If you have your own business, it’s almost certain that you’ll be liable for taxes of some description.
But with so many complicated tax rules in the UK, it can be difficult to know exactly which ones apply to you or your business. Nicola Roby, Director at CHW Small Business Accountants in Bolton provides a simple overview of small business taxes.
If you are a sole trader, income tax is paid on your business profit. Assuming you don’t have any other income, such as salary from an additional job, then you will start paying income tax on your business’s profit once it exceeds the personal allowance (£11,850 if you’re under 75).
If your business is a limited company, you could pay income tax on any salary or dividends you take. How much you pay depends on how much you take out.
Income tax is due on your salary if it’s over £11,850, you are under 75 and you have no other income. If you have another job as well as working for your own company then you may start paying income tax sooner.
If you’re paying income tax on your salary, your employer – in this case your own company, will deduct it from your salary under the PAYE scheme.
NI is not strictly a tax – it is money which is paid to the Government though, so it’s often classed as a tax in all but name.
Sole traders pay two kinds of NI. They pay a flat weekly rate of Class 2 NI, unless the business’s profits are under the Small Profits Threshold, which is currently £6,205. Class 2 NI is £2.95 per week. You can still pay Class 2 NI voluntarily, if your profits are below £6,205 to protect your entitlement to State Pension and other benefits.
Once your business’s profits go over £8,424 you will also pay Class 4 NI which is worked out as a percentage of your business’s profit.
If the business is a limited company, and the company’s paying you a weekly sum of £162.01 or more, then it will have to deduct Class 1 employee’s NI from your wages and pay that over to HMRC.
Limited companies pay corporation tax on profits. There’s no equivalent of the personal allowance, so as soon as a company makes any profit, unless it’s previously made losses, it will start paying corporation tax.
The rate is currently 19% for all companies, payable nine months and one day after the company’s accounting year end so, for example, a company with a year-end of 30th June will have to pay its corporation tax by 1st April.
No matter what the structure of your business, if you make VATable sales of more than £85,000 a year, you’ll have to register your business for VAT. VATable sales are goods or services that would have had VAT charged on them if made by a VAT-registered business. Standard rate VAT is 20% per cent but other rates can apply.
If you operates from premises it is probable you will have to pay business rates. These are similar to council tax but for business properties. Some premises though are automatically exempt from business rates and others may be entitled to business rates relief.
If you run your business from home, you won’t usually have to pay business rates as well as council tax but there are some exemptions, for example if your property is part business and part domestic. An example could be that you run a pub and live above it.
For more advice about what taxes your business might be subject to and when you are required to pay them contact us at CHW by clicking here.
18 January 2019
Managing cash flow is one of the most fundamentally important aspects of financial management for any business. Whilst controlling the amount of cash coming in and going out sounds straightforward, getting the balance wrong can put your entire operations at risk.
8 January 2019
Capital Gains Tax (CGT) affects both individuals and businesses and there is a high chance that you are likely to be affected by CGT at some point. But what is it and how is it calculated? We have all the answers that you need.
7 January 2019
It announced in the 2018 Budget and draft 2019 Finance Bill that the AIA for qualifying expenditure on plant and machinery will temporarily increase to £1m per year for the period 1 January 2019 to 31 December 2020
10 December 2018
The biggest question many businesses have regarding Making Tax Digital is “Will my existing software work or do I need to upgrade / buy something else?”