This is a one off tax relief within the new SEIS introduced in March's Budget.

If you have recently exchanged, or expect to before the end of the tax year, eg on a buy-to-let property, and don't welcome the 28% capital gains tax bill, you could take the view that a government subsidy to encourage you to invest your gain in a new company will help you take a risk.

For example, if you sell an asset for £250,000 and make a gain of £50,000, the capital gains tax due @ 28% is £14,000.

You have probably heard of lots of incentives for those who invest in start up companies. This is where individuals pay money to a company in exchange for shares in that company. The tax system helps subsidise the investor's risk in the new unproven business.

But what about your own sole trader business?

It might be small scale and, as there are no shares, it's probably just your money. Aren't you taking a risk? Where are the incentives for you? After all, you might have a good idea which in the future trades from a limited company.

With SMEs having to be more creative as to how to fund their companies, it's become more likely that you may fall on the wrong side of a tax rule.

The traditional method of a company borrowing the money direct from a bank is a no-go area for many SMEs. Even when a loan is granted, it comes with a fee, a high interest rate and you have to provide a personal guarantee against your assets, even the family home.
With tighter cash flow in the recession there is a greater need for working capital, so the funds may not even be for expansion, but merely to enable the company to continue trading.
Consequently, SMEs have been forced to look elsewhere. You may find it costs less to borrow the money personally or, at the very least, it's easier. If you have to provide security you're no worse off if your company had borrowed the money.
If you take out a personal loan and lend those funds to your company, it works very well. You charge your company an interest rate, probably the same or a bit more than the amount you're paying. Your company saves 20% corporation tax, you would get taxed on the amount it pays you, but you claim tax relief because you've lent money to your company. The net tax on you is £Nil and your company receives a 20% tax saving.

What if you take out or use an existing personal overdraft or credit card? It's tempting as it's easy and flexible. However, the rules are different and this has been confirmed in a recent tax case.

I'm using the start of 2012 to introduce a new OTS feature to help you understand your business tax. Some will seem more esoteric than others, but all of them should be of interest to several small businesses. Some will seem very simple, but might be worth confirming where they are important, useful or interesting. I hope you enjoy them!