Starting a new business is both exciting and challenging; it can also be very satisfying as the new ideas come to fruition after an entrepreneur has undertaken careful planning and execution. Right from the start, any new enterprise needs to consider its position on tax and National Insurance and ensure that the planning has taken this important aspect into account.
Tax rules and regulations can be something of a minefield, and although the tax authorities provide businesses with considerable support and help they do expect people to keep their affairs in order.
Not only are there many on-line ressources available for businesses to source information about tax, with seminars, or ‘webinars’, on a range of subjects, but there are also professional bookkeepers and accountants who can help keep clear records of financial transactions and assist with the more complex ins and outs of the world of Her Majesty’s Revenue & Customs (HMRC).
Choosing the right business structure
Many first-time entrepreneurs decide to become self-employed. They must register as such with HMRC and they will be liable for their income tax and National Insurance liabilities. The amount of tax and NI contributions are based on the business’ profits, and each year a self-assessment form must be completed. Being self-employed means that other people can be employed by the business, but if this is the case the Pay As You Earn (PAYE) system will need to be understood, implemented and managed.
When two or more people set up a business together it is called a partnership. They have joint responsibility for the business, and this means they are also personally responsible for any business debts, no matter who caused them. As with self-employed people, partners are assessed for their income tax and NI contributions through an annual self-assessment sent to the tax office.
A limited company can also be a good vehicle for a business, especially one where there is room for significant market growth. A company is responsible for any business debts as it is a separate legal entity from its directors or shareholders. A director of a company will also be an employee, so a PAYE scheme has to be set up and registered. Companies pay Corporation Tax on their profits, usually on an annual basis.
To VAT or not to VAT
Businesses with a turnover above a certain amount, currently set at £79,000, must register for VAT (Value Added Tax). They charge clients and customers for items that carry VAT, offset VAT on their own purchases and make a VAT return. This will require a payment to the tax authorities when the inputs and outputs are balanced off, or it may generate a refund. Businesses below the turnover threshold can register if they wish. Online information can be accessed through HMRC’s website and there are many useful websites dealing with taxation matters.
Because the tax regime can be very complicated, new businesses should look for as much advice as possible to make sure that all tax issues are assessed and dealt with. If the authorities suspect tax evasion they will come down very hard, and it could prove extremely costly.
This article was contributed by Dave at the Publisher Network.