As a new business owner, you wear different hats at once. You’re in charge of sales, inventory management, and human resources. You likely don’t have the money or the resources to hire a bookkeeper or full-fledged accountant just yet. This means you’ll have to organize and solve your company’s finances on your own. Unless you’re running an accounting company, you may not know the best way to claim capital allowance as accounting firms do come tax time.
According to the UK Government’s tax return guidelines, you can get slapped with a fine if you miss the deadline for submitting your tax return. You’ll end up paying a penalty of 100 GBP if you’re as much as a day late. Not only that, but you’ll also be charged interest on late payments. If you want to avoid these issues, you need to get your taxes right every time.
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Whether you own a small accounting agency or an established printing, here’s what you need to know about paying your corporate taxes.
Your Accounting Period
Your payment is dictated by your accounting period. This refers to the period, set by the government, which your business prepares its reports and financial statements. It happens after you register your company for a corporation task. The process could last from three months to a year. This helps the government and your investors to analyze your company’s financial performance.
Your accounting period also determines when your tax return deadline will be, which is 12 months after you finish it. Your corporation tax bill also has a different deadline, which is nine months after you end your accounting period.
The Different Tax Types
You have to pay different types of taxes, depending on the nature of your business. These include:
- Corporation Tax – You have to pay corporation tax for the profit you make for running your business. This applies to limited companies, foreign businesses with UK branches or offices, or clubs, and other unincorporated associations. You have to pay taxes every time you:
- Do business, also known as trading profits
- When you sell your assets for more than you bought them
- When your company makes investments
- Income Tax – This is based on the income you receive, such as a rental income (if you’re running a property rental business), investment dividends, salary, interest from savings, and some grants. The income tax you pay depends on how much of it is above your Personal Allowance and how much of it falls within a specific tax band. A standard personal allowance is 12,500 GBP. Anything above that is taxable. The basic tax rate range is from 12,501 GBP to 50,000 GBP is 20 percent. Those who make a salary of 50,001 GBP to 150,000 GBP have a rate of 40 percent. Finally, owners and employees who make over 150,000 GBP have a tax rate of 45 percent. Some benefits are tax-free. This includes housing benefits, income support, and attendance allowances. The UK government website has a full list of these tax-free benefits.
- Value-Added Tax (VAT) – Both limited companies and sole traders can register for value-added tax or VAT. This is an added price when a consumer buys goods or services. The standard rate in the United Kingdom is 20 percent. Your company is required to charge VAT to every customer you serve. If your business makes expenses or purchases, you can reclaim the value-added tax you pay as business expenses. You pay for VAT every quarter from the date your company registered for it. Companies are also required to submit quarterly returns within 37 days of the end of the quarter. As an owner, you need to do this even if you don’t have any VAT to reclaim or pay.
- Business Rates – Business rates are a tax on the property you use for your company. These include shops, pubs, offices, factories, warehouses, or guest house rentals. You may also have to pay taxes if you use part of a building or a whole building for non-domestic uses. Your local government will send you a bill every February or March every year. If you think there’s something wrong with your rates, get help from your local council or valuation office agency (VOA). Your property could also be exempt from business rates if it’s for a farm building or a property that’s used for the welfare of people who have disabilities.
Every small business owner has to master almost every aspect of running a corporation, from hiring workers to basic accounting. However, it can be daunting to handle tasks like taxes. Learn the different types of taxes your business has to pay, pay them on time and you’ll always be on the good side of your local government’s auditors.