SIC Code and Starting a Business

I will assume that this is a new home based business. Do understand that lending institutions look at a home based business a little more carefully than usual. So you want to make your case (file) very strong.

Think about this, if you have a home based consulting business and a bank lends you money. How easy would it be for you to just pack up and leave – defaulting on the loan. So it stands to reason that you should choose a business that is viewed as low risk by lending institutions. This brings me to the subject of SIC codes. SIC stands for Standard Industrial Classification. Basically every type of business can be classified by these codes so different businesses reflect a different SIC code.

The main point is to choose a business that has a low risk SIC code. By the way, just this tip is worth its “weight in gold”. Many business credit consulting gurus will tell you to classify your business as “General management” or “Business management”, a generic name. I really believe that this will harm your efforts in the long run. The nature of the business – its corresponding SIC is a big part of developing a solid foundation for business credit development. Your aim should be to develop your business file so you can get CASH lines of credit without any personal guarantees. No Personal guarantees means that you should not have to use your personal credit for the purpose of getting business credit. Many will tell you that this is an impossibility in this economy. Well it is rare but not impossible. It is only rare because most people approach business credit like they approach there personal credit. Plus remember that just because you are asked for your SS# does not automatically mean that your credit is pulled. For security reasons an SS# is required, especially if the amount being lend is large.

Having said that if you have a “high risk” SIC code business like real estate investing but you still have enough cash flow coming in from that business (and/or enough assets in the business’ name) than it will matter less since the business is so strong. For the rest of us, a good SIC code is a must.

So what is a low risk SIC. Try to find out which types of businesses your state is giving grants/aid to. Follow the stimulus money. If the government is willing to help a certain type of business than you know that business has a “good” SIC code. Health care, medical supplies are good examples (many more good examples). Visit the site for a lot more tips.

Make no mistake about it a good SIC code can make all the difference if you want great business credit.

Always remember a good website designer does not automatically become a business credit expert/guru.

Understand Your Tax Code

If you are employed under PAYE then HMRC will provide you with a tax code which tells your employer how much tax to deduct from your income before paying you. A tax code is usually made up of several numbers and a letter, for example: 117L or K497. The tax code spreads your tax-free amount equally each month so that you get roughly the same take-home pay or pension every month. To work out your tax code your tax allowances are added up and the total amount of income you’ve not paid any tax on deducted. The amount you are left with is the total of tax-free income you are allowed in a tax year.

The code is usually made up of several numbers and a letter. In general this represents the amount (divided by ten) of income you can receive before you pay tax. Therefore if you are entitled to ٤,475 before paying tax then your tax code will be 647L. It follows that most codes are numbers although some are just letters, for example BR (Basic Rate) which tells the employer to deduct tax on all income at the basic rate, or NT (No Tax) usually for non-resident individuals who are not liable to UK tax on their earnings. If you are entitled to the basic Personal Allowance then L is added to the number. If you are entitled to a higher allowance due to age then P (65 to 74 ) or Y (over75 ) are added.

You will be allocated a K code if your deductions are more than your allowances. If you’re starting your first job your employer will give you a P46 to complete and your employer will work out the tax you owe. When HMRC deal with your P46 they will revise your tax code and the tax paid will be adjusted accordingly. BR means your pay from that employment will all be taxed at the basic rate, normally because you have a second job or pension. D0 signifies that all your income is taxed at the higher rate, again usually because you have another source of income.

If you earn more than £100,000, your tax code also allows for the income-related reduction to the Personal Allowance. If you earn more than £150,000 from your main source of income, tax is deducted at 50 per cent as appropriate. It may be that your tax may well need to be adjusted when your self assessment tax return is submitted so that gift aid or pension contributions are treated properly. Whatever your circumstance, if you are unsure whether or not you are on the right tax code, you should first contact your payroll department. If you have an accountant, they can check whether it is correct. Most of the time, codes are fairly accurate but it’s always worth checking to make sure.

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