Ask H&H: setting up a riding school

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.

DL, Merseyside

“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.”

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