Introduction to business taxes

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Introduction to business taxes

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Why should you read this guide?

Few reading this guide will actually need to be 'introduced' to taxes but you definitely need to consider the implications of tax on your new business. This guide will take you through the various taxes that may apply to your business.

Background

Benjamin Franklin once said, "In this world nothing can be said to be certain, except death and taxes". He must have had a crystal ball showing what it was going to be like running a business in the UK. There is no escaping the fact that if you run a business you will be liable to tax. Although the tax comes in various forms the fact remains you will be paying a portion of your turnover to the government. Your accountant should advise you of ways to reduce your tax burden but unfortunately there is no legal way of escaping it altogether. Below are some of the more basic taxes that will be applied to your business:

PAYE (Pay as you Earn)

Depending on the type of business you have you may be liable to pay PAYE even if you are the only one drawing a wage e.g. if you are a director of the company. You need to register as an employer with HMRC (Her Majesty's Revenue and Customs). You will be provided with a unique number and details of forms that you need to complete on a monthly/annual basis. It is then your responsibility to deduct the tax from your employees and pay this to HMRC.

NIC (National Insurance contributions)

Although the government have in the past denied this being a tax, the effect on your business is the same no matter what it is called. You will be liable to pay NIC if anyone is earning from your business, including any way which you withdraw cash from the business. Again employees are liable to have this deducted from their wages and this is your responsibility. In addition to this though you have to pay employers NIC as well. For both PAYE and NIC there are a number of books that can be used to work out the payments. You would be better though to start doing this online as it will be necessary to do this from 2010 anyway.

Corporation Tax

If you are lucky enough to make a profit in your business then the government will want a slice of that. You or your accountant needs to work out the liability for the company for any accounting period (usually 12 months long). You then need to advise HMRC of your liability and make the payment. If you do not advise HMRC or make the payment in time then there are penalties to pay.

Company cars and benefits in kind

If you or your employees are given a company car or any other benefits by the company e.g. health insurance then a tax will apply. In the main you will be liable to pay tax on these benefits if your income including the benefit in kind is over &8,500 in any one year. The benefits need to be declared on an annual basis and payment made accordingly. Especially with Company Cars you should take advice from your accountant before deciding how these will be provided.

Summary

There are many taxes that apply to your business and although they are sometimes complex it is your responsibility to understand them and how they apply to your business. Avoiding the subject will only end up costing you more so take advice now on what you should be doing.

Further information

HMRC run free courses in your area on PAYE and NIC on a regular basis. The HMRC website is also a very good resource. Click on www.hmrc.gov.uk. Your accountant will also be able to help you with all tax matters.