Welcome to the sixth blog in our series on start up businesses. To read earlier blogs in the series click here.
If you have always been an employee of a company before starting your own business then it is likely that the only tax and National Insurance you would have had to pay would have been handled through your employer’s payroll scheme without much involvement from yourself. It can therefore, understandably, be a little daunting moving into the world of self-employment and having to deal with your taxation obligations yourself. When it comes to dealing with tax affairs getting a good accountant on board in the early days can really help. Your accountant can guide you through the process and ensure you are using your tax allowances effectively and claiming any reliefs available to you.
In this blog we would like to give an overview of some of the taxes you may be subject to as a small business owner. For specific tax advice please contact us to arrange a meeting where we can learn more about your personal and business situation and objectives and advise on your affairs and the potential impact of taxation.
Sole traders and partners in a partnership are required to pay Income Tax and National Insurance Contributions (NICs) which are calculated and filed via your annual Self Assessment tax return. This return details business sales revenue and outgoings after tax allowances and deductions are taken into account.
The standard personal tax allowance for 2019/20 is £12,500 and Income Tax is paid on earnings over this, subject to deductions and allowable expenses and reliefs. Income tax is charged at 20% for the basic rate (earnings between £12,501 and £50,000), at 40% for the higher rate (£50,001 to £150,000) and is 45% for the additional rate (over £150,000). Please note Income tax bands are different in Scotland.
National Insurance Contributions (NICs) are also paid by sole traders and partners. For 2019/20 if a sole trader or partner earns more than £6,365 in the year Class 2 NICs must be paid at £3 per week. If your business has taxable profits of over £8,631 you will also have to pay Class 4 NICs which are charged at 9% on profits between £8,632-£50,000 and 2% thereafter.
Corporation tax is due on business profits, minus any reliefs claimed, and is currently set at 19%, although this is due to drop to 17% from 1 April 2020.
A person (whether a shareholder or not) working in a limited company is an employee of that company, and not a sole trader. Therefore your Income tax and NICs will be paid through the company via the company PAYE (pay as you earn) scheme through payroll. The limited company will also be required to pay employer’s NICs at 13.8% for employees with wages over £166 per week.
As a shareholder in the company you can also pay yourself dividends, providing the cash is available. The first £2,000 of dividends is not taxed but you will pay tax on dividends over this. The amount of tax paid is determined by your Income tax band. The basic rate payable is 7.5%, the higher rate is 32.5% and the additional rate is 38.1%. Please contact your accountant to discuss the most efficient remuneration for you and your business to ensure you are using your tax allowances effectively.
Business rates are paid to the local council on commercial properties such as offices, shops, industrial units, warehouses etc.
If you are using part of your home for business, e.g. a spare room as an office, you won’t usually need to pay business rates. However if you make significant changes to your home for commercial reasons, sell products or services to visiting customers or have employees working from your home then business rates may apply. There may also be tax consequences when you sell your home if a business has operated from it.
You can estimate the business rates due on your commercial property by visiting the following page on the UK Government website: https://www.gov.uk/calculate-your-business-rates
You must register with HMRC for VAT when your gross VATable year-to-date turnover reaches £85,000 (2019/20). Upon registering you will be given a VAT registration certificate which shows your VAT number, effective date of registration, and the date when you need to submit your first VAT return and make your first VAT payment.
From the effective date of registration your business must charge the appropriate amount of VAT. In the majority of cases VAT is 20%, however some goods are subject to 5% VAT or are zero-rated or exempt.
Once VAT registered your business will be required to keep detailed records and workings to support the VAT returns you submit. From April 1 2019 VAT registered businesses are required to submit VAT returns digitally under the Making Tax Digital (MTD) regime. For more information on digital submissions and MTD click here.
This is only a brief outline of some of the most common taxes that are likely to impact a new business. There are other forms of taxation that may affect a business or individual depending on individual circumstances.
Here at DNG Dove Naish LLP we provide a comprehensive taxation and tax planning advice service. For more information on the taxation services we provide click here. Contact us today to discuss what we can do for you and your business.
This blog is part of our series of blogs on start up businesses. To read earlier blogs in the series click here. Next week will mark our final blog in the series and will summarise the start up series, while also giving some top tips to keep in mind when starting a new business.
