Tax for small businesses can be a minefield. With so much to keep up with when you start out, it can be difficult to know if you are paying the right tax, particularly if you have grown quickly. This can be costly to your business as you will be charged if you miss tax deadlines.
The taxes which you need to pay will vary dependent on your income, your business structure and activities.
As a sole trader, you will need to pay income tax on profits over £12,500 (current rates). You will also need to pay National Insurance if your business makes anything over £6,363. The rate will go up as your profits increase.
Once you make more than the £12,500 threshold you will pay income tax on your share of any profit generated when working in a partnership. You will also be liable for National Insurance, again dependent on how much you make. You can read more about National Insurance rates here.
Private Limited Companies
You need to pay corporation tax on the profits of a private limited company at the rate of 19%. The rate was due to come down to 17% in 2020, but this year’s Budget put these plans on hold.
Your business must register for VAT when your annual VAT taxable turnover is more than £85,000. That is everything you sell that is not VAT exempt. Once registered you will be sent your VAT number and your effective date of registration. From this date, you must keep accurate records, charge the correct amount, pay VAT to HMRC and submit returns.
Tax for small businesses is subject to many rates and legislations which is why it is so important to hire an accountant. Without the correct help and advice, you can make costly mistakes and waste precious time that could be spent on growing your business.
Here at the Kelvin Partnership, we offer a wide variety of accounting services for businesses. Please get in touch with our team, or book a free consultation for more help.