Which taxes does a business pay?

HMRC are always telling us that “tax doesn’t have to be taxing”. The truth is that most business owners, especially those that are new to business, find tax one of the most challenging aspects of running their business. The rules are often complicated but the fear of getting things wrong can be the biggest hurdle. This article outlines the taxes a new business is typically faced with.

Income Tax
If you’re a sole trader things are reasonably simple for you because your earnings from the business are treated as your personal income. You will pay income tax on that income via self assessment. You will not do so through the PAYE system.

A director of a limited company has some more options though, and not least of all because they are considered separate to their business. Directors will typically pay themselves partly through PAYE and partly through dividends. That means that directors have to complete a self assessment tax return too.

Don’t forget, self assessment taxpayers must file their annual tax return by 31st January and must make their tax payments directly to HMRC.

Corporation Tax
Limited Companies are liable to corporation tax on their profits. All of your taxable income, as well chargeable gains, will be liable for Corporation Tax.

Corporation tax is a little strange because the deadline for payment is before the deadline for filing. The corporation tax payment is due within nine months of the end of your accounting period. However, your company tax return is due within 12 months of the end of the accounting period.
The most sensible course of action is, of course, to file both at the same time.

Value Added Tax
VAT is a strange beast and it’s another attempt by the Government to get you to do some of its tax collection for it. VAT is usually a simple 20% extra on the price of goods and services sold. Businesses don’t have to register for VAT unless their income exceeds £73,000 (2011/12 tax year). When registered, businesses must submit a VAT return every quarter and pay over the difference been the VAT they have charged on sales and the VAT they have paid on expenses, to HMRC.

If you’re below the VAT threshold but your suppliers are all VAT registered then it is probably worth evaluating whether you should voluntarily register for VAT because you could end up with a VAT rebate.

If your customers are generally not VAT registered then it’s probably worth holding back on VAT registration for as long as possible because you will become more expensive to your non-VAT registered customer when you do.

Business Rates
Business rates charged on non-domestic properties, such as, offices and shops. You will generally pay business rates if you use part or all of a building for your business. This doesn’t usually include home offices but you should check with your local council.

The actual amount charged through business rates depends on the rateable value given to the property by the Valuation Office Agency. Rumour has it that they come up with the valuations based on the highest quality premises in your locality so many people successfully appeal and get the rates reduced. The valuation is multiplied by a percentage, called the business rate multiplier, which is set by the government.

Employment Taxes
If you have employees then there are a number of key responsibilities. If your emoplyees earn above the Lower Earnings Limit (set at £144 a week, £623 a month, or £7,475 a year for 2011-12), then you will have to register for PAYE with HMRC. This means that you will have to deduct taxes you’re your employees earning on behalf of HMRC, as well as paying employers National Insurance.

You must provide your employees with a payslip on or before pay day, as well as a P60 annually. You will also have to send an annual employer’s return to HMRC.

Tax is taxing
As you can see, it isn’t an easy job sorting out all of your business related taxes. It is crucial that you don’t miss deadlines so diarise them all. If you have any questions, you drop us a line and we’d be delighted to help.