New entrepreneur? Here are four important tax points

HMRC VAT 4 key tax points

Whether you’re a new business owner or entrepreneur, these four important tax points will help you be rigorous.

Here, we take a look at four key tax considerations. These will help you manage your tax obligations, and potentially save money along the way:

 

Register with the tax authorities

For those operating as a sole trader, there is an obligation to register with tax authorities as newly self-employed by 5 October following your first year. You can register on the HMRC website or by calling their helpline on 0300 200 3500. If you fail 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.

 

Recruit new employees

As your business grows, you might decide that the time is right to recruit some fresh talent – new employees. 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, eg 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, workplace parking or a tax-free bicycle acquired through a Ride to Work scheme – don’t need to be reported.

 

Register for VAT

If your business’s turnover from the previous 12 months exceeds £85,000, you’re required to register and 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, you must keep electronic records and file returns digitally.

This doesn’t mean submitting pages of information, an Excel spreadsheet and submission through HMRC’s online portal will suffice.

 

Paying tax on profits

You need to be paying tax on your profits and you can find this figure by deducting your business expenses from your profits. Don’t forget, 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 you make losses in the first four years of trading, you can carry these 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.

We hope this article explains some of the basics of entrepreneurial tax. If you have any questions about any of the points raised in this article, please get in touch.


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