YOU’VE found your niche, you’ve written your business plan, you’ve arranged suitable financing. Surely that’s the hard part done? All that remains is the difficult work of growing your company, making your sales, and pleasing your customers.
Unfortunately, it’s not true. Before a business is even registered, every entrepreneur becomes enmeshed in Britain’s complex, opaque, difficult and punitive tax system. If you want to hire staff, there’s a tax implication. If you buy equipment for your business, there’s a tax implication. If you get outside investment, there’s a tax implication.
That’s why it’s so essential to get advice – or at least to brush up on the facts yourself. No business should fail because of some measly tax technicality.
And that preparation should start early – as early as the legal form you choose for your business. Are you going to set up as a limited company, partnership, or sole trader? Sole traders pay income tax on their profits, while limited companies are liable for corporation tax. But though rates can be different, your legal form also has implications on your liability if the business fails.
As Rob Young, tax and incentives partner at Taylor Wessing points out, there’s also a tax angle to how you choose to fund your start-up. “The UK tax regime tends to be less aggressive when equity is acquired in the life of a business,” he says. “Some of the more generous tax breaks depend on shares being held for a minimum period.” So whether you’re considering investing in a business, selling out, or asking for help from elsewhere, it’s still vital to consider the tax angle.
Finally, make sure you look out for some of the benefits built into the tax system. Don’t forget the government is apparently desperate to encourage entrepreneurship. You may be able to obtain tax credits for any pre-trade activity. Research and development, for example, can offer actual cash rebates from HMRC in certain circumstances.