Your business – making the rules work for you
Choose the most tax-advantageous structure for your new business. Tax changes, such as the recent increase to the rate of employer NICs, have made the decision on how to structure a new business quite difficult. Traditionally, a business would start off as a sole trader or partnership, and then incorporate later on when it had grown. The initial stage of this approach still holds, especially if losses are a possibility in the early years of trading. Running a business as a sole trader or partnership will give you maximum flexibility to set off those losses against your other income. However, with a marginal rate of corporation tax of 26.5% on company profits between £50,000 and £250,000, and 25% once profits exceed £250,000, it may often make sense to remain unincorporated, especially when the higher costs of running a company are taken into account. A further factor is that the basic and higher tax rates on dividend income increased to 10.75% and 35.75% from 6 April 2026. One advantage that companies do still have, however, is the ability to make tax-efficient pension contributions (see the retirement planning section).
Don’t miss your VAT registration requirement. If your business is not VAT registered, you must keep an eye on your turnover for the previous 12 months on a rolling basis. When it exceeds £90,000, you must register for VAT by the end of the month following the month in which your turnover exceeds the threshold. Once registered, you have to charge VAT on all of your sales (except those which are exempt) and submit VAT returns to HMRC using making tax digital (MTD) compliant software. You also need to keep your VAT records in a digital format. If you register late, you will still have to pay the VAT on sales you made after you should have been registered but may not be able to recover that VAT from your customers.
Check that your trading profit is calculated using the most appropriate basis.
The cash basis is now the default method for calculating trading profit if you are self-employed or in a partnership. However, there are circumstances where the traditional – more accurate – accruals basis will be preferable, and it is easy enough to opt out of the cash basis if this is the case. More sophisticated businesses will usually want accounts prepared on an accruals basis so they have the information to make business decisions. Also, banks and other lenders may insist on the accruals basis being used Use your own car for business journeys. By using your own car for business journeys, you can receive a tax- and NIC-free mileage allowance of 55p per mile for the first 10,000 miles, and 25p per mile for any additional miles, per tax year. These rates are the same whatever road fuel your car uses, including for electric cars. If you work for yourself, you can use these mileage rates to calculate the cost of the business journeys you make in your own car, which is generally easier than working out the business proportion of the entire running costs of the vehicle. Check whether or when you need to join Making Tax Digital (MTD) for income tax. From 6 April 2026, sole traders (and landlords) with total income (before deducting expenses) of more than £50,000 from self-employment and property letting have had to use MTD-compliant software to keep digital records of their business income and expenses. They also have to use MTD software to submit quarterly updates to HMRC and finalise their tax position following the end of the tax year. The threshold for joining MTD will fall to £30,000 from 6 April 2027 and £20,000 a year later. If you will have to join MTD in 2027 or 2028, you need to be looking for suitable MTD software well in advance of those dates.
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