So you’ve started a new business. Great! Now it’s time to learn about what taxes you must pay and when you must file your returns or you could face penalties, surcharges and interest payments.
Please note that this information applies to Limited Companies, not to sole traders.
Corporation Tax
The first tax you must know about is Corporation Tax. As of 1 April 2020 this tax will be set at a fixed rate of 17 percent, and it is taxed on your profit.
To submit your Corporation Tax Return you use what’s called a CT600 form. But before you can fill this form out you need to do a “Tax Calculation.”
A Tax Calculation is a mathematical calculation of your company’s profit — earnings minus deductible expenses, taking into account reliefs and allowances. This gives you your taxable amount. Once this number is established, you put it into the CT600 form and send it through to HMRC.
You have up to 12 months after your company’s financial end-of-year to submit the tax return, but our advice at Pearl Accountants is to get this done as soon as possible after your financial year-end. It’s important to get these taxes paid and the returns filed quickly in order not to miss deadlines and suffer penalties as a result of forgetfulness.
Although you have up to 12 months after the end of the financial year to submit the return, the actual payment of your Corporation Tax must be paid up to 9 months after the end of your financial year. This is another reason to get the return submitted and payment made ASAP, so as not to get muddled up with dates as you get embroiled in your next year of business.
Payroll / PAYE
If you have employees you need to “run a payroll” every tax month, and pay their PAYE tax as well as other deductions to HMRC.
A tax month runs from the 6th of one month to the 5th of the next.
On or before your employees’ payday you need to:
- Record employee pay
- Calculate deductions like tax, National Insurance, student loan repayments, pension, charity donations and other deductions
- Report these details to HMRC
You then need to pay HMRC by the 22nd of the following month (starting on the 6th) or be liable for a penalty.
Payroll is a complicated subject for which plenty of software exists to make it simpler, such as:
- QuickBooks
- Sage
- Xero
- FreeAgent
- And others
But remember, when it comes to tax returns themselves, none of them prepares or files returns for you. Either you or your accountant must do this.
VAT Returns
If you are registered for VAT, whether voluntarily or because you have surpassed the £85,000 threshold, then you must pay and submit a VAT return every quarter. The return and payment are due 1 month and 7 days after the end of the quarter. So, if your quarter ends on 31 March, your VAT return and payment are due by 7 May.
There are pros and cons to registering for VAT if you are under the threshold:
Pros of registering for VAT
- You can claim VAT off all your business expenses
- Might give you a touch of “credibility” in B2B transactions and negotiations
Cons of registering for VAT
- Your prices will always be higher than your non-VAT registered competitors by 20 percent. This is mainly a problem if you service a lot of private clients or businesses who are not VAT registered themselves
- Additional filing and paperwork every three months
- Penalties for missing that filing or those payment dates
Self Assessment Tax Return
As a director of your company you must also file a Self Assessment Tax Return. This is your personal tax return for earnings between 6 April of one year, to 5 April of the following year. This return must be filed, and the payment made, before 31 January of the year after.
For example, if the financial year ends on 5 April 2020, you must submit this personal tax return by 31 January 2021.
More paperwork and filing
Those are the taxes, but a company has other duties with regards to filing and paperwork.
Once a year you need to file:
- Abbreviated Company Statutory Accounts with Companies House. This is basically a summary of your accounts. Filed once a year.
- Full Company Statutory Accounts with HMRC. These are full accounts with detailed profit and loss etc filed once a year.
- “Confirmation Statement” with Companies House. This is basically a “snapshot” of your business.
So much filing!
Yes, and as we’ve mentioned already, the penalties are severe when not done, or done inaccurately. This is why hiring a good accountant is invaluable to your business’s success. Not only will they live and breathe these filing schedules and payments for you, but they will also apply any reliefs and allowances to your tax calculation to ensure you pay as little tax as legally possible.
That is, of course, if they are a good accountant.
By Shoaib Aslam | Small Business Advice |
Shoaib Aslam is the co-founder of Pearl Chartered Accountants, a UK-based chartered accountancy firm that has multiple locations across London. They are experts in helping startups and established businesses with all aspects of growth, strategy, scaling up, accounting and tax planning.