Effective business tax planning relies on understanding what taxes apply — and how to minimise them. You need to look not only at business taxes, but the effect on your overall tax position.
Business taxes apply to anyone who is in business. Selling a few personal possessions at a car boot sale will not expose to you business taxes, but if you are trading for profit — for example, buying in goods to sell — you are liable to business taxes.
You pay business tax on your business profits. This can be through tax self-assessment (if you are self-employed) or corporation tax (if you form a company). Any capital gains made by your business may also be taxable.
National Insurance is in effect another business tax. You will almost certainly end up making National Insurance contributions — whether you are self-employed, an employee or an employer. You may pay more than one set of contributions of this business tax — for example, both as an employer and as an employee.
Your business tax position is also affected by VAT. If your business is VAT-registered, you can usually reclaim payments you make. If you are not VAT-registered, VAT on the purchases you make becomes another business tax, adding to your costs.
The simplest way to minimise business taxes is to ensure you take full advantage of business tax allowances or reliefs. As part of this – and to meet your legal obligations – you need to keep proper business tax records detailing income and expenses.
Broader business tax planning should take an overall, lifetime view. The first decisions you make when starting up can have important tax consequences. From the moment you start a new business, you need to be aware of all the business taxes that are likely to apply, including, for example, when you ultimately sell the business.
Tax planning should also take into account not just your business tax position, but also how business tax interacts with your personal tax position. It’s worth taking professional advice to help you identify the best ways to save tax in your particular circumstances.