small business taxWhen starting a new business you may feel overwhelmed by the amount of different taxes that you need to be aware of, report on and pay.

The following is a brief introduction to the various types of small business tax that you will encounter and need to have a working knowledge of.

VAT – Value Added Tax

For most businesses it is compulsory to register for VAT if the turnover of the business is more than the VAT threshold (currently £77,000). However, there are some exemptions to this, for example health providers, insurance providers, rental of domestic property. We recommend that you check with HMRC or your accountant to check the specific HMRC VAT guidance for your sector.

Businesses can voluntarily register for VAT if they are under the threshold, as there may be some advantages to doing so in specific circumstances. For example; when a business starts up it may have a large amount of purchases which incur VAT, by registering for VAT the business can reclaim the VAT on the purchases.

VAT Checklist

  • Ensure you are charging and reclaiming VAT correctly, by understanding the differences between, standard, reduced rate, zero and exempt VAT. (A future VAT specific log will be published to explain the differences).
  • Ensure you file your VAT return and make payment (if required) on time. Your VAT registration will state the first period for VAT, the first period could be 1 to 4 months, and then the returns will be quarterly.
  • File your VAT return online.
  • Check if Flat Rate VAT is appropriate for your business here: Pros And Cons Of Flat Rate VAT

PAYE & NI – Pay As You Earn & National Insurance

If you employ staff you will need to run a PAYE (payroll) system. PAYE (income tax) is deducted as appropriate from the employee, as is employee NI and employer NI is charged to the employer. This is calculated monthly and should be paid across to HMRC by the 22nd of the following month, however, if the payroll is small may be paid quarterly.

If you have a lot of low paid or part time staff there may not be much PAYE and NI to pay, however, a nil return still needs to be filed. If there are statutory payments to be reclaimed example, SMP (statutory maternity pay), SSP (statutory sick pay) and/or SPP (statutory paternity pay), you may even be in a rebate position, and you can apply to HMRC for this to be paid to you.