I am currently employed but I plan to start an internet-based business in my spare time, which will take about 18 months to break even. I will continue with my current job until the new internet business is making good profits. What is the best way to structure the new business so I can take full advantage of any losses it makes in the first two years?
If you run the new business in your own name as a sole trader, any losses made in its first four years will be available to set against your employment income. This applies as long as the Taxman does not see you as an ‘inactive’ trader, in which case the use of the losses against your other income will be restricted. To show the Taxman you are not an ‘inactive’ trader, you must spend an average of at least 10 hours per week on the new business, and make some record of the hours you work. You should also draw up a business plan to prove the business is run on a commercial basis with a view to making a profit in the future.