When starting a business, you may encounter various problems, which means that taxes are often deferred while more pressing problems are resolved. However, it is important to remember that companies that pay late taxes are subject to significant penalties. For this reason, it is always a good idea for small business owners to have a good understanding of their tax obligations. So what are different types of taxes? When should you start paying taxes? How to claim tax relief for small businesses? Read our full guide to find out.
When Do You Have to Pay Taxes?
This fiscal year runs from April 6, 2022, to April 5, 2023. Different types of taxes have different payment times, so we’ll give you an overview of the different taxes and due dates for payment.
Different Types of Taxes for Small Businesses in the UK
Corporation Tax
There are many types of taxes in the UK, corporate tax is one of them. It is a tax on your company’s profits during the fiscal year. It is due nine months and one day after your company’s financial year ends. Its period starts on March 31st, which means you will have to pay corporation tax before January 1st. The corporate tax rate is currently 19%. It is important not to declare corporate tax after the deadline, as this can lead to penalties.
Income Tax
Income tax is paid on income you receive in person, such as salary and dividends. If you are a director of a public company, income tax is paid through your company’s payroll system. In the case of sole proprietorships, income tax is paid on corporate profits, which are included in the tax return.
State Insurance
State insurance helps you collect your state pension and pay benefits. Like personal income tax, standard insurance for company directors is also contracted through PAYE. The payment process for independent merchants is slightly different. It is basically calculated as part of the annual self-assessment and is paid to the HMRC before January 31st and as part of the upfront payment (July 31st).
VAT
Value added tax is a consumption tax that is added to the price of goods and services. Businesses are not automatically registered for VAT unless their annual turnover exceeds the VAT limit (£ 85,000). If you have to pay VAT, you must pay it quarterly and submit VAT returns to HMRC within 37 days of the end of the quarter.
It is also important to remember that the structure of your business determines the tax liabilities of your business, which also determines when your taxes are due.
Tax Liability Towards Sole Proprietors
As a sole proprietorship, your allowance is £ 12,500. As long as you earn less, you don’t have to pay income taxes. If your business earns between £ 12,501 and £ 50,000, you will pay a basic income tax of 20%. If your income is between £ 50,001 and £ 150,000, you pay 40%. A 45% rate is applied to entrepreneurs whose tax base is greater than or equal to £ 150,000.
It is also necessary to file an annual tax return and pay national insurance policies. If you expect your income to exceed £ 85,000 in 12 months, register for VAT. No sole Proprietor is subject to corporation tax.
Tax Liability of Limited Liability Companies
LLCs are required to file an annual tax return with Companies House, prepare statutory accounts, file a tax return with HMRC and register for VAT (if income exceeds £ 85,000). In addition, the director of a public limited company must file a tax return and pay national insurance taxes/contributions via PAYE when receiving a salary from the company.
Tax Liability of Companies
Businesses have similar tax obligations. First, shareholders must pay income tax on their share of the company’s profits (the same proportion applies to partnerships as to individual owners). You will also need to pay National Insurance, file a personal tax return and register for VAT if your income is over £ 85,000. In addition, the designated partner must file an annual corporate tax return.
Tax Obligations for Limited Companies
Limited companies must file an annual corporate tax return. If the profits of a limited company exceed the limit (£85,000). Additionally, each partner must pay income tax on his partner’s share of profits, file a personal tax return, and pay social security contributions.
How to Claim Tax Relief for Small Businesses?
Running your own business is a tough time and it’s always worth looking for ways to ease the financial burden. While there are a lot of bills to pay when running a small business, there may be a few ways to recoup some of the taxes you pay. We’ve pulled together some tax reliefs small businesses can claim.
Employment Allowance (National Insurance Relief)
If you are an employer, you may be eligible for a social assistance supplement of up to £ 4,000 (the total supplement for all employers, not all employees).
By claiming your work allowance, you can pay less than your employer’s national insurance contributions each time you pay your salary until you reach the limit of £ 4,000 or at the end of the working year, whichever comes first.
Annual Investment Allowance
The government has extended the £ 1 million limit on annual investment allocation (AIA) until 2022. AIA is a type of equity deduction that allows you to deduct the costs of machinery and equipment from your earnings when you pay taxes.
Investment Program for Seed Companies
The Seed Business Investment Scheme is a venture capital scheme that helps start-ups raise funds as long as they use it for a “qualified business”. It provides tax benefits to investors when they buy new shares in your company.
Business Rates Relief
Some business premises can take advantage of city corporate discounts. There are different plans depending on your business.
For example, a small business interest subsidy is available if your property’s appraised value is less than £ 15,000 and your business occupies only one property.
Another type of price reduction for companies is the commercial belt, which can be useful if you are moving or starting a career. If you work in business, you can earn up to £ 55,000 per year in business interests for five years.
Marginal Relief
If you are self-employed, you may be able to apply for a small income tax exemption to reduce your corporation tax assessment. It gives you a gradual increase in your tax rate between the small profits rate and the main rate..
Entrepreneurs’ Relief
You may be able to reduce the capital gains tax rate if you sell your business by applying for a Business Asset Exemption (Entrepreneurs’ Relief).
The Patent Box
If you own a business, the patent box can mean that you can collect a lower corporate tax rate on your profits from any patented invention you own.
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