Guide: Tax Rules For Small Business Owners
The last thing that any small business owner wants is to get on the wrong side of the tax man
, so make sure that you get to grips with tax before you begin trading.
Take a look at the different types of business tax to see which rules apply to you:
Sole Trader
Sole traders must register for self-assessment and declare all income and expenses to HMRC at the end of each tax year. Youll be taxed on your profits at the standard income tax rate. Sole traders with profits of less than 34,370 per annum will be taxed at the basic rate of 20 per cent. Profits between 34,371 and 150,000 are taxed at the higher rate of 40 per cent, and profits over 150,000 are taxed at 50 per cent.
In order to calculate your profit you will need to keep company accounts either yourself or with the help of an accountant. For many sole traders starting out a simple spreadsheet detailing income and expenses, and a folder for receipts, will suffice.
Beware that there are rules as to what you can and cant claim as an expense. A list can be found at the HMRC website (http://www.hmrc.gov.uk/incometax/how-to-get.htm).
Equipment bought for your business falls under different rules to expenses and will need to be claimed back as a Capital Allowance. The rules regarding Capital Allowances are particularly complex and you can find a wealth of detailed information on the Business Link website.
Self assessment tax returns can be filed online or using a paper form. The deadline for paper returns is 31 October (following the April end of tax year) and for online returns is 31 January so filing online has the longer deadline.
The payment deadline for tax owed from the previous tax year is 31 January.
Keeping accurate records is essential for self-assessment so take the little and often approach rather than letting the chore build up. Its also important to note the rule that requires you to keep your business records for five years after the tax return deadline.
Limited Company
A limited company pays corporation tax on taxable income and profits, and youre likely to find the services of an accountant a must if this applies to you. Small companies (with profits of up to 300,000) are taxed on profits at a basic rate of 20 per cent.
The deadline for corporation tax returns is 31st March (following the April end of tax year). Your accountant will use the form CT600 to file the return, although always bear in mind that it is the company directors ultimate responsibility to ensure that it is filed on time and is accurate.
Payments must be made by nine months and one day after your year-end.
It is a legal requirement to keep all company records for at least six years, so make sure that you have an adequate system for filing invoices, receipts and other tax related paperwork.
Again, as with self-assessment, good record keeping is essential for accurate returns and the avoidance of penalties.
Understand the tax rules for small business owners before making your first transaction and youll find the implementation of efficient systems for record keeping much simpler.
by: DMIB
Why You Should Buy Bus Charter For Your Business Sap Business One Faq Is It For Small Business Or For Somebody Who Is Large? Business Loans For Young Entrepreneurs Why Business Loans For Women Are Rejected How To Get Started With A Home Based Business Top 10 Dos & Donts For Small Business Funding Which Is The Fastest Way For Business Financing? How To Sustain Small Business Growth 5 Ways To Grow Your Franchise Business Where To Get Minority Business Loans From? 5 Must Read Small Business Blogs How To Set Small Business Financial Goals 4 Things You Should Know About Business Credit