Every year around the end of January you experience the same loathsome feeling: Oh boy, time to file the taxes again. We understand that footing the yearly bill for being a small business owner is not much fun. Reluctance to give away a chunk of your income to HM Revenue and Customs is an understandable emotional response, especially if you’re struggling to survive the market as it is. However, don’t forget that taxes are what makes living in our civilised society possible. The taxes you pay help build roads and bridges, maintain our hospitals and schools, and pay our police, firemen, and social workers. Let that thought sink in before you start filing the form. With a couple of quick and easy tips from this guide, you’ll be done with the tedious task in nothing flat.
Square one: what is your trading status?
Tax season runs from 6 April of one year to 5 April of the next. The type and amount of taxes you have to pay very much relies on your trading status, a quintessential topic we have already touched upon that helps you choose the best legal structure for your business. Nonetheless, whether you’re a sole trader or a limited corporation, you should note that you have to register your business for Value-Added Tax (VAT) if your company earned above £81,000 in the last 12 months (or, equally so, if you expect too in the next 12 months).
- You can register for the appropriate form (Self Assessment and/or Corporation Tax) at the HMRC’s site. You’ll automatically receive a UTR (Unique Taxpayer Reference) and access to the relevant online service with all the necessary documentation.
- You can use the same link to register for VAT and PAYE (Pay As You Earn). The latter is a method that allows you to work out the amount due each time you give out a salary to an employee – provided you have any.
Here’s the gist of filing your taxes depending on the type of your trading status:
Sole trader / Business partnership
If you’re a sole trader or in a business partnership, you’re liable for your Income Tax and National Insurance Contributions. You’re not susceptible to Corporation Tax, as you will pay taxes only on the profit your business has made based on a self-assessment system. The Self Assessment form needs to be submitted online to the government by 31 January each year. The Self Assessment form serves one purpose: the declaration of your earnings (as well as any other income during that tax year). Based on the information you submitted, you will soon receive a calculation from the HMRC on how much Income Tax you owe. In order to fill this form out properly and with ease; it’s best you keep all of your financial records (business income, profit, expenses, assets and liabilities) spotless. Lastly, keep in mind that not all revenue should be taxable; in other words, your taxable profits are what is left after you have deducted your capital allowances, business expenses, annual investment allowance, and business losses, if any.
If your small business is registered as a limited corporation, that will impact your taxes. In general, you are likely to pay less personal tax than a sole trader, but you do have to pay Corporation Tax. Provided you’re receiving a salary, you’ll have to take away Income Tax and National Insurance from it. You also have to pay Employer’s’ National Insurance contributions. Same as with sole traders and business partnerships, your taxable profits are your corporation’s gains minus your capital allowances, business expenses, annual investment allowance, and potential business losses. And while corporation tax issues are one of your accountant’s most important responsibilities, it is you as the owner who is ultimately accountable for making sure all the tax information is correct and neat, and that your taxes are filed and paid on time. Your Corporation Tax payment is due before your Company Tax Return.
Filing taxes can be a confusing affair, so don’t be afraid to ask for help. HM Revenue and Customs encourages all business owners struggling with their taxes to reach out for support, whether by phone, post or online.
If, however, your tax matters got more convoluted than you anticipated and you’re in need of a dedicated legal professional specialising in taxes, we can match you with the right fit for your unique situation. Contact us for a free quote now and get the best legal advice your way.