In addition to the day-to-day running of a small business, there are many other tasks which business owners are required to carry out such as financial ones and general record keeping.
One financial task small business owners should be aware of are the end-of-year tax requirements for small businesses.
Whilst there are no set rules which apply to all small businesses as tax requirements will vary depending upon what the business structure is, what it produces or offers, as well as how well it is performing, this article takes a look at what some of these are and aims to provide a general guide for small business owners regarding end-of-year taxes.
Income tax is the tax a small business owner pays on the income they receive. This applies to a variety of income such as, for example, business profits which become self-employed earnings.
Income tax is paid with a yearly tax return and completed through a process called Self Assessment. Self Assessment must be completed by the 31st October following the tax year it applies to if the tax return is being submitted in paper format, or 31st January if being submitted online. Also by the 31st July each year a Payment on Account is due.
Where a small business is operating as a sole trader, no income tax will be due until the small business owner’s profits exceeds a certain threshold.
Corporation Tax is the tax due according to the profits a small business makes. Profits are what is left after salaries and expenses have been paid – any dividends will not be included in this. Corporation tax is paid at the flat charge of 19%.
However, Corporation Tax only applies if your business is registered as a limited company, is a foreign company which has a branch or office in the UK, a club, a cooperative association or any other association which is unincorporated. Therefore, it is not applicable to sole traders or partners.
Corporation Tax is self-assessed. This mean that it is up to a small business owner to ensure that their Corporation Tax is calculated correctly. It is paid on a yearly basis as part of the company tax return.
Corporation Tax must be filed 12 months from the end of the small business’s accounting period and then paid by nine months and one day after this. However, it is up to the small business owner should they want to pay it before this date.
Value Added Tax (VAT)
Not all small businesses are required to charge their customers VAT and hence register for VAT. Small business are only required to if their annual taxable turnover is above £85,000 for 2021-22. Some small businesses, however, choose to register and charge for VAT despite not reaching this threshold as it allows them to claim back the VAT that they have paid on other expenses. Where a small business charges VAT they will need to then pay this to HMRC.
The VAT charged to a company is in addition the standard rate of the product or the service being sold by the small business and should, therefore, be detailed separately on the customer’s invoice. VAT is paid at a rate of 20%.
Whilst VAT is not strictly speaking an end of year tax as it is normally required to be submitted and paid one month and seven days after the end of an accounting period which is usually every three months, some small businesses may use an Annual Accounting Scheme and therefore, their VAT payments will be one of their end of year taxes.
National Insurance (NI)
National Insurance is a form of tax and is paid in various forms depending upon the type of small business and whether or not it has any employees.
A limited company director is considered an employee for the purposes of paying NI and therefore, has to be earning in excess of the NI Primary Threshold to pay it.
For a sole trader who is considered self-employed for the purposes of NI, they must be making a profit that exceeds the small profits threshold. If your small business is registered as a sole trader you will have Class 2 and Class 4 NI contributions to pay yet a limited company director will have to pay Class 1 NI contributions.
Whilst a limited company’s NI contributions will be payable through the small business PAYE payroll, for sole traders NI is payable through Self Assessment and therefore, is an end of year tax.
Pay As You Earn Scheme (PAYE)
Where a small business employs staff, the business is responsible for paying the income tax which applies to each individual’s earnings through the PAYE scheme. As a small business owner you must notify HMRC once you employ anyone and the payroll system you use can be set up by yourself or outsourced to an experienced payroll services provider.
Capital Gains Tax
Capital Gains Tax may be due for small business owners where they have either sold or given away shares, the whole company or assets of the company. It is due at a basic rate of 10% or a higher and additional rate of 20%. The rate a small business owner pays will depend upon the rate that they pay their income tax.
Business rates are the equivalent of council tax but for the property a business is run from where it is not a domestic property. They are normally due for the start of the financial year on the 1st April, although billed to the business owner around February or March that same year.
Business rates are not normally due on your home where you use it for your business unless you have converted part of it specifically for that use or unless you have customers visiting your home for business purposes.
At Cue Talent Advisory, we handle all affairs business, management & lifestyle for individuals, businesses, and overseas clients. To find out more about how we can help you as a small business owner to ensure that you understand and pay the correct end-of-year taxes, set up a chat, get in touch via our contact form, email us directly or call us on 0203 815 8005.