Legal considerations when starting a new business

Sometimes starting your own business can be confusing and intimidating because of its legal obligations which a business owner needs to consider before setting up their business to become compliant to the employment laws and to avoid the risk of potential tribunal claims.

• Business registration
• Get insurance done
• Providing equal opportunities for the employees
• Comply with data laws
• Check employee’s right to work
• DBS check
• Employment terms and conditions
• Health and safety
• National minimum wage
• Reporting payments to HMRC
• Pension contribution

Legal obligations of starting a new business

Legal obligations are one of the important aspects that you need to take care of before starting a business for which professional advice is recommended. We are providing you with a list of legal requirements which not only helps in removing your fear of entering into a new business world but also helps you in setting up of your business effectively and efficiently. The most important legal requirements that a business owner needs to follow to start a new business are as follows –

Also See: Key Tax Issues for Setting up Business in the UK

1. Business registration

   - Legally registering your business world is one of the most important and the very first step a business owner should take before beginning the trade. Choose among different business types depending upon your needs and register as a sole trader, partnership firm or limited company. Each business type has its own rules and regulations, benefits, drawbacks as well as the registration process. Now, its upon you to decide that which of the business structure is appropriate for you, considering the tax implications, ease of administration, liability, the confidentiality of the business information and others. You need to balance these issues to decide the most appropriate business structure for your business.
   

   Also See: How to Value a Company or Business

2. Get insurance done

   - After setting up your business, the second important step is to get the insurance done to protect your business from the uncertainties which may come in future and harm your business.
   One of the legal requirements for all businesses is employers liability insurance (except you employ no one or family members) which has been specifically designed to cover any compensation costs that may arise if any of the employees become ill or injured at the workplace.
   Another one is commercial motor insurance which is necessary in case of employees require vehicles. Permits are also required if you are having a plan to serve food or play music. In case of other businesses like architects, solicitors and some professionals under health care, professional indemnity insurance is a legal requirement – this covers any compensation cost arising from loss or damage happen to customers due to negligence in service.
   A business owner can also opt for other types of insurances such as commercial property insurance (to protect the buildings) and cyber insurance (Protection against data breaches or hackers) which can be taken optional.

3. Providing equal opportunities for the employees

   - Not to discriminate against any employee based on age, gender, ethnicity and providing them with equal opportunities is one of the most important legal considerations or responsibilities of the employer.
   Employers can unintentionally make mistakes in the multiple stages during the recruitment process; therefore you must be informed about the discrimination law from the very start of your business. When you provide a job description for a particular job, it must be specific to what skills and experience are required for an ideal candidate. Advertise your job widely and check whether any changes are required in the on-going interviewing process. Try to avoid questions like – "Are you planning to start a family" as it could be seen as discriminatory.

4. Comply with data laws

   - Not only the responsibility of big companies but small businesses are also legally responsible for keeping their data safe and must show a clear picture on how their data will be used and why? Every business should be informed about GDPR.
   The easiest way of getting your data protected is by storing the data into the software. Every company (either big or small) must have a clear privacy policy and make it easily accessible and up to date to make sure that your staff members are informed about the personal storing of data, its purpose and the period.

5. Check employees right to work

   - Hiring or employing a new candidate on the job without checking their rights to work in the UK could be a big risk and lead to severe penalty with fines up to £20000 per employee.
   It is the responsibility of the employer to check whether the person they are hiring is eligible to work in the UK or not, for which the proof must be provided by the candidate before the job starting date in the form of residence card or a passport. In case it is not provided, you will not be able to hire that person for your company.

6. DBS check

   - Employer must do a necessary DBS check on the new employees coming into the organisation to know about any of their criminal records (if they have in the past) and document it too so that it can be justified later (If necessary).
   Different types of DBS checks are carried out by a company to get different levels of information. In case the new employee is involved in certain types of roles, enhanced check is recommended.

