When you are starting help in business, you need every anything you can get that will lend your business an edge.
Here are our five top tax saving tips to get you started:
Keep records of your pre-trading expenses
When you are planning on starting a business, you are likely to incur various expenses like market research, advertising, software, product development, meeting prospective customers, etcetera. When you start trading, income tax relief can be claimed for these expenses, even if they were incurred up to seven years ago. The expenditure must have been “wholly and exclusively” (HMRC term!) for the purposes of the business.
Check employment status
You can’t do everything yourself, and may need to take someone on to help you out. It’s tempting to pay them in cash, treat them as casual labour, and let them sort out their own tax affairs. However, it is your responsibility as the business owner to determine whether they are actually employees. In which case, you would be responsible for operating a PAYE scheme and deducting any tax or national insurance due. We can help with this.
HM Revenue & Customs has an Employment Status Indicator tool on its website to help explain and make a decision. Factors to consider when looking at employment status include, but are not limited to; control over what staff do, hours they work, who supplies equipment etc.
Claim home office costs
Many new businesses start from home. After all, the cost of an office isn’t one many start-ups want. Instead a home office is often used. Remember the costs of running a home office are tax deductible too. The exact rules vary whether you operate as a sole trader or through a limited company. We can calculate the allowance you are entitled to.
Keep good records from day one
Business expenses are mostly tax deductible, so making sure you record them. Categorising your expenses as you record them will make it much easier to complete the year end tax return. Remember to keep a separate list of equipment bought too. Tax relief on these items will be claimed on the capital allowances section of the tax return.
Consider registering for VAT
Once your sales exceed the threshold (£81,000 from April 2014) in a twelve month period, you will be required to register for VAT; once registered you will need to charge 20% VAT on your applicable sales. This VAT you collect from customers will need to be paid over to HM Revenue & Customs.
You will be able to offset VAT incurred on expenses against this.
If you sell to other VAT registered businesses, they will be able to reclaim the VAT you charge. In this case it may make more sense to register for VAT before the threshold is exceeded. Early registration will allow you to reclaim VAT on your expenses. Some income is exempt from VAT so remember to seek advice before registering if unsure.
Looking for help?
If looking for more start up information please do not hesitate to contact James Hellyer on 01237 421342.