A Crash Course in Business Tax
Tax is one of life’s certainties - and it is a perpetual hassle for business owners. Rather than simply having your tax taken out of your pay packet as conventional employees do, you will have to contend with a range of different tax rules and regulations.
So what are the main taxes that you will have to consider as a business owner?
Corporation TaxCorporation Tax is paid by limited companies. If you choose to incorporate your organisation as a limited company, all of your taxable income will be subject to Corporation Tax.
It can be difficult to understand the rate of Corporation Tax that you pay. For the 2011-12 tax year, the Small Profit Rate, previously known as the Small Companies’ Rate, runs at 20 per cent. This applies to companies whose profits do not exceed £300,000. The main rate of Corporation Tax is 27 per cent – but this applies to firms with profits over £1.5 million. For those businesses with profits between these two thresholds, a range of reliefs apply that are intended to raise the rate you pay on a sliding scale.
VATIf your turnover of VAT-liable goods or services exceeds £70,000, you will be obliged to register for VAT. This means that you will have to charge VAT on the relevant items you sell – but, at the same time, you will be able to reclaim VAT you pay to other VAT-registered businesses.
It is also possible to register voluntarily for VAT. There are a few reasons why you might choose to do this. It can give the impression of a large organisation, for example. Similarly, if you pay more in VAT than you charge over the course of a VAT accounting period, you will be entitled to a refund from HMRC. You may wish to read the relevant article elsewhere on this site for more information on VAT registration.
Business ratesIf you use a building for commercial purposes, you will have to pay business rates. These are calculated in much the same way as Council Tax; the building is given a rateable value by the Valuation Office Agency, and your business rates will be worked out based on a combination of this value and the multiplier set by the government.
It is important to remember that business rates can sometimes apply even to home offices. This is particularly pertinent for photography businesses, many of which are run from home. There is, however, a range of business rate reliefs available for small firms.
Self AssessmentFinally, as a self-employed person or company director, you will be required to complete a Self Assessment tax return in order to calculate your personal income tax liability. This return must be completed annually, and your tax must be paid directly to HM Revenue and Customs.
You should note that you may be charged a financial penalty if you miss the filing deadline for your Self Assessment. Similarly, interest will be charged on any outstanding tax due after a payment deadline.
As with all tax matters, you should seek independent advice from an accountant if you are in any doubt.