The amount of tax you will have to pay when in business will depend to a large extent on whether you are operating as a sole trader, company or partnership. As a sole trader you will be taxed in line with income at the 20%, 40% and 50% income tax bands. As a company you will pay corporation tax, the starting rate of which is 21% and the main rate is 28%.
VAT (Value Added Tax)