HMcR Blog

Consider the CGT factor

Before committing yourself to a home-based business, ask yourself: Am I likely to want to sell my home in the next few years? If the answer is yes, you may wish to revise your business plan. If a part of the home is deemed to be a “place of business”, a part of your profit from the sale of the home may be subject to capital gains tax. The amount assessed would depend on the size of the capital gain and the proportion of the house that was taken over for income-producing purposes.

Get the structure right

Never start a business without looking into the question of what legal structure it should take. You can be a sole trader, a partnership, a company or a trust. There are significantly different tax implications in each of those options. For example, if your business has the right profile to operate as a company, its profits will be taxed at a current maximum of 30%, whereas if you operate as a sole trader, the business will be taxed at your marginal tax rate, which could be as high as 46.5%. The tax rate is just one consideration in choosing the right structure, there are several others. Please ask for assistance in determining the most appropriate structure for your business.

Think of your future

In running a business of your own, you should have two financial goals: to make enough to pay you a salary (after covering costs) that is adequate for your needs; and to give you a capital return that will leave you better off than when you started the business. A business plan will help you determine the expected profitability and force you to seriously consider the business as a whole – product, pricing, marketing, growth, cashflow etc. before you jump in feet first.

Consider your clients

Give your business its own identity. If you try to save costs by such measures as using your home phone line, you are likely to aggravate your family, friends and relatives and confuse (or put off) your clients. Better to bite the bullet and separate where possible business & personal – it will provide a more professional vision of the business.

Get your finance right

How are you going to finance the purchase of the plant and equipment for your business? Should you buy it with your own cash, borrow cash, lease or commercial hire purchase? The answer will depend on the likely cashflow of the business. Each option will give you a different tax result. Give us a call to discuss your options prior to making a decision.

Running a business from home can provide many advantages, and as with everything careful planning will help avoid any pitfalls or surprises. Please contact the team at Hattam McCarthy Reeves if this may be an option for you. You could be working from the couch sooner than you think!

Kim Verrall

Image: scottchan / FreeDigitalPhotos.net