Taxes: A Guide For Business Owners
For a new business owner, taxation is one of the biggest headaches. Not just paying it, but understanding the many different taxes which will affect your firm. The fear is that you will miss one in the fog of learning how to run things properly. So, here’s a helping hand, a list of the many taxes and which sorts of businesses need to pay them.
Once the turnover of any business gets to £77,000 it must register for VAT, and then charge it on invoices. VAT will also be owed on purchases made from elsewhere in the European Union. The basic system involves calculating what VAT is due and paying it to HM Revenue and Customs (HMRC) every three months, but there are other, simpler ways too.
Company tax return
Limited companies must complete a company tax return for each of their business tax years, and it needs to be completed within 12 months. They are best completed by accountants. Remember, the tax year of your company does not necessarily match the normal tax year.
If the limited company made a profit in the tax year it will have to pay corporation tax. Companies with profits of £1.5m or less have nine months in which to pay. It’s important to realise that this deadline comes before the deadline for filing the tax return.
Self-assessment income tax
Sole traders and members of partnerships have to complete a self-assessment tax return every year. Partnerships have to appoint a nominated partner who also needs to fill out a return for the business as a whole.
If your business has employees you will have to register with the tax office and collect PAYE income tax from their wages. From April you will have to notify HMRC how much you will be sending them immediately when you pay wages.
National Insurance for staff
NI is paid by staff on their wages, and a second amount is paid by the business too. It is all collected at the same time as the PAYE income tax and it’s all paid to HMRC together, normally once a month. It also has to be collected once a year on all tips, perks and bonuses.
National Insurance for sole traders
Sole traders need to pay a different kind of National Insurance on their own earnings, called Class 2 contributions. These contributions are a flat rate of £2.65 a week, but if you earn below £5,595 per year you may be exempt from them. More information on Class 2 contributions can be found here.
Imports attract a whole range of taxes and can be complicated. If you import goods, ingredients or anything else for your business, there will normally be a customs duty on the imports, unless they’ve come from within the European Union. The amount depends on the value of what’s being imported, and also on what it actually is. Sometimes the duty will need to be paid before customs will release the goods, while on other occasions a shipping agent or courier may pay the duty for you and bill you. Importing alcohol and cigarettes will mean an excise duty payment. Anything from outside the European Union will have VAT charged on it. If you are VAT registered, the VAT owed on goods from inside the EU is added to your VAT return.
The premises where you run your business is subject to business rates, collected by the council. Landlords sometimes include rates in business rents. If you work from home there is no need to pay business rates on your workspace, providing it is also occasionally or partly used for non-business use too.
There’s no doubt that taxes can be taxing, particularly when you’re a new business owner. The good news is that there is assistance available. HMRC has several helplines and there are many specialist companies, such as Christie + Co, who can provide expert knowledge to people buying and selling businesses.
In many cases there are penalties for failing to get returns in on time, and interest due on late payments. Professional advice and assistance can save money, and hours of headaches too.