When starting a small business, tax is one subject you should not leave for later. Missing a tax deadline can be a costly mistake, as you may incur penalties from HMRC, or at lease be expected to pay interest on overdue taxes.
Even if you have been self-employed in the past, starting a small business means you will face taxes you have not had to pay before. Here’s our small business tax guide to help you understand some of the most common taxes for new businesses.
VAT (Value Added Tax)
VAT applies to most products and services sold in the UK, with some exemptions for products considered ‘essential’, such as basic foods and some hygiene products.
Most of us are familiar with paying VAT as customers, so this is one many new business owners are aware of too.
If your business turnover exceeds the VAT threshold, you must charge VAT to your customers and pay it over to HMRC on a quarterly basis – but you can also claim back the VAT you pay on services, supplies and other products for your business.
You should be aware of specific rules on international VAT, such as the EU VATMOSS scheme, and any changes to these as the UK’s departure from the EU progresses.
Corporation tax is a business tax you might not have encountered before. It’s paid by limited companies and is generally calculated as a percentage of your profits after costs, salaries, allowances and tax reliefs have been deducted.
Like self-employed income tax, corporation tax is self-assessed by companies. You should pay anything you owe within nine months of your company’s financial year end or accounting period.
National Insurance contributions are due when you employ people. If you are a director of a limited company, you must also pay Class 1 National Insurance Contributions for yourself.
There are several categories of National Insurance Contributions (NICs) including:
- Class 1 NICs for employees/directors
- Class 2 NICs for self-employed individuals
- Class 4 NICs payable on sole traders’ profits
The amount payable varies depending on factors like how much you earn and whether you are a self-employed sole trader or a director of a limited company.
Need some help?
In addition to the above, there are also other costs you may encounter, ranging from income tax on the salary you draw, to business rates on any physical premises you occupy.
Our small business accountants are here to help. We can let you know which taxes apply to you, the rates used to calculate them, and your total tax liability for the year or period – leaving you to focus on running your new business.