Tax is a necessary evil. However, it’s what keeps our most cherished infrastructure, like the NHS, running. Below we have outlined the main taxes for you to beware of as your business grows.
Corporation tax is payable on taxable profits generated by any limited company based in the UK. This includes profits from your trade, any investments you make such as having an interest-paying savings account, and selling assets for more than they cost. You’ll also have to pay corporation tax on business done abroad, through the UK company.
The current rate of corporation tax is 20% on all profits, and will be 19% from April 2017. There are a number of reliefs you may be able to claim on corporation tax. Capital allowances let you deduct the cost of assets used to run your business – such as equipment, machinery, computers or business vehicles – from your total taxable profits. It is best to invest in assets that you can claim capital allowances on before your yearend, to accelerate the tax relief and use as much of the allowance for that accounting period as possible. There are a range of other reliefs, including R&D relief, Patent Box relief for profits made from patented inventions andcreative industries relief. You can also reduce your taxable profit while increasing personal wealth and financial protection by making pension contributions and taking out relevant life plan policies.
Businesses with a VAT taxable turnover of more than £83,000 per year (£86,000 from April 2017) must register for VAT.You must then charge VAT on any liable goods, keep complete VAT records, pay all VAT due to HMRC, and submit VAT returns. VAT records must include sales and purchases, and be kept for at least 6 years (or 10 if you use the VAT MOSS system). The current VAT rate is 20% on most goods, with a reduced rate of 5% on others and 0% on items such as books and staple food. Once registered for VAT, you can reclaim VAT you’ve paid on purchases for your business. However, there are qualifications to this. You cannot reclaim VAT relief on your purchases if they are used to supply goods or services that are exempt or outside the scope of VAT in the UK.
You will always have to pay National Insurance (NI), but which class will depend on your business. If you’re operating as a sole trader, then you’re considered self-employed, and will pay NI on Class 2 and 4 through your annual return. If you’re the director of a company and on the payroll, you’re considered to be an employee and will pay Class 1 NI if your earnings are more than £8,164.
If you operate as a sole traderyou’ll submit a self-assessment tax return and pay income tax through that avenue. If your total income tax and Class 4 NI liability is more than £1,000, you will also need to pay on account for the following tax year. If you’re a director, with salary above the personal allowance, you’ll be considered an employee of your company, and will be affected by PAYE, as any other employee would be.
The vast implications of UK tax and its ever-changing nature makes it a specialistsubject. To grow your business, DUA. can lead you through this minefield and ensure you focus on what is important – captaining the ship of your business operations. As experienced accountants in Watford, we can help you to navigate the tricky areas where you have tax obligations, working with you to make your business a success.