A newbie business owner will find it at some point that he has to pay some tax at one time or another. UK’s complex tax rules can complicate the business operation of an owner. Owners get confused as to which tax applies to the person himself or to the business. Moreover, there are also some kinds of tax that they have to pay to HMRC.
Here are the five taxes that small business owners have to pay.
A person who took the sole trader route has to pay income tax based on the profit of the business. A limited company, on the other hand, has to pay income tax on any dividends or salary that are obtained from the firm. If a person also has a salary from another job, then income tax has to be paid on the salary. Income tax has to be paid by the employer and in this scenario, it is one’s own company, through the PAYE (Pay As You Earn) scheme. PAYE is not literally a tax. It is a scheme on how HMRC collects income tax.
National Insurance is not really a tax. It is money that is paid to the government. Sole traders pay two types of NI, while a limited company only has to pay for one.
Sole traders do not pay corporation tax. A limited company needs to pay corporation tax based on their income. Limited companies do not have personal allowances Thus if a company makes a profit, it has to pay corporation tax.
The nature of business does not affect whether a company has to file VAT or not. Regardless of whether the company is based on partnership, sole trader, LLP or limited company. If a company generates VATable sales of greater than £82,000 annually (based on 2014/2015), then that company has to file for VAT.
A firm has to pay business rates if it operates from retail or office premises. This is similar to council tax, but for commercial properties. There are business premises that are not required to pay business rates, such as farm buildings. There are also other businesses that are entitled to business rate relief.
A company that is home-based does not need to pay business rates and council tax. This is not the case when there is staff who works and come to this home, or goods and services are sold at home to visiting clients, or the home is adapted to be a working place such as converting of the garage to an office space.
Small businesses need to learn the intricacies of taxation in the UK. If you need any of these services, you can contact our firm.