There are many intricate details to the specific tax rules that apply to your business. That is what we, as accountants, are here to help you unravel and ensure that what you do is legal and benefiting you the most that is possible. Below is an overview of 3 of the main taxes you will come across when running a business: corporation tax, value added tax and Pay As You Earn ( PAYE ) & national insurance contributions. It is not integral that you know the HMRC manual inside out, but having some knowledge of how the tax within your business is working is always beneficial.
This tax will be paid by all incorporated companies, and is based on the profit that you make within your company’s financial year. You must ensure that once you start trading you register with HMRC for corporation tax, although this happen aut
omatically when you set-up your business. Once you have registered you will be allocated a UTR (unique taxpayers reference) number, which you must keep safe, as you need it to submit your corporation tax return.
The rate of corporation tax at time of posting is 20%, but it is liable to change, so you should always check HMRC’s rates. The amount of corporation tax you will pay will be roughly 20% of the profit from your financial year – although there may be some adjustments due to claiming capital allowances from fixed asset purchases or expenses which are not tax deductible.
You should always consult an accountant to ensure the return is correct. The deadline for submission of your corporation tax return is 12 months after your year-end, but it needs to be paid 9 months and 1 day after your year end, so the calculation needs to have been done by then.
Value Added Tax
Value added tax is more commonly known as vat and is an optional tax for businesses until the annual turnover of the company hits £82,000. You can register for vat if your turnover is below this amount voluntarily, but if you do not it is important you keep an eye on your turnover to ensure you do not expect to exceed the limit in the next few months.
Once you register for vat, you will receive a vat number, which must go on all of your sales invoices to enable your customer to identify the invoice as a vat invoice. The vat element of a vat invoice also has to be shown separately.
When you employ people ( including yourself if you are a sole director business ) you need to register as an employer with HMRC and you will get an employer number and a PAYE office number. You will need to issue your employees with a payslip and you must send this payroll information in by the end of the 19th of the following month. The HMRC months end on the 5th of every month.
In recent years the rules have changed as to how you send the data to HMRC and now you have to use their Real Time Information ( RTI ) system which sends details of each individual employees earnings and what has been deducted off their pay. HMRC now have a much better record of what employees are earning now much quicker than previously.
By the 19th of the month you must pay over to HMRC any PAYE and National Insurance you have deducted off your employees, plus Employers National Insurance which is a percentage of each employees income less an allowance.
You can run your own payroll but we recommend that you use someone like ourselves to ensure the correct amounts of tax and NI are deducted and you also pay over the correct amounts to HMRC.
If we are your accountant we can register to be your agent with HMRC which means that we can speak on your behalf with them. This becomes particularly useful when you have a complicated tax query and in those situations, you will get a quicker outcome having someone like ourselves registered as your agent so we can deal direct with HMRC.
For all of our clients, we always register to be their agent with HMRC and so if you want to be in a better position when dealing with HMRC, we recommend you speak to ourselves about how easy it is to be one of our clients.
It is much easier to switch from your current accountant than you think .
Evie is an Apprentice Ambassador and goes into schools and advising employers on the benefits of apprenticeships. In 2016 she hosted a large employers Apprentice Event for the National Apprenticeship Service at York Racecourse.