What tax implications should start-ups be aware of?

There are certain questions all start-ups should ask themselves before they launch, and many of these revolve around tax.

Entrepreneurs can underestimate the tax implications that come with running a new business. Here are some key questions that should be considered.

Using assets belonging to someone else

Many new start-ups use assets owned by someone outside of the business. It’s an intelligent way to get things started. Assets could include intellectual property, different types of equipment and offices, among other things.

Whether you choose to rent or buy them depends on your long-term business strategy.

How will you finance the business?

Do you have funding in place? Where is the cash coming from? Some businesses use founders’ money only, while others need to secure funding from third parties.

It’s vital that as a start-up you consider the facts, and not what you hope will happen. Understanding the best sources of finance for your company is important to start off on the best foundation possible.

Knowing whether you are eligible for certain forms of relief is also key. Using approved investment reliefs can save money for early stage companies at critical moments in their formation.

Don’t forget to claim R&D

Any Research and Development (R&D) you carry out grants you a further subsidy from the tax system. Lots of brand new businesses don’t realise that innovations that they are developing are counted as R&D. It’s not just for scientists and the relief can be substantial.

Don’t take a salary until you have to

There’s no benefit to putting money into your company only to have to withdraw it net of NIC (National Insurance contributions) and PAYE. If at all possible, pay yourself only out of profits, not capital. Remember also that any money you put in to start the business can be regarded as a loan and can be repaid to you, not only free of tax, but with a reasonable amount of interest added.

However, everyone has to live, but it’s worthwhile trying to keep yourself going in a beneficial way in terms of tax. Avoiding withdrawing valuable start-up capital should be your main aim, particularly in the early stages. Many entrepreneurs will take a very small salary in the beginning stages of their business.

Employee tax considerations

If you’re taking on staff then you must consider how you will pay NIC, the auto-enrolment now legally imposed for pensions and expense reporting. Unfortunately, there are no short cuts when it comes to these expenses and getting them incorrect can cost you dearly later on. Study the tax implications of becoming an employer before you take anyone on.

Be organised

Tax returns and working out VAT is dull, particularly when you’re in the exciting stages of bringing a new product or service to life. However, not putting the time in to get them right can cost you far more in the future. The best way you can prepare for HMRC is by keeping excellent records. There are lots of accounting software packages out there that can help you.

Plan for success

You must assume you are going to be successful, so think in terms of how you would potentially sell your business. How will you own the business? Can you take money out? What would a buyer want to see when you get to that stage?

Keeping excellent tax records will help you be successful when starting out and when you come to move on.

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What tax implications should start-ups be aware of?
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