"I can't praise DNG and Katie enough, I was already convinced I wanted to go ahead with the QuickBooks set up so on the initial visit Katie just gave me a tour of the site and showed me exactly what to expect. Katie gave me confidence, allowed me to have a 'play' with the programme while she was with me giving hints and tips. I felt totally at ease with Katie almost immediately and I have had occasion to email a couple of queries and have found the response timely and very helpful. I would definitely recommend DNG and QuickBooks."
"With the help and advice from DNG I have now had Xero installed for my accounting purposes. Although this was a worrying prospect for me I have to say that Xero is very straight forward and easy to negotiate. Everything was set up and geared for our purposes and has been a very positive experience. In the event that you require help the explanations and instructions on the help bar are brilliant and written in layman’s terms.
I don’t think I would have progressed so well without the help and support of Jo and Sarah from DNG. They put everything in place and guided me through all the procedures and gave me confidence. So much so that within two months I had ditched my manual accounting books and am doing everything on Xero. Its great to always have someone to ask even this silliest of questions at the end of the phone or emails! Thank you Jo and Sarah!"
"I have had nothing but a positive experience over the past 5 years from DNG. This tax year they have been particularly fantastic at saving me a considerable amount of money and advising on future payments. Their fees are probably the best money I spend every year. I’ve been asked for their details from 2 friends and family as a result. I would thoroughly recommend them as not only do they get good results, they are very easy to work with."
"We have been very impressed with the service we have received from DNG since outsourcing our payroll at the start of 2017. Our payroll/auto enrolment is not straightforward. Not only do DNG deal with the pension complications effectively and efficiently each month, they also identified errors we made in earlier years enabling us to recover nearly £4,000 of overpaid National Insurance contributions. We are pleased to recommend DNG, and their payroll team in particular, for their professional and diligent approach to providing their services to us."
"DNG provided us with invaluable advice and support as we negotiated our way through a recent MBO. They were super responsive and patient with our never ending questions and queries. I wouldn’t hesitate to recommend their services to other small businesses."
"Halcyon has been with DNG since 2000. In that time they have become an integral part of our business success. Not only do they provide the statutory auditing services but they have become our "Critical Friend" - offering advice and guidance at crucial stages of the Company's evolution and development. It's hard to imagine not having them there.
We are delighted with the quality of service they provide - always professional, always timely and always valued.”
"Jones Wholesale have been clients of DNG’s payroll facility for many years and would not think of changing to any other option. The consistency of service received is extremely reassuring and the staff I have experienced have always been efficient and a pleasure to deal with.
To know that calculations and reports will always be accurate and timely is of paramount importance to me and their knowledge and advice on personnel and tax/benefit matters has proved particularly valuable."
"The British Institute of Non-Destructive Testing (BINDT) has used DNG’s services for over 25 years. DNG are active participants in the day-to-day function of the Institute’s Finance and Accounts department.
BINDT is reassured in the knowledge that the staff at DNG are always on-hand with viable solutions and dependable advice for any financial query passed their way.
DNG provide outstanding payroll and budgeting support to BINDT and are consistent in preparing for and providing a thorough audit of the Institute accounts.
The support and services BINDT receives from DNG are second-to-none."
"iSAMS have been working with DNG since 2008 and they were not only chosen on the basis of their excellent reputation locally but also on their expertise in our particular area of activity.
DNG are our ideal partners and have helped us maximise on the exciting growth our business has seen during its infancy. We particularly value the on-site and personal service provided by the Management Accounting and Systems Support team.
We are more than delighted with the services that they provide and would strongly recommend DNG to any company or individuals seeking very professional and friendly advice."
"Barton Petroleum Ltd have been using DNG’s payroll services for many years now and value highly the confidential and personal service which they deliver. Their speedy and efficient resolution of complex queries is particularly appreciated.
DNG represent excellent value for money at a time when all forms of expenses are under the microscope and I would have no hesitation in recommending them as an outsourced bureau."
"DNG’s approach and conscientious attitude have been invaluable to my business and I could not have done without their expertise. Knowing the payroll for my employees, at the Tattoo Club is in safe hands has allowed me to concentrate on other issues within my business.
I pass on my sincere thanks to them and hope that we will continue our business association well into the future."