7. Employment terms and conditions

   - It is the employers legal responsibility to give employment contract, containing all the terms and conditions of the employment to the employee within 2 months of their job starting date. It is an employment contract between the employer and the new hire on which both of them agreed in written including all conditions, agreements and responsibilities. The clauses which an employer must include in the employment contract are as follows –
   
   1. Name and address of the employer and the employee
   2. Starting date of the job
   3. Date from which contract applies
   4. When the contract will come to an end (If temporary or fixed-term)
   5. Job title or brief description of duties or responsibilities new hire needs to perform
   6. Continuous services date
   7. Place of work
   8. Hours of work
   9. Pay details – How often and when
   10. The requirement to work overseas
   11. Sickness absence and pay
   12. Holiday entitlement
   13. Notice period
   14. Pension arrangements
   15. Disciplinary and grievance procedures
   16. Collective agreements

8. Health and safety

   - A written health and safety policy is one of the legal requirements for the companies to follow, having more than 5 or more employees. If you are hiring employees then or now, you must have a concern about their health and safety to provide them with a safe working environment for work. Now, the question arises who is going to do this and how?
   As a business owner, its your responsibility to carry out a risk assessment to identify the possibilities that may cause harm or injury to the employees working at your workplace and deciding about the steps that you may take to minimise that risk. Take special care about the employees who come under the disabled category or having more chances of injury (high-risk jobs).
   Inform your employees about the health and safety policy and train them so that they can work safely and sensibly. Review and update your policy on regular basis and make it easily accessible to your employees. If you will take appropriate steps to protect your employees from injury or any harm, it will help you in reducing the risk of a claim if any accident takes place in the future.

9. National minimum wage

   - It is a legal requirement for all businesses to pay all their workers at least the national minimum wage, which can vary depending upon workers age or if they are an apprentice. Workers who are above 25 years of age are entitled to national living wage which can be easily calculated with the help of a wage checker. In case you underpay any of your workers, you must pay the arrears on immediate basis otherwise you will be at the risk of paying fines up to £20000 per individual.

10. Reporting payments to HMRC

    - Paying your employees on time and then reporting it to HMRC can sometimes become a complicated task for the small business owners. Therefore, it is recommended that small business owners should use appropriate payroll software to pay their workers timely and smoothly. You can prefer Nomisma software for the fast and smooth processing of the payments and reporting these payments to HMRC.
    In case you run your payroll yourself, you will need to report to HMRC every month with the amounts you paid to each of your employees – same goes for any PAYE deductions for income tax and NIC. It is recommended that you must use payroll software which not only calculates your PAYE deductions automatically but also saves your time and helps in minimising your errors too.
    You should also notify HMRC on the hiring of new employee and at the employees state pension age. You should also have to submit an annual report to HMRC at years end providing information about any expenses or benefits.

11. Pension contribution

    - It is necessary for every employer to enrol their employees into a workplace pension scheme, which is also known as "Automatic enrolment". An employer must contribute to the pension scheme if all of the following applies –
    
    1. You’re a worker
    2. You’re aged between 22 and state pension age
    3. You’re earning over £10000 a year
    4. You usually work in the UK
    Pension contributions need to be deducted by the employer from employees pay every month and put into the individuals pension scheme by the 22nd day of the month. Every employer must maintain records of all the payments and deductions so that it can be presented to HMRC when they ask for.

Also See: Setting Up a Limited Company in The UK: Step-by-Step Guide

Conclusion

You need to comply with all these legal requirements before starting a new business. Missing any of the legal requirements may put you at risk of severe fines and penalties. It is recommended that you must take professional advice to fulfil all your legal obligations on time and accurately.

In case you are having any query or want specialist advice on "Legal considerations when starting a new business", kindly call us on 03330886686 or you can also e-mail us at enquiry@dnsaccountants.co.uk.

Also See: How to Start Your Own Consulting Business in UK

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.