Tax considerations for new start ups

Tax can impact the structure you adopt in running your business, to how you pay yourself and how you realise any profits. How you are taxed will be dependent on the type of start-up you establish, for example should you set up as a:

  • Sole Trader, you will be taxed as an individual; whilst
  • An LLP will be taxed as per the individual members’ share of the profits of the LLP.

    As tax can be a minefield and is often viewed as a complicated set of rules, we’ve provided a short list of the key tax implications that you should be aware of when running a business.

Corporation Tax

If you are to set up a limited company, you will have to pay corporation tax on that company’s profits. Corporation Tax is due 9 months and 1 day after the end of your accounting period for taxable profits of up to £1.5 million. The current rate of corporation tax is 19%. It is possible that during the initial set up of your business that you will qualify for relevant reliefs these include but are not limited to:

Capital allowances: If you purchase assets that are for the day to day running of your business such as equipment or business vehicles, you may be able to offset these against your tax bill.

Research and Development Relief: This is a relief that can be specifically linked to technology start-ups. If you undertake work that directly links to making an advance in science or technology relating to your company’s trade, you may also be liable for tax relief.

VAT

Registering for VAT is compulsory once you meet the following criteria:

  • If your VAT taxable income is greater than £85,000;
  • If you expect your VAT taxable income to be greater than £85,000 in the following 30-day period (the 30 day period will be calculated from the day you realise); or
  • If you solely intend to sell goods or services that are exempt from VAT but do purchase goods from EU VAT registered suppliers up to the value of £85,000.

However, there is a possibility that in the early stages when turnover fluctuates, you may be eligible for an exemption. An exemption may be applicable whereby your taxable turnover is more than £85,000 in one month, but you are able to show that this is an anomaly and the business is unlikely to hit £83,000 in the next 12 months.

Business Rates

Is the intention to set up office or retail premises for your start up to work from? If this is the case you will also be liable for business rates which acts as a ‘business property council tax’. The level of business rates that you will be liable for is dependent on your property’s ‘rateable value’/ estimated rental value. Similarly, reliefs are available for those properties with a rateable value of less than £15,000, with full relief available for those with a value of less than £12,000.

Income Tax

If you are setting up as a sole trader/ partnership or LLP or you intend to pay yourself a salary, the rate you pay tax will be based on your overall earnings. Provided you earn less than £123,700, your personal allowance of £11,850 will be available and shall be tax free. Any salaries over £162 a week will also need to consider National Insurance. If you are self-employed National Insurance works in a different way to PAYE and you should speak with your adviser on the correct tax to pay.

Whilst this acts as a short overview of what tax implications to look out for when establishing your start-up, our Corporate and Commercial term would be happy to talk you through what your business can do to prepare, and what reliefs it may be eligible for.