If you are a business owner in the UK (and other parts of the world, of course) you will have to settle some form of tax at a certain point. However, the problem is this: with the complex world of tax in the United Kingdom, it can be quite tricky to determine which ones you are responsible for and which ones you don’t have to think about. It always pays to know which taxes you are obligated to pay, beginning with the three most common (and important) ones.
- Your income tax return
If you are operating a sole proprietorship, you will have to settle your income tax. If you don’t have any other additional income (from being an employee, for instance), you will have to pay income tax on the profits your business makes as soon as it goes beyond the category of ‘personal allowance’ – if you are aged below 75 years old, then this would be £10,600.
The rules are different, though, if you are operating a limited enterprise or company. With this, you can settle your income tax on the dividends or salary you make from your company. The amount you pay will depend on how much you earn on your dividends or salary. But the basic rule applies: if you have a salary that is more than £10,600, you have no other source of income, and you are below 75 years of age, then you have to pay income tax.
- Corporation tax and VAT
If you are a sole proprietor or trader, then you don’t have to pay any corporation tax. If you are a limited enterprise or company, you have to settle your corporation tax on whatever profit you make. Corporation tax is set at 20% for all types of business enterprises, and it must be paid within the nine months and a day preceding the end of your business accounting year. So, for instance, if the end of your business accounting year is the 31st of March, then you have to settle your corporation tax by the first of January.
VAT, on the other hand, is an obligation for any type of business – whether you have a sole proprietorship, a partnership, or a limited enterprise. If your business has sales which are ‘VATable’ of over £82,000 in one year, then your business will have to be registered for VAT.
- National Insurance obligations
Whilst National Insurance is not technically a tax, it’s still money which you have to pay to the UK government – so in essence, it’s basically the same thing. If you are operating as a sole trader, you have two types of National Insurance to settle. One is a flat rate (per week) referred to as ‘Class 2 NI,’ which is at £2.8 every week. Keep in mind, however, that you are only obligated to pay this if the profits from your business are over the ‘Small Profits Threshold’ of £5,965. It is still worth paying this voluntarily, though, if you would like to protect your State Pension eligibility as well as other government benefits. The other National Insurance obligation you have as a business is ‘Class 4 NI,’ which you only pay once your profits are more than £8,060. However, If you have a limited enterprise or company and are receiving a salary of more than £8,060, then your business will deduct ‘Class 1 NI’ for employees from your salary and pay it to HMRC.
If you want to be fully compliant with your taxes as a business (and have complete and accurate financial and accounting records, besides), then the best thing you can do is rely on a qualified and experienced accountant like the accountants in central London from reputable firms like GSM & Co.