Getting Started

Tax FAQs for new entrepreneurs

Taking advice on business tax can save you time, hassle and money. Get started with our simple guide

Tax FAQs for new entrepreneurs

Taking advice on business tax can save you time, hassle and money. Get started with our simple guide

Tax FAQs for new entrepreneurs

Taking advice on business tax can save you time, hassle and money. Get started with our simple guide

Tax 1200X700

If you are just starting out as an entrepreneur, dealing with tax can be time-consuming and often bewildering.

“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” said Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but ultimately it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”

Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.

For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Wickenden. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”

Crawfurd Walker, Chief Revenue Officer at Elephants Child, says that seeking advice can pay for itself by ensuring business owners take advantage of any tax reliefs or incentives that may be available. “For example, R&D Tax Credits are often overlooked but can be a welcome addition to an entrepreneur’s cashflow.”

Walker adds that it is also never too early to start thinking about maximising tax efficiency when selling the business. “Having built value, the entrepreneur will want to be able to extract this as tax-efficiently as possible, and this needs to be considered well in advance of any potential sale or partial exit. This should include both the business and personal elements. Concentrating only on the business and neglecting personal affairs could result in significant sums being lost in Inheritance Tax, so planning should include wills and, where appropriate, trusts.”*

Tax FAQs

Kerry McCreadie, Head of Owner Managed Business at UHY Hacker Young, explains the taxes you’ll need to be aware of when setting up your business.

Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.

National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.

Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most companies is 19% of taxable profits (2021/22 tax year).

VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.

Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.

Budget 2021: Tax exemptions and allowances checklist

We take you through the key tax changes for entrepreneurs announced in the 2021 Budget.

Income Tax: The personal allowance has increased to £12,570. Similarly, the higher-rate threshold – the point at which you will start to pay 40% Income Tax – has risen slightly to £37,701 of taxable income or £50,271 of gross income in 2021/22.

Dividends: The dividend allowance is unchanged at £2,000.

Personal pensions: There were no changes to personal pension tax relief, meaning most people can still get relief on pension contributions worth up to £40,000 a year. The lifetime allowance remains the same at £1,073,100 for 2021/22.

Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.

Inheritance Tax: The Inheritance Tax nil-rate band for 2021/22 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.

If you are just starting out as an entrepreneur, dealing with tax can be time-consuming and often bewildering.

“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” said Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but ultimately it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”

Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.

For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Wickenden. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”

Crawfurd Walker, Chief Revenue Officer at Elephants Child, says that seeking advice can pay for itself by ensuring business owners take advantage of any tax reliefs or incentives that may be available. “For example, R&D Tax Credits are often overlooked but can be a welcome addition to an entrepreneur’s cashflow.”

Walker adds that it is also never too early to start thinking about maximising tax efficiency when selling the business. “Having built value, the entrepreneur will want to be able to extract this as tax-efficiently as possible, and this needs to be considered well in advance of any potential sale or partial exit. This should include both the business and personal elements. Concentrating only on the business and neglecting personal affairs could result in significant sums being lost in Inheritance Tax, so planning should include wills and, where appropriate, trusts.”*

Tax FAQs

Kerry McCreadie, Head of Owner Managed Business at UHY Hacker Young, explains the taxes you’ll need to be aware of when setting up your business.

Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.

National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.

Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most companies is 19% of taxable profits (2021/22 tax year).

VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.

Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.

Budget 2021: Tax exemptions and allowances checklist

We take you through the key tax changes for entrepreneurs announced in the 2021 Budget.

Income Tax: The personal allowance has increased to £12,570. Similarly, the higher-rate threshold – the point at which you will start to pay 40% Income Tax – has risen slightly to £37,701 of taxable income or £50,271 of gross income in 2021/22.

Dividends: The dividend allowance is unchanged at £2,000.

Personal pensions: There were no changes to personal pension tax relief, meaning most people can still get relief on pension contributions worth up to £40,000 a year. The lifetime allowance remains the same at £1,073,100 for 2021/22.

Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.

Inheritance Tax: The Inheritance Tax nil-rate band for 2021/22 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.

If you are just starting out as an entrepreneur, dealing with tax can be time-consuming and often bewildering.

“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” said Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but ultimately it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”

Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.

For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Wickenden. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”

Crawfurd Walker, Chief Revenue Officer at Elephants Child, says that seeking advice can pay for itself by ensuring business owners take advantage of any tax reliefs or incentives that may be available. “For example, R&D Tax Credits are often overlooked but can be a welcome addition to an entrepreneur’s cashflow.”

Walker adds that it is also never too early to start thinking about maximising tax efficiency when selling the business. “Having built value, the entrepreneur will want to be able to extract this as tax-efficiently as possible, and this needs to be considered well in advance of any potential sale or partial exit. This should include both the business and personal elements. Concentrating only on the business and neglecting personal affairs could result in significant sums being lost in Inheritance Tax, so planning should include wills and, where appropriate, trusts.”*

Tax FAQs

Kerry McCreadie, Head of Owner Managed Business at UHY Hacker Young, explains the taxes you’ll need to be aware of when setting up your business.

Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.

National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.

Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most companies is 19% of taxable profits (2021/22 tax year).

VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.

Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.

Budget 2021: Tax exemptions and allowances checklist

We take you through the key tax changes for entrepreneurs announced in the 2021 Budget.

Income Tax: The personal allowance has increased to £12,570. Similarly, the higher-rate threshold – the point at which you will start to pay 40% Income Tax – has risen slightly to £37,701 of taxable income or £50,271 of gross income in 2021/22.

Dividends: The dividend allowance is unchanged at £2,000.

Personal pensions: There were no changes to personal pension tax relief, meaning most people can still get relief on pension contributions worth up to £40,000 a year. The lifetime allowance remains the same at £1,073,100 for 2021/22.

Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.

Inheritance Tax: The Inheritance Tax nil-rate band for 2021/22 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.

 


 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

 

*Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place and along with Trusts are not regulated by the Financial Conduct Authority.

 


 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

 

*Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place and along with Trusts are not regulated by the Financial Conduct Authority.

 


 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

 

*Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place and along with Trusts are not regulated by the Financial Conduct Authority.