Income tax. You can offset the direct costs of running your business against income tax. These include items such as bank charges, travel expenses, postage and phone bills. The biggest record-keeping headache, according to David Driver, comes when clients use their car for business as well as personal journeys, which involves keeping separate mileage records for tax purposes. Expenditure on large items - equipment or cars, which will be used for several years - is treated separately and qualifies for a capital allowance.
VAT. If you have generated turnover of more than pounds 51,000 (from 1 April) over the past 12 months, you are obliged to register for VAT with Customs & Excise. That 12-month figure is on a rolling basis, and once you've reached the threshold you have only 30 days in which to register if you want to avoid penalties - so you need to monitor your income flow regularly. Thereafter, you must add VAT to any VATable sales, and submit regular returns. You can reclaim the VAT you pay when you buy items or services for your business.