Launching a business in the UK is equal parts excitement that this may be your big opportunity and dread that something will go wrong.
While we may not be able to allay every fear, we are aware that handling taxes can be a daunting process for even experienced businesses, let alone those just starting out.
As such, we have put together our four top tax tips that will help your startup stay compliant while also ensuring that you are well-positioned for investments and long-term growth.
1) Understand the impact of structure on taxes
Before your business commences trading, it is necessary to decide the best structure for it.
While there are many factors that go into deciding the structure of a business, it would be remiss to not understand the tax implications of each structure.
If you are working alone, you may be drawn towards operating as a sole trader.
If this is the structure you choose, you will pay Income tax and Class 2/4 National Insurance Contributions (NICs) on all profits as they are counted as your personal income.
This is similar to how partnerships are viewed in terms of tax.
As you may expect, when profits are split between two people in a partnership, it is the responsibility of each partner to pay the Income Tax on their share of earnings.
This is also the case for Limited Liability Partnerships.
Where tax considerations differ is with Limited Companies.
Corporation Tax will be applied to profits for a Limited Company, while directors will still need to pay Income Tax on salaries and dividends above the personal allowance threshold.
2) Utilise allowable expenses
Something that is often overlooked by those inexperienced in business is the extent to which allowable expenses can reduce tax bills.
A whole host of things can be considered a business expense, as the determining factor is whether the cost is solely and wholly incurred in the course of running a business.
This means that things like home office equipment can be counted as an expense if the devices are used exclusively for work purposes.
Some operational costs can also be reclaimed to the extent that they are business costs, as can some professional fees.
A good metric when determining whether something is likely to be an eligible expense is to question whether the cost would exist if you were not in business.
3) Keep up with your record keeping
If you are just starting out in business, then you have an opportunity that many businesses lack.
You have the chance to get your record-keeping right from the outset rather than having to tidy it up later on.
You should consider using cloud accounting tools to get a better view of your finances.
Seeing your financial position will enable you to understand when you are set to approach new tax thresholds and obligations.
Things like VAT require consideration when your taxable turnover passes £90,000 in a 12-month period, so knowing when this is likely to occur means that you can register accordingly.
Income Tax is paid at different rates depending on your income, so knowing your tax band is only possible if you keep a close eye on your finances.
Making Tax Digital (MTD) is a consideration for sole traders and knowing when it applies to you also requires knowing how much income you make in a year.
Beyond taxes, a clear vision of your financial health can aid you in having stronger working capital so that growth decisions can be made more effectively.
4) Seek professional support
You should be taking the time to focus on growing your business rather than worrying about all of the tax rules and regulations.
Our expert team can keep you aware of your obligations and ensure that they are met ahead of any deadlines.
We are adept at supporting businesses of all sizes, so can remain working with you even as your business grows.
