While these points might be most relevant for new business owners, it’s important for all to be rigorous with their taxes. After all, the taxman is someone we should all treat seriously, no matter how long we’ve been doing business.
Here, we examine four key tax considerations to help new business owners manage their tax obligations, and potentially take advantage of some opportunities to save money along the way:
Registering with the tax authorities
For individuals operating as a sole trader, there was an obligation to register with HMRC as newly self-employed by 5 October following the first year. You can register on the HMRC website or by calling their helpline on 0300 200 3500. If you have failed to notify HMRC within this time, you could be liable for a fine.
If you need to pay corporation tax, you should be automatically notified after an information exchange between Companies House and HMRC. However, sometimes this doesn’t happen. If you don’t receive a unique tax reference within a few weeks, you should call HMRC’s corporation tax helpline on 0300 0200 3410 and ask for a reference.
Recruiting and paying your first employees
As a business grows, you might decide that the time is right to take on some fresh talent. This means you’ll require a PAYE scheme and you’ll need to fulfil your auto-enrolment obligations where appropriate.
Often, businesses decide to offer their employees a package of benefits, such as private healthcare. Many common benefits are reportable on a P11D form by 6 July following the end of the previous tax year.
Some popular benefits – such as mobile phones, health screening, workplace parking or a tax-free bicycle acquired through a Ride to Work scheme – don’t need to be reported to HMRC. Speak to your accountant for more information on what you need to report.
Registering for VAT
If your business’s turnover from the previous 12 months exceeds £85,000, you’re obliged to pay VAT. As soon as you expect the turnover from the next 30 days to push you over the VAT threshold, you must register immediately.
The penalties for non-compliance are strict so it’s essential to monitor your VAT commitments carefully. Due to HMRC’s Making Tax Digital initiative, all businesses must keep electronic records and file returns digitally.
This doesn’t mean submitting pages and pages of information; for a new business owner, an Excel spreadsheet and submission through HMRC’s online portal will suffice.
Paying tax on profits
You can find your profits by deducting your business expenses from your profits. Remember, some costs, like entertaining clients and personal expenditure, are not tax deductible. Allowances are designed for things that have an enduring use in the business, like a computer or a van.
Losses are common during the first few years of trading. If a new sole trader makes losses in the first four years of trading, they can carry these losses over to generate a refund of tax paid in the previous three years. Alternatively, they can be offset against any other income and chargeable gains in the year a loss is made.