Running a business in the UK can have various tax implications, and even if you are still a small business, you may already have to deal with several taxes, such as corporation tax, VAT, income tax, business rates, capital gains tax, and your National Insurance contribution as an employer. But the tax you have to pay when running your business will also depend on whether or not you have a staff, how your business is set up, and factors like your business premises and assets. So what should you know about your taxes as a small business? Following is your all-important guide.
In general, you will be taxed on your profits, which is the net money you make after your expenses and losses. But this will also depend on the structure of your business. For instance, if you are a sole trader, you will have to settle your income tax, which is true with a partnership. You will also have to settle your NI contributions. If you are a limited company, you will have to settle corporation taxes. You may also have to pay business rates on your business premises, and if you offer services or goods that are VAT-able and your turnover is more than £85000, you need to be VAT-registered. Lastly, if you have sold some assets and these have a higher value than when you first bought them as a partnership or sole trader, you may also have to pay capital gains tax.
Tax definitions: what you should know
- Corporation tax
Corporation tax is the tax you pay as a limited company on your profits, and these profits can come from both the sale of assets or investments and trading. As of 2020, the rate for this is 19%. You will have to register for it once you have become a limited company, and you will be responsible for making sure that your company pays the proper taxes. You can do this by keeping accurate accounts and filing your company tax return before your deadline, and good accountants in central London like those from GSM & Co can do this for you.
VAT or value-added tax is added to numerous services or goods. If your company is above a set size and you are making more than or equal to £85000, which excludes VAT exempt sales, you have to be registered. But you can still voluntarily register for VAT even if you have a smaller enterprise, as it comes with some distinct advantages. When you are VAT-registered, you can charge VAT on all your products or services that are VAT-able. Afterwards, you will submit a VAT return every quarter to HMRC. At tax year’s end, you will receive a bill for the total taxes you owe, and this is the output tax. Fortunately, you can also claim your VAT back on the services or products you purchase, and this is called the input tax. If your company’s input tax is higher than the output tax, you can reclaim your difference in your company’s VAT return. There are other taxes you may have to deal with, but if you want to be doubly sure about what you need to accomplish, you can always rely on a good accountant to take care of it for you.