Q: My husband and I have a small yard at home and I teach on a freelance basis. I would like to use the yard as a base for the lessons and allow clients to ride my horses. How can I turn my yard into a riding school and how would I set up the business? My bank manager told me I should set it up as a company. I am keen to avoid paying excess tax and don’t want to make the yard look bigger than it actually is.
According to Colin Davison, author and tax consultant at Cranleys Chartered Accountants, your bank manager is correct.
“Setting things up as a company will address a number of different tax issues,” explained Colin. “Currently, the rate of company tax is 21 per cent, and this will rise to 22 per cent from 1 April 2009. If you run at a loss, as could be the case in the first year, you could be better off putting the business in a partnership with your husband, assuming he has employment elsewhere. He can then claim a tax rebate on the money lost in the first year.
“If your business is profitable — up to £6,035 — you will not pay tax, so it may be simpler to have a sole-trade business,” said Colin. “For this, you must register your business using the appropriate form contained in the HM Revenue and Customs (HMRC) guide, The No-Nonsense Guide to Starting a Business. If you have a business with more profit than £6,035, a company will become a more attractive option for you. As sole trader, personal taxes of 20 per cent, plus 8 per cent National Insurance contribution will put you in a worse-off position. Setting up as a company also has many other legal and insurance-related advantages.”
There are places you can approach for further advice on setting up a riding school, such as Business Link, which offers advice on money management, setting up premises, keeping the workplace safe and aspects like VAT. HMRC can also advise on setting up your business, as well as producing several useful booklets.
• Business Link, tel: 0845 600 9006 www.businesslink.gov.uk
• Cranleys, tel: 01256 830000 www.cranleys.co.uk
• HMRC The newly self-employed helpline, tel:0845 915 4515 www.hmrc.gov.uk/startingup
This Q&A was first published in Horse & Hound (23 October, ’08)