Taking care of the business basics - part 2
In this world nothing can be said to be certain, except death and taxes.
So said Benjamin Franklin in 1789 (probably...). Yet, in all the uncertainty of running a business, the most certain aspect of it, taxation, often gets ignored, forgotten, or left to the last minute.
There are several types of tax that need taking care of, and depending on your type of business, action needs to be taken throughout the year to ensure you are hitting every deadline. Let's take a look at the 'big three.'
Sole Trader – Self assessment
For sole traders, all the profit of the business counts as income. That means you pay income tax on the money you make through the business, less the running expenses.
Registering for self-employment means you will need to file a tax return for HM Revenue and Customs (HMRC). The government have made this simple to do on their online service that you can access via www.gov.uk/log-in-file-self-assessment-tax-return
How you do this depends on whether you are a sole trader or partnership, for example. But don’t leave it to the last minute in January, as you will need time to receive your Unique Tax Reference (UTR) and be registered for the online service via the Government Gateway. The deadline for self-assessment is 31st January online, so register early. The percentage you pay depends on how much you earn, but you have a personal allowance of £11,850 (for 2018/19 - it changes each year) on which you pay no tax.
You will need to consider corporation tax if you are setting up as a limited company. This includes foreign companies with UK branches and clubs and co-operatives.
You can register online once you have registered your company with Companies House. The deadline for this payment is usually nine months and one day after the end of your accounting period. The percentage you pay in 2018 is 19% on all profits.
You must register for VAT when your taxable turnover of more than £85,000 (and it may be to your advantage to register sooner).
Filing a VAT return is different to income tax in that you submit every quarter, and your payment (via direct debit or online banking) is payable one calendar month and seven days after that.
Don’t forget to take into account the time it takes for your payment to reach HMRC. Also important to note is that by April 1st 2019 HMRC’s online portal for this will close, and you will need to record you transactions and submit returns to HMRC via online software.
Talk to us about any aspect of changing to suitable software.
Don’t forget the simple pleasure of being tax efficient
It doesn’t sound very rock and roll does it? But taking simple steps to be tax efficient will save you a lot of worry and possible wasted money in terms of penalties. Setting aside money every month to cover tax bills seems a no-brainer, but you’d be surprised how many people think they will simply find the money when they need to pay it. And on the whole, they can’t.
Your accountant can support you to keep to deadlines. They will also help you with the amount of money you will need to set aside by evaluating the strength of your business, and how much you are likely to earn.
If you are a limited company, consider tax efficient ways of paying your directors, rather than paying them everything as salary which can challenge your cash reserves and sees them paying more income tax than necessary. Think about year-end dividends and pension plans as ways of paying yourself and other directors for example.
And if all this talk of thresholds, percentages and deadlines makes you want to run for the hills, Grant-Jones Accountancy are here to gently guide you through all of these aspects of taxation.