Make sure you can pay your small business tax liabilities
Posted on 16th November 2019 at 13:29
There are a number of taxes that you must pay as a small business owner.
Failing to make payments, paying the wrong amount or missing deadlines can lead to fines from HMRC, as well as interest on any amount overdue.
Making sure that you understand what you are responsible for and how much you will need to pay helps your business to run smoothly.
Your bookkeeper can help you put processes in place so that you know what you must pay and will have the right amount available at the right time.
Here are some things you should know:
Corporation Tax - limited companies pay this tax, which is a percentage of business profits or taxable income. This will normally be what’s left after deducting all allowances, tax relief and expenses such as salaries.
With the help of your bookkeeper and accountant, you can work out how much you owe and file a return with HMRC. Payment is due nine months after the end of your business accounting period. The delay in making payment is where some businesses can have problems, if they don’t reserve enough money to pay by the due date.
Corporation Tax is currently 19% of company profits and is due to go down to 17% in April 2020.
Value Added Tax (VAT) - if you sell products and services and your turnover is more than £85,000 you should be registered for VAT, although sometimes it’s a good idea to register before your business reaches the threshold. Once you have registered, your business you can claim back any VAT paid on products on services but must also pay the VAT charged to HMRC.
Although the general level of VAT is 20% of the price your customer pays, some products and services, such as publications for example, might be exempt or have a lower VAT rate, which can become confusing.
VAT is charged separately on your invoices and must be paid the HMRC each quarter. It’s easy to lose track of what must be paid because of the gap between issuing invoices that include VAT and buying products and services for your business that include VAT. If you don’t keep track of the VAT you have charged and paid, the amount due can come as quite a shock.
National Insurance - if you employ people you must pay National Insurance (NI) contributions directly to HMRC when you pay their salaries. It isn’t straightforward, because there are different classes of NI that are payable at different rates and for different levels of income.
You will need to keep accurate records of what your employees are paid and the NI contributions you need to make.
Sole traders must also pay NI contributions from their income if it’s more £6,365 per year and also on profits above £8,632.
Business rates - business rates apply if your business has dedicated premises, such as a shop or office. There are business tax relief schemes and grants available.
If you run your business from home but haven’t converted part of it solely for business use and customers don’t visit you there, you won’t normally pay business rates.
If this all seems a bit daunting and you would like some advice about how to make sure you always have enough to pay your tax liabilities, please get in touch.
Share this post: