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Start-up tax: tips for new businesses


Cover of Small Business Tax Planning by Russell Cockburn Start-up tax: tips for new businesses

August 22, 2011 by Georgina Harris

Tax author Russell Cockburn explains how to save money by making the right choices at the very start of your business planning

Starting a business is difficult. Tax is probably the last thing on most entrepreneurs’ minds at this stage. But it should be right up there with everything else.

Plan your tax from the start

Tax is a cashflow item. Factor it into the business plan as one more cost to control and budget for and it should take care of itself. Ignore it at your peril! Tax authorities offer a lot of help and support for new businesses these days but they can get truly nasty with those that don’t get their tax compliance right from the outset.

Budget for the liability date

A new business will not normally have any tax to pay for quite a while, but you should seek to forecast its potential tax liabilities and their due date straight away so that the money can be set aside as profits are earned. A business that exceeds the current VAT threshold (£73,000 p.a.) will also need to charge VAT on its “taxable supplies” and then pay this over to HMRC every three months so this will need to be budgeted for too.

Early decisions will affect your tax bills

Decisions a business makes from day one will affect its tax liabilities. These can range from small issues such as whether or not to pay professional fees or expenses through the business, through decisions about what sort of business vehicle or equipment to buy and when - and the large issues, such as whether to operate as a sole trader or via a limited company. All these have potentially important tax implications for the business and the proprietor. Buying the right car, for example, can result in a significant tax deduction. Getting the wrong one could cost you a lot of tax and national insurance.

Who should be involved?

One of the most important tax planning aspects will be the decision on who to involve in the business. If you can involve other members of your family in working in the business, for example your spouse or partner, then they can share in the profits and can use their tax allowances against their share, thus reducing overall the tax bills you pay as a family. They might become an employee of the business, a partner, or even a shareholder in the company. All these choices will potentially have tax implications and benefits so will need careful consideration.

By Russell Cockburn, the author of Small Business Tax Planning, published by Harriman House.
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