In case you are considering starting or expanding your business, you should first be aware of the tax structure, as this will help you create the perfect business vehicle.

Trading versus investment business tax structure

Most people, who begin a business on their own, start a trading business. This type of business covers selling services or goods, and has to be registered with HMRC within three months of starting operations. However, there is another option that is available to them, though it is less frequently chosen. This is investment business. When a business begins to earn capital gains or yields income from its investment, it tends to fall in this category. Managing real estate portfolio would be considered an investment business.

Apart from dividends, other types of incomes are taxed at the same rate as in the hands of people. But whether you go in for investment or trading, there will always be National Insurance implications to deal with.

It is prudent to remember there is a high possibility that you pay a higher tax on your capital gains rather than a higher charge on your income tax.

Guidelines regarding the taxation norms

One rule that has been retained despite other changes in the taxation guidelines is that ‘annual maximum for earners with more than one employment in a tax year’ shall remain the same. However, there is no annual maximum that has been prescribed.

Apart from that, the ‘maximum liability for earners who have a single employed earner’s employment’ will depend on how much they are earning and the period in which those earnings are paid.

So, the bottom line is there is no longer Classes 1 and 2 NICs maximum figure applicable to people who have more than one employment in any given tax year. And, this is something you should make note of.

Before you dive into trading or investing business structure, it is best to weigh the pros and cons and then choose a structure that offers maximum benefit to your business. Make sure you HMRC helpline to find out about the tax structure or speak to your accountant. This will let you establish the right business entity.