5. Boost your pension when it’s most efficient

As your own boss you decide how much to save in your tax-efficient pension. However, the temptation is to delay doing so – if you can possibly afford it, start early.

6. Consider a partnership

Starting out as a limited company reduces business risk. You can obtain similar protection through a Limited Liability Partnership, or LLP, formed with a business colleague or perhaps a relative. A company provides further tax-saving opportunities because you can choose how much to take as earnings and what to draw as dividends.

Taking the example of someone earning £40,000 a year, assume you take a salary of £15,000, pay the employers’ National Insurance contributions and draw the balance after corporation tax as dividends. In that case you would save a further £490 a year at current tax rates compared with self-employment in the example.

This would increase to £730 if your spouse held half the shares.

7. Become a company when the time is right

As an alternative, consider starting as a sole trader or partner and then transferring the business into a company. Special tax rules allow this to be carried out without any additional tax costs if planned carefully. 

You might choose to do this when profits have increased sufficiently for you to retain them in the business. In effect you are investing after corporation tax at a lower overall tax cost.

8. Reclaim tax if you make a loss

Many new businesses make a loss in the early years, but as a sole trader or partner this loss can be carried back and set against your income in the previous three years with income tax already paid being reclaimed, including PAYE. The loss for tax purposes will include capital allowances claimed on plant and equipment including the extended “annual investment allowance”.

If you subsequently transfer the business into your company the tax savings stays with you because the assets pass for tax purposes at their tax written down value, essentially nil, but the company accounts will reflect the true value of the assets transferred. In effect this provides a personal tax saving at no personal cost – tax planning gold.

Tax Hacks is written by Mike Warburton, previously a tax director with accountants Grant Thornton, and is published twice a month on Tuesdays. You can email Mike on taxhacks@telegraph.co.uk