Choosing the right insurance depends on the type of business you operate, how big it is, and what needs protecting. Read on to find out more.
Making sure that you have the right level of insurance for your business is crucial.
Not only will it cover your business against loss or damage to your equipment or working premises in the event of a fire, flood or other unforeseen circumstance (in a similar manner to home insurance policies), but certain types of business insurance will also cover the cost of any compensation awarded to a third party as the result of your business activity.
The right type of business insurance can even provide cover for any potential loss of profit that you might suffer as the result of an insured event. For example, if you have to temporarily reduce your trading due to a fire or flood damaging either your business premises or stock. So it could help get your business back on its feet.
But although making sure that you have the right cover in place for your business is critical, it can be very difficult to know the exact types of insurance that you need to take out for your business.
What you need to do to set up depends on your type of business, where you work and whether you take people on to help.
Register your business
Most businesses register as a sole trader, limited company or partnership.
It’s simpler to set up as a sole trader, but you’re personally responsible for your business’s debts. You also have some accounting responsibilities.
If you form a limited company, its finances are separate from your personal finances, but there are more reporting and management responsibilities.
Some people get help from a professional, for example an accountant, but you can set up a company yourself.
A partnership is the simplest way for 2 or more people to run a business together.
You share responsibility for your business’s debts. You also have accounting responsibilities.
If you’re self-employed, your business will have various running costs. You can deduct some of these costs to work out your taxable profit as long as they’re allowable expenses.
Example Your turnover is £40,000, and you claim £10,000 in allowable expenses. You only pay tax on the remaining £30,000 – known as your taxable profit.
Allowable expenses do not include money taken from your business to pay for private purchases.
If you run your own limited company, you need to follow different rules. You can deduct any business costs from your profits before tax. You must report any item you make personal use of as a company benefit.
Costs you can claim as allowable expenses
- office costs, for example stationery or phone bills
- travel costs, for example fuel, parking, train or bus fares
- clothing expenses, for example uniforms
- staff costs, for example salaries or subcontractor costs
- things you buy to sell on, for example stock or raw materials
- financial costs, for example insurance or bank charges
- costs of your business premises, for example heating, lighting, business rates
- advertising or marketing, for example website costs
- training courses related to your business, for example refresher courses
Note You cannot claim expenses if you use your £1,000 tax-free ‘trading allowance’.