What to know about business and personal taxation

Questions about business taxation

Do I need to set up a company to trade?

No, you can trade in your own name but it is important that you consider all of the options available to you as each business structure (ie, self-employed, partnership, limited company) has different tax and other implications. A good place to start is HMRC’s guidance Set up a business.

What is tax deductible?

Most of the expenses of running a business are tax deductible but there are exceptions. Tax relief is available for the capital cost of most business assets, although, depending on the circumstances, the deductions may be spread over a period of years in the form of capital allowances.

Should I purchase or lease?

That depends on your taxation and financial position. But you are absolutely right to consider such implications when investing in equipment, buying a car, or undertaking any other major expenditure. The tax treatment will vary, and there are other implications, such as cash flow.

What should I do before doing business abroad?

Trading or setting up overseas can bring complex tax problems. You will encounter a different tax regime, both on direct and indirect taxes. There may also be complications with transactions between the UK and the overseas country. To assess the tax advantages and disadvantages of overseas operations you should seek expert advice.

Should I do the business’s tax return?

Completing tax returns can be complicated and time consuming and mistakes may give rise to an enquiry from HMRC, and ultimately a penalty. Unless your business is very small it is advisable to use the services of an expert who is experienced in dealing with a wide range of tax returns.

Do I need to register for vat?

Your business must be registered for VAT if your turnover for the previous 12 months exceeds the threshold (currently, £90,000). Once you register you will be given a VAT registration number and notified of the registration date from which you should charge VAT on your supplies.

If your business has a turnover below the registration threshold, you can voluntarily register for VAT. This would be appropriate if your business makes purchases from suppliers and receives invoices which include VAT. If your business is not VAT registered, the VAT on these suppliers’ invoices becomes an unrecoverable cost. Voluntary registration means that it is important to consider whether your customers are VAT registered and can recover this cost themselves.

Which items are vatable?

Some businesses have trouble sorting out which transactions are VATable and those that are exempt or zero-rated. There may even be problems of definition that have to be negotiated with the VAT inspector. HMRC publishes public notices to help with VAT queries.

Questions about personal taxation

Do I have to do my own self assessment?

You will be required to complete a self assessment tax return. If you are computer literate and your tax affairs are relatively straightforward, you can complete and submit the relevant documents either online or in hard copy. HMRC publishes a range of information on self assessment. From April 2026, many sole traders and landlords will need to keep digital accounting records and use Making Tax Digital-compliant software to submit quarterly updates to HMRC.

How do I reclaim tax?

If you have paid too much tax in the past, it may be reclaimed in certain circumstances. Examples of causes of overpayments include incorrect PAYE coding and the omission of allowable expenses from a tax return.

Is it possible to reduce my income tax?

There are a large number of legitimate ways by which you can reduce your income tax liability, including ensuring that you are claiming all allowable expenses.

For example, you could consider choosing different forms of borrowing or investment to improve your tax position, or take advantage of the tax relief available on personal pension contributions.

How do I find out more about reducing inheritance tax?

Most transfers of assets are now free from inheritance tax provided the donor survives for seven years after the transfer. However, this tax is complex and needs careful planning. Steps to reduce inheritance tax can result in increased potential liabilities to other taxes, such as capital gains tax.

Should I be worried about capital gains tax (CGT)?

If a profit results from selling an asset that is not part of the trading stock of your business, you may be liable for capital gains tax (CGT). Also, if your business is run from home, the exemption from CGT that private houses normally enjoy could be prejudiced if you seek income tax relief on part of the property’s running costs. Planning in advance can help minimise a capital gains tax liability.

Further information

The tax system can be complicated and the purpose of this document is to provide an overview of some key areas only. For more information, follow the links to HMRC’s guidance below or consider seeking professional advice.

• Business tax
• Self assessment