Starting a new company can involve many important decisions. One of those crucial steps is choosing the right SIC code. However, many business owners overlook this important detail.
What Is an SIC Code?
A Standard Industrial Classification code ('SIC'), describes your company’s main business activity. This information is used by Companies House and HMRC to understand your business activity.
A SIC code is a five-digit number that categorises your business activity. The UK government maintains the official SIC code list
Your company must select at least one SIC code during incorporation. However, you can also update your SIC code later if your company starts a different trading activity. For example, a digital marketing agency uses a different SIC code to an accountancy firm(!). Consequently, the code identifies your industry to regulators, banks, and insurers.
Why is Choosing the Right SIC Code So Important?
Choosing the right SIC code directly affects how authorities view your company. Additionally, it influences how others assess your credibility. A correct SIC code helps your business:
How SIC Codes can Affect Tax and Compliance
Because HMRC relies on SIC codes to understand business activities the wrong code can raise red flags. Choosing the right SIC code will therefore help HMRC apply the correct tax rules.
Additionally, it also supports accurate VAT and Corporation Tax treatment - particularly where specific rules are involved.
Additionally, certain industries have additional mandatory reporting or regulatory obligations.
The correct SIC code ensures the authorities apply the right requirements.
Choosing the Right SIC Code and reviewing your SIC code
Start by identifying your main income-generating activity. Then you should match it to the closest official SIC description. Additionally you should check whether secondary activities need additional codes. However, you should avoid unnecessary codes as this could confusion at a later date.
Your business may change direction over time. Therefore, your SIC code should reflect current activities. So it's important to review your SIC code when you add new services or products, cease offering previous services or restructure your business model
Common Mistakes with SIC Codes
Many people don't consider this step carefully when they form their new company. As a result, they select vague or incorrect classifications. Common mistakes can include:
Unfortunately, these mistakes could cause long-term issues. However, as previously mentioned a quick review can prevent future headaches.
Summary
Choosing the right SIC code can strengthens your company’s foundation. Furthermore, it improves accuracy, credibility, and compliance
Although the task might appear straightforward, it does carries serious weight. Therefore, take time to review your selection carefully. By choosing the right SIC code, you protect your business and support future growth.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here..