A start up’s simple guide to tax

Setting up your own business is an exciting and life changing prospect, but if you struggle to get to grips with small business taxes, you could be behind the pack from the outset.

Being able to pick your own hours and work with a portfolio of clients, is the dream for small business owners and to help you understand the basics of taxes, here at CHW Bolton Accountants we’ve devised a list of small business taxes to get you started.

Corporation tax

This type of tax only applies to limited company profits after business expenses and employee salaries have been paid, before dividends are withdrawn.

How and when do you pay corporation tax?

All limited companies based in the UK are required to submit an annual online form (known as a CT600) to HMRC. Effectively, this includes your company’s income, minus any tax allowances and expenses.

Corporation tax is due up to nine months and one day after your trading year end. We suggest paying on the due date to avoid any surprise fines.

Income tax

Income tax, as the name suggests, is paid on any income you receive. However, it is not payable on asset sales, such as buy to let properties. As these are capital disposals, they would be taxed under Capital Gains Tax. Income tax is only paid on certain types of income you receive.

How and when do you pay income tax?

If you’re a director of a limited company and draw a salary above the personal allowance threshold (currently £11,500), income tax will be taken directly, through your company’s Pay As You Earn (PAYE) scheme.

If you are a sole trader, income tax is calculated on your self-assessment tax return and is to be submitted and paid before 31 January every year.

National Insurance (NI)

You are only required to pay National Insurance if you are over 16 years of age and making a profit over the current threshold. These NI contributions pay for public services, and contribute towards your state pension.

If you’re a director of a limited company, your contributions will be taken via PAYE and for sole traders NI must be paid and submitted to HMRC before the end of January every year.

VAT

All VAT registered companies must charge VAT to customers and can reclaim any VAT they’ve paid on business expenses. VAT is a weird and wonderful tax, and one that can be very complex. There are several ratings, and it’s essential to get these right. Not only from a compliance perspective, but to ensure your profitability. When you register a company, you do not automatically register for VAT. Providing you stay beneath the threshold (currently a turnover of £85,000 in the last 12 months) you do not need to be VAT registered, however there may be benefits to registering, so it’s worth considering.

 

When should I pay VAT?

VAT is always paid quarterly from the date of your registration. The money you owe must be paid online within 37 days (often referred to as one month and one week) of the relevant quarter.

All VAT registered companies must submit a VAT return even if there is no VAT to pay or reclaim.

 

What is the VAT Flat Rate scheme?

If your business has a turnover below £150,000 you could potentially increase your take home pay. HMRC has a “flat rate scheme” for VAT, which simplifies VAT reporting for small businesses.

There is no need to register when you’ve made an individual purchase or sale and you may only be charged the basic rate of VAT and pay a flat rate to HMRC (based on your trading activity). On occasions, and depending on your circumstances, this may be more profitable than other VAT accounting schemes, but it’s important to discuss this with our VAT team.

 

Business rates

If your business operates via an office, shop or factory you’re more than likely liable to pay business rates. A business rate bill will be sent to you either in February or March for each year for the tax year beginning the following April.

The bill can be paid in 12 monthly instalments rather than all at once.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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