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A quick guide to UK business tax

by Scott Brown | Oct 26, 2018
  • With so many complicated Corporation Tax rules in the UK, knowing which types of taxes apply to your business can be tricky. It’s vital that you understand your tax obligations before you begin so you can accurately plan your venture’s future. With proper planning, you will ensure the necessary systems are in place which in turn will allow you to concentrate on the more exciting aspects of running your business.

    Corporation Tax

    Corporation Tax is a requirement for businesses operating as:

    • A limited company
    • A foreign company with a UK branch or office

    Corporation Tax kicks in from the moment your business makes its first profit. It’s important to note that you won’t get a bill or be notified that you need to pay Corporation Tax. You as the business owner are responsible for keeping records, making sure the correct amount is calculated and reported (by engaging an accountant) and paying your tax.

    You will pay tax on your trading profits, investments and assets that are sold for more than they cost. If your company is based in the UK, it pays Corporation Tax on all its profits made in the UK and abroad. Currently, all UK companies pay a Corporation Tax rate of 19%.

    See also: 5 accounting mistakes that put your small business at risk

    Once registered for Corporation Tax, you’ll receive a letter from HMRC with the dates of your accounting period. The accounting period generally begins on the date your company starts trading and ends the following year on the last day of that same month.

    After this you will need to file a Company Tax Return within 12 months following the end of each accounting period. All companies need to file a return regardless of whether or not they make any taxable profit in that time.

    Need reliable tax and accounting advice?

    Employer and employee National Insurance

    As a business owner, you are responsible for deducting income tax and National Insurance from your employees’ wages. This is done through Pay as You Earn (PAYE). This deducted amount is then paid to HMRC each month.

    If you own a limited company, you are liable to pay both employers’ and employees’ National Insurance Contributions (NICs). NICs are only payable on salaries and not on dividends.

    Value Added Tax

    Whether you own a limited company, are a sole trader, or are part of a partnership or a limited liability partnership, you’ll need to register for Value Added Tax (VAT) when your business’s taxable turnover is more than the VAT threshold (currently set at £85,000). This means that you’ll have to pay VAT on any goods or services you buy, and charge VAT on the goods or services that you sell.

    All VAT registered businesses are required to file a VAT return with HMRC so that you can either pay the VAT difference or reclaim the VAT back. There are three different types of VAT rates. Which rate applies to your business depends on the type of goods or services your company sells.

    The standard rate of VAT in the UK is currently 20% and this is the rate charged on most items. There is a reduced rate VAT which is 5%, however this is charged on a small number of specialised goods and services.

    Zero rate, as the name suggests, is 0%. It is applied to most food, books, newspapers and children’s clothes. While no VAT is charged, you are still required to record and report on the goods and services you’ve sold.

    See also: Why your SME needs management accounting

    Is your business ready for Making Tax Digital for VAT?

    By April 2019, businesses with a turnover above the VAT threshold will need to file their returns electronically using the new digital tax system. This means that from this date onwards, it will be mandatory to use software to keep accounting records, as paper records will no longer be accepted.

    See also: What Making Tax Digital means for your small business

    Get a head start on going paperless

    If you haven’t yet begun the process of transitioning over to the new online system, it’s important that you do so now. This will give you enough time to get your accounting records organised and become accustomed to the new system and process.

    This may be the perfect time to rely on the help and expertise of a qualified accounting firm. They will be able to ensure that your records are kept up-to-date and filed on time. What’s more, they will stay abreast of any changes and updates that the government may introduce at a later stage.

    Get help where your business needs it the most

    Having an accountant in your corner means that you can say goodbye to all the admin and the pain of having to deal with HMRC. What’s more, a good accountant can help your business save tax. Their valuable advice and insight, that’s specifically tailored to your business, could minimise your tax liabilities and save you money in the long run.

    Need help with your accounting?

    We offer specialist outsourced bookkeeping, accounting and financial management to businesses, private individuals and contractors. Get in touch with our accountants on +44 (0) 20 7759 7553 or send us an email to see how we can help.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

    Our teams in the UK, South Africa and Australia can ensure that when you decide to move overseas, invest offshore or expand your business internationally, you’ll do so with the backing of experienced local experts.

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