Running a Sole Trader Business
Consider the type of business you are going into vis a vis the tax aftermath. For instance, if you are to operate a small business unit there is no point registering a limited company in which you will have to pay more taxes than if you were a sole trader or a partnership. This article aims to elaborate on the sole proprietorship type of business ownership.
As a sole trader you are liable to pay only your income tax and Class 4 NICs profits you make from product sales or offering of services to clients, but you also have the advantage of paying part of your income into a pension fund with full tax relief.
Further more you can reduce tax by making your wife a partner so that the profit made from the business is shared between the two of you to lower the income tax. This is one benefit of the sole proprietorship that compensates for the personal liability risk of the business.
Capital allowance can be claimed on expenses incurred in the course of the business with a car that is registered in your name or your wife’s name. If the car is designated for the running of the business you can also claim capital allowance on the cost of the car.
If like most people you carry out a part of your business from home, you can make claims on your income tax for some of the domestic costs such as electricity, water, insurance and even gas. However, make sure that such claims do not bring you into paying business premises rate etc or the contravention of the private residence law.
Finally, note that any loss incurred in the business can be offset from income from the current business year or even from last years income. And if your business is a fledgling one you can file losses for three years running and subsequently obtain a tax refund as the business begins to make profit.
By: Charles Neshah
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Filed under Business by on Jun 28th, 2010. 