Starting to trade

Experience tells us that no one individual should be entrusted with too

much control over financial matters...

79 Chapter 10. Starting to trade

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Accepting card payments – Merchant Accounts

Many customers nowadays prefer to pay by card and you need to decide whether you want to accommodate this or stick to cash, cheque and direct transfers only. To accept cards through a machine or on the internet you need a

Merchant Accountwith an Acquiring Bank.

Currently, nine UK banks offer this service and smaller banks (including the Co-operative Bank) have a contract with one of these. Accepting card payments is costly: a fee for setting it up, a hire fee for the machine and a percentage of payments (credit cards 2-6%) or a set fee per payment (debit cards). On top of that, the money does not go straight into your account, but the bank holds on to it for a few days to speculate with. This means that a percentage of all your card takings goes straight into the pockets of the likes of RBS (WorldPay), Barclays, Lloyds or HSBC, even if you use ethical banks for your accounts. Depending on your business it might work perfectly well not to accept cards. Customers in small shops and cafés, for example, are becoming more

understanding and willing to get cash from a machine than they were just a couple of years ago. This is partly due to the rise of card fraud and an increasing awareness of the cost to businesses. If you do decide to accept cards you need to integrate the costs into your income and expenditure projections. To do this, you will have to estimate the percentage of sales made via cards.

10.2 Taxes

When you start trading you should let the tax office (Her Majesty’s Revenue & Customs – HMRC) know. Theoretically your regulator (if you have one) should let HMRC know, but it’s worth doing it yourself too, since they really don’t like not knowing that you’ve started up and may fine you.

Once you start paying wages or salaries you should register as an employer for PAYE (Pay As You Earn income tax and National Insurance). Look on the employers’ section at www.hmrc.gov.uk for details about the current rules and what information they require. You will also need the form CT41G within the businesses and corporations section on their website.

If your co-op is a partnership (whether unlimited or LLP) then you’ll have to tell HMRC that you are self-employed and in a partnership, so that they can send you a self-assessment tax form. Have a look at the HMRC website

(www.hmrc.gov.uk) to find out how to register your business and/or yourself if you are to be self-employed. LLPs need to register using forms SA 400, SA 401 and SA 402.

VAT

You don’t have to register for VAT at all unless your annual turnover goes over a certain threshold. In 2012 the VAT registration threshold is £77,000 over the previous 12 months. This is a bit confusing because £77,000 isn’t the necessarily the same as your total turnover.

80 How to set up a Workers’ Co-op

Chapter 10. Starting to trade Not all goods and services are VAT taxable – the threshold refers only to turnover of VAT taxable goods and services, and not those that are VAT exempt such as education and training. To make it even more confusing some goods (such as food and books) are zero rated. This means they count towards the VAT registration threshold, but you won’t pay VAT on them.

Most new workers’ co-ops don’t have to worry about this – however, there can be some advantages to registering for VAT voluntarily. Once you are registered, you can claim VAT back on the things that you buy, and then charge your customers VAT on the things you sell. If everything you buy is passed on to your customers (for example a bike co-op might buy in spare parts and charge their customers for this as part of the repair cost) then there is no benefit to being VAT registered. However, if your start up costs include a lot of things you will keep like tools of equipment for the business, then claiming back the VAT could make a big financial difference.

It is possible to backdate your VAT registration, and so reclaim VAT on things you paid for before you were registered.

It’s worth getting advice on VAT because it can be so confusing, but

www.hmrc.gov.uk has all the information on the current rules.

10.3 Insurance

If you employ anyone you’ll need to make sure you have employer’s liability insurance from the start, and you need to make sure that all employees (yourselves) have access to the policy (your insurers will send you a certificate to hang on the wall). Depending on what you are doing, you are likely to want public liability insurance as well, possibly product liability and maybe various other business insurances.

81 Chapter 11. Running the business

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In this section we have included quite a bit of detail about the things you need to do as part of a workers’ co-op. The level of detail in this chapter may seem daunting, but should hopefully give you a picture of the kinds of responsibilities you take on when you set up a

business. At the same time, be aware that it is not possible to make this guide totally comprehensive: the law is constantly changing and many of the rules are too complex to explain here. Instead we provide pointers to your main responsibilities as a director or partner/member and indicate where you might find more up-to-date information.

Some of these tasks will vary depending on the legal form of your co-op, so not everything will be relevant to you. Keep an eye on www.businesslink.gov.uk and www.hmrc.gov.uk for up-to-date information.

11.1 Being an employer

Unless you are in a partnership and all workers count as self-employed, you will have to follow the law governing employers, even if the people you are employing are yourselves! Some rules can be waived: for example, if you have a completely free choice over when you work, you can put in as many hours as you want in a given week. However, self-exploitation can be a real danger in these situations: if you are working more than the legal maximum, you should think about cutting down.

Working hours and holidays

The law governs things like how many hours you can work in a week and how long you can work without a break. This will depend on a number of factors: for example people under 18 need more frequent breaks. For holidays, the legal minimum (if you give yourselves contracts) is 28 paid days (5.6 weeks) per year, or equivalent pro rata for part time staff. As an employer you can decide that this includes bank holidays, which would take the rest of the leave allowance down to 20 days or 4 weeks in a year. Don’t forget that any regular workers, even if only casual, are classed as employees and eligible for holidays and other benefits.

Unions

In terms of the legal minimum, if you employ 21 people or more and the majority want a union to be recognised then you must recognise it. This means the union can get involved in

negotiating work conditions and representatives get time off to do union work. Of course you can choose to join and recognise unions anyway, whether or not you anticipate needing one to represent you.

Contracts

If you are an employee then you will have a contract between you and the co-op – whether or not this is written down on a piece of paper.