If you’re running your own business you can’t avoid tax and there are four main business taxes to keep in mind:
- Corporation tax – based on your company’s profit
- VAT – if your business is VAT registered
- PAYE / National Insurance – if you run a payroll
- Income tax – based on your earnings such as salary and dividends and any other income
And there are three golden rules for keeping on top of tax:
- Know where to look to find out how much of each tax you owe and when it’s payable
- Be organised
- Put money aside as you go to pay tax when it’s due
From April 2023 the rate of corporation tax rose from 19% to 25%.
However, a company with taxable profits up to £50,000 will still pay at a rate of 19% and a company with taxable profits above £250k will pay tax at 25%.
Those companies with taxable profits between £50,000 and £250,000 will pay corporation tax on a sliding scale rising from 19% at the bottom of the range to 25% at the top.
One further complication is that these thresholds relate to one company under common control and are reduced where more than one company is in common control.
For example, if you control four companies then the lower threshold is £50,000 / 4 = £12,500 and the upper threshold is £250,000 / 4 = £62,500.
An estimate of CT is payable nine months and one day after your year-end and the CT return must be submitted within twelve months of your year-end.
Because the filing deadline for company accounts is nine months after the year-end, it’s sensible to submit your CT return to HMRC at the same time as your company files its accounts at Companies House.
This means the exact amount of tax is known and can be paid to HMRC rather than an estimate.
If you know your profit as your financial year progresses then you can make a provision for the related CT as you go and put aside money each month to cover the liability.
Here’s the HMRC corporation tax page.
We have a section on VAT which you should explore if you’re VAT registered or thinking about registering.
Our three golden rules apply to VAT.
- Know when your VAT quarter ends and that VAT is payable five to six weeks after the end of each quarter.
- Ensure your bookkeeping is up to date and accurate so you can see your VAT liability build up throughout the VAT quarter.
- Put aside money when your customers pay you to cover the VAT liability when it’s due.
Here’s the HMRC VAT page.
PAYE / National Insurance
If your business employs staff then you must deduct PAYE and employees’ national insurance from their gross pay. You must also pay employer’s national insurance (NI) as a separate cost.
PAYE and NI have to be paid to HMRC by the 22nd of the month following the payroll being run.
Once again our three golden rules apply.
- Use payroll software to calculate how much to pay your staff and how much PAYE and NI are due to the government
- Make sure you have all the data you need in good time for the payroll to be run each month
- Set aside money both to pay your staff this month and to pay the PAYE / NI next month
Consider outsourcing your payroll to an accountant or payroll bureau because running your business is hard enough without also needing to become an expert in pension rules, student loans, cycle to work schemes, statutory maternity, paternity and sick pay.
Outsource your payroll but don’t lose sight of the cashflows.
Here’s the HMRC PAYE page
Income tax (self-assessment)
Most business owners will have to complete a self-assessment tax return either because they are self-employed or because they are rewarded by their company via a combination of salary and dividends.
Your self-assessment tax return must be submitted by January 31 and tax is usually payable on July 31 and January 31.
Self-assessment tax returns are all about being organised. About knowing where to find the documents that prove your sources of income and allowable expenses such as pension contributions and charitable donations.
Whether you complete your tax return online or ask your accountant to do it for you, it makes so much sense to get it submitted sooner rather than later.
Then you know how much tax you need to pay in July and January and can put the money aside as you go.
Here’s the HMRC self-assessment page
HMRC are helpful! They want tax payers to pay the right amount of tax at the right time.
They have helplines for each tax and encourage businesses and individuals to set up Business Tax Accounts and Personal Tax Accounts to give visibility of tax online.
Definitely worth a look.
How can Blue Dot Consulting help?
As Chartered Accountants, we can help you navigate through most business tax and personal tax issues. And we make sure we explain everything clearly so you know what’s going on.
From time to time things become more complicated and we can call upon several tax specialists to help when they do.
One cautionary note to finish with. Lots of people ask us how they can reduce the amount of tax they pay.
In reality there are very few ways of reducing the amount of tax you pay for a given level of profit and making profit is difficult.
So a focus on increasing your profit is likely to be a more rewarding use of time. A focus on being organised will go a long way towards paying the right amount of tax on time with minimal anxiety.
Want to talk about your tax, in all it’s shapes and forms? Get in touch for an initial chat.