For UK start-ups, understanding the basics of tax planning is crucial for staying compliant and optimising financial performance. Early-stage businesses often overlook tax strategy, leading to missed savings and unexpected liabilities. Here are the core areas every UK start-up should consider when planning their taxes.
1. Choose the Right Business Structure
Your tax obligations vary depending on whether you operate as a sole trader, partnership, or limited company. A limited company, for example, is subject to Corporation Tax but can offer advantages such as limited liability and potential tax efficiencies on profits.
2. Understand Allowable Expenses
Many start-ups fail to fully claim allowable business expenses, which can reduce taxable profits. These include office costs, software subscriptions, travel, and certain professional services. Keeping detailed records and consulting with an accountant ensures accurate deductions.
3. Maximise Tax Reliefs and Incentives
The UK government offers several tax reliefs for start-ups. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) provide tax reliefs to investors, making it easier to raise funds. Additionally, R&D Tax Credits can offer substantial rebates for companies engaged in innovation.
4. Plan for VAT Registration
If your business’s taxable turnover exceeds £90,000 (as of 2024), you must register for VAT. Even below this threshold, voluntary registration can be beneficial, especially if you incur VAT on business purchases. Understanding VAT schemes, such as the Flat Rate Scheme, can help optimise cash flow.
5. Keep Up with Deadlines and Compliance
Missing tax deadlines can lead to penalties and interest. Start-ups should adopt accounting software or hire a qualified accountant to manage filings, payroll, and reporting obligations. Staying compliant not only avoids fines but also builds investor and partner confidence.
Sound tax planning from the outset helps start-ups retain more of their revenue, scale sustainably, and avoid costly surprises as they grow.