Small Business Tax Issues
Setting up on your own could be a long-held dream that you have been working towards for years, it could be an opportunity only made possible by a redundancy payment or may simply be your only option where there are limited permanent employment alternatives. Whatever the reason, you need to be aware that the small business tax rules for the self-employed are significantly more complex than those for employees particularly when you become a Limited Company.
Depending on the type of business you are embarking on, it is, of course, possible to start out as a sole-trader or as a partnership and keep your tax affairs relatively simple but there are many advantages to a limited liability company that out-weigh the additional tax issues you would have to deal with. For instance, your personal assets are protected and you can take payments as dividends and so reduce your personal tax burden.
There is also the option to set up as a Limited Liability Partnerships which can offer both protection of your personal assets and some flexibility regarding tax payments.
If you decide to work from home, as many people do with the rise of internet businesses, you need to be careful about whether you claim that part of your home is exclusively used for the business. Any short term gain from this is likely to be outweighed by a capital gains liability when you sell your home (which would not normally apply to a main private residence). Other issues regarding working from home include insurance, business rates and possibly planning permission, depending on the type of business.
Even when you do not claim that part of your home is exclusively for business purposes, you can still claim small business tax relief on an appropriate portion of you utilities costs, telephone, internet, insurance, maintenance and repairs.