As a business you will be responsible for calculating and collecting a number of different taxes. The following is a list of the main taxes that you need to consider. Not all will apply to everyone and the rates are usually changed each year in the budget.
If you are self employed or in partnership you will pay income tax on the profit the business generates. This is calculated annually and notified to the Revenue on a Self Assessment Tax Return which has to be filed by 31 January each year (for online Returns). Payment of tax is usually due in two installments on 31 July and 31 January each year.
Limited Companies have to pay Corporation Tax on their taxable profits. Companies have to calculate their own Corporation Tax and pay this to the Inland Revenue. Payment is due 9 months and one day after the company’s normal accounting date which is usually the last day of their annual accounting period.
Value Added Tax
VAT is a tax which is charged on most goods and services within the UK, it is also charged on goods and services which enter the United Kingdom from an EU Country. VAT is charged by a VAT registered company to consumers as well as businesses, VAT registered or not. The VAT registered company must then pay the VAT it has collected to HMRC Quarterly.
The current VAT rates at the moment are:
Standard = 20%
Reduced = 5%
Zero = 0%
A company can also sell goods which are classed as Exempt from VAT or outside of the scope of VAT. It is also possible to voluntarily register for VAT if your turnover does not reach the current threshold. There are a number of different schemes available to business to make the calculation and collection of VAT less of a burden. These include the Cash Accounting scheme, Flat rate scheme and Margin schemes”
Construction Industry Tax
The Construction Industry Scheme (CIS) sets out the rules for how payments to subcontractors for construction work must be handled by contractors in the construction industry.
Contractors have certain obligations under the CIS, including registering with the scheme, checking whether your subcontractors are registered with HM Revenue & Customs (HMRC), paying subcontractors, deducting CIS tax at the appropriate rate and submitting monthly returns.
National Insurance is another deduction from earnings which is based on individuals earnings. No national insurance is payable on company profits, nor is National Insurance due on investment income (ie bank interest and dividends). There are several ‘classes’ of national insurance which are due in different circumstances:
Class 1 – Employees contribution based on gross earnings and employers contribution also based on earnings.
Class 1A – Paid by employers who provide benefits to employees
Class 2 – A fixed weekly rate paid by sole traders and partners
Class 3 – A fixed rate paid voluntarily to protect pension entitlement
Class 4 – Self employed/partner contribution based on business profit
Pay As You Earn is a scheme operated by HM Revenue & Customs to take income tax from employees as they earn it. The amount due is based on employees earnings.
Capital Gains Tax
This is the tax due on individuals when they sell certain assets for more than they cost. Every individual has an allowance each tax year where gains made up to this amount are not taxed. Different reliefs are available for different types of asset sold.
Companies do not pay Capital Gains Tax but they do pay Corporation Tax on the value of any gains made. There is no annual allowance for companies.
Stamp Duty Land Tax
SDLT is usually payable when you buy or lease land or property – it’s also sometimes payable on transfers of ownership of property or land. Stamp duty is also due when you buy shares using a stock transfer form.