectively as you have 2 opinions instead of only 1. Unlike limited companies there is no corporation tax to pay as well.
However the owners are liable to debts like before, also another issue is that there is no legal status in a partnership so it can be difficult to sell products. An obvious problem with partnership is that if you don't agree on a decision then it is difficult to sort the issue out, also you need to be able to work effectively together, because if partners fall out in business it can cause the company to collapse.

Within a business there are certain regulations that have to be thought about, some of them are environmental, advertising, privacy and employment regulations.
In environmental regulations, small businesses must not cause negative impacts on the environment, for example selling a product that directly pollutes the environment with no benefit, would not suit the environmental regulations. Certain acts are set up by the government to avoid companies from polluting and causing damage to the environment, an example of this is the "Clean Air Act of 1990" this legal act helps to protect our atmosphere and air quality.
Although advertising is one of the most important aspects of business, there are certain regulations that have to be understood. This helps to avoid false advertising, but also fabricated claims against companies. Penalties that violate this regulation can be a considerable amount of money that is sued from the company. Advertising should be truthful towards audiences, about the product and the company, you can't advertise something a product can't do, for example an advert of a mobile phone that claims to have a camera when it doesn't. This is false advertising and is essentially illegal. Any information about any company or product has to be truthful or accurate.
Any business or company is not a loud to release private or personal information about anyone, people’s lives should not be invaded, bank account details should be kept private, if released then penalties and suing can take place. "The Federal Trade Commission" enforces privacy laws, to protect financial information, but also identities of customers and employees.
Employment regulations is mostly to do with money and time, certain minimal wages have to be paid for certain ages and hours, but also breaks have to be inputted into an employee’s hours, if the hours exceeds a certain amount in a day. Employment regulations protects employees and makes sure they get a certain amount of wages, time off and any benefits such as retirement benefits (Statutory Rights).
Copyright helps to protect artistic work that is created or recorded, such as music, story or a design. This is an automatic international right that prevents other people from replicating and stealing your work. An example of a copyright claim, was between a photographer and a structural designer, "Art Rodgers" photographs a couple sat with each other facing the camera, holding 4 puppies each, "Jeff Koons" created a structure that represented the people sat in Art Rodgers photograph, so Art Rodgers tried to sue Jeff. It concluded that Jeff Koons sold and made profit from these structures, so Art Rodgers was eligible to sue him.
As a business owner you are responsible for the health and safety of you, your employees and the customers. Usually businesses will have to register with authorities, for health and safety purposes. Health and safety plans involves fire precautions, risk assessments, insurance etc. Risks assessments help to minimize hazards by understanding them and preparing for them. 

Sole Traders are taxed via the self-assessment system every year, they also have to pay tax and national insurance contributions on their business profits after deductions. When you set up a self-employed business and you are registered, you will be sent a self-assessment notice, which involves the end of the year tax year, which is in April. The deadline for submitting a tax return is the 31st of October, this is after the end of the tax year. Sending a tax return online can give you up to 3 months extra time, to complete it before the deadline, as the deadline for submitting a tax return online is by 31st of January. Once self-assessment tax payments are made annually, then you will need to make payments on account, these payments are basically advanced payments that will likely need to be paid that current tax year. These payments can be made to HMRC in two instalments if needed, the first on the 31st of January and then the second 6 months later (July 31st). For this year the personal allowance holds at £11,500. The basic income tax rate is at 20% on income £45,000 or below. Higher income tax rate is at 40% on income £45,001-£150,000. Further income tax rate known as additional tax, is at 45% £150,001 and over. Sole traders need to pay national insurance contributions, this depends on earnings. HMRC works out class 4 NIC's that you are liable for, it’s based on the profits that the business makes, this is usually 9% of earnings as this is income that is between £8,164-£45,000. Although class 2 NIC's are still around, there are going to be abolished by April 2018. If a business earns over £85,000 annually, then the company has to register for value added tax (known as VAT). VAT is added to bills, this tax can be reclaimed for business purchases, VAT can also be excluded from costs of products that the company buys. Limited companies have to personal tax on dividend payments that are received. Company profits will still be under corporation tax, even with dividend payments which are taxed separately. Dividend payments are taxed less than basic, advanced and additional income tax rates, 10% is for up to £31,865, 32.5% for between £31,866-£150,000 and then 37.5% for additional dividend tax. Corporation tax currently hold at 19%.

Business grants are available and are usually sector specific. Grants can off between £1,000-£100,000 for small enterprising business, but funds can be unlimited for larger businesses. To gain funding as a business, you need to be able to explain and justify why you need the funding and what could come from gaining it. An application will need to be filled out carefully and sent to a funding company, if the application is successful grants and funding isn't paid upfront but can be claimed towards the end of a project. Loans need to be paid back when interest when borrowed by anyone, so essentially when you receive a loan you’ve basically lost money, however without the loan you have substantial less funding that might be needed. Loans can usually be paid back in small instalments, this is what makes them extremely useful for business, as they might not have money in bulk, but can afford to pay a spread cost. Again like grants loans are applied for as you need to be eligible, for example you might need to earn a certain income, and this is to make sure you can pay back the loan. There are a huge variety of loans including short term loans, regular term loans and long term loans.

To financially manage a business, accounting systems can be applied to help organise and create a system to manage finances to help to business. Cash counting method allows you to count up the income immediately when received, this can be done with cash but with credit also. This is the most common method for small businesses as its quicker and easier, when large amounts of money isn't being dealt with, this is usually the preferred method. The "accrual" method is used for larger business who deal with larger quantities of money, this money is counted when a sale is made, instead of when it’s received. Both methods are effective however the accrual method is harder to maintain, due to the fact its dependant on accounts payable records.


Managing credit can help to sort out a business financially. Listing and recording all profits, purchases and loans can help to manage finance in a business overall. Introducing policies into a company can also help to improve financial organisation, this helps to maintain standards. Assessing future risks can help to get an idea of what might come, this makes it easier to prepare.




References - 


1. http://www.easyaccountancy.co.uk/smallbusinesscentre/developing_business.html

2. https://www.gov.uk/set-up-sole-trader
3. http://www.bytestart.co.uk/set-up-partnership.html
4. http://smallbusiness.findlaw.com/business-laws-and-regulations.html
5. https://www.lawontheweb.co.uk/business/regulations-and-legislation
6. http://www.bytestart.co.uk/section/tax/tax-guides
7. http://www.bytestart.co.uk/tax-rates-thresholds-allowances-2016-2017-small-business-owners.html
8. http://smallbusiness.co.uk/financing/government-grants/
9. https://www.startuploans.co.uk/business-advice/get-small-business-government-grant/
10. http://smallbusiness.chron.com/start-accounting-system-new-business-3765.html
11. http://is4profit.com/credit-control/
12. https://www.icaew.com/archive/library/subject-gateways/financial-management/credit-management/small-business-update/action-list-how-to-set-up-a-credit-control-system