High Clarity Accountants

TAX TIP OF THE WEEK – What is the best way to set up a new business venture which expects to make losses in the first year or two?

You might think that it is better to start a new company, as profits a generally taxed at lower rates than unincorporated businesses. However, where there are early-year losses the company can only carry these losses forward against future profits. And if the venture fails then any loss relief will have been lost

In this scenario it may be better to operate as a sole trader or partnership. Losses in early years can then be used to reduce the tax paid from any other earnings you have ie salary or investments.

If you don’t have other income in the same year, then you can also carry back the losses to other income you have had in the previous three tax years.

TIP  : It would be most optimal to choose a year in which you were subject to the highest rate of tax to get the best savings

Going forward once the venture does start making profits, then you can transfer the business to a Ltd company to take advantage of the lower tax rates.

Hope this was helpful, for lots more tax tips and strategies get a copy of our 71 ways to save tax checklist https://bit.ly/2YQbhv

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