They say that there are only 2 certainties in life – death and taxes. But you could add a third – penalties & fines.
What you have to remember when you start a business is that tax is just another bill. So it’s best to prepare and put a little aside. Especially if you want to avoid the penalties.
Income tax, national insurance and VAT things to note:
If you are employed by an organisation you will pay tax on your earnings.
- As a self-employed sole trader you will pay tax on the profits of the business – although you still have to pay Class 2 and Class 4 National Insurance contributions.
- Entrepreneurs running a limited company are classed as employees, which means they must pay income tax through the company’s Pay As You Earn (PAYE) scheme, as well as national insurance.
The company must also pay tax. This is called Corporation Tax and is paid each year. In most cases corporation tax is 20% of profits after expenses and certain allowances. Details of these allowances are available via the HMRC (Her Majesty’s Revenue & Customs) webpage.
Value added tax is levied on the sale of most goods and services. A list of exceptions can be obtained from HMRC.If your business has a turnover that exceeds the HMRC threshold of £82,000 per annum (for 2015-16) then the business must register for VAT and submit a return and VAT payment on a quarterly basis.
Because of the above it is essential that a business keeps accurate records and not just for the tax man.
Make friends with an accountant or bookkeeper as soon as you can to make sure you get everything right and more especially don’t loose out on being able to maximise your start up allowances.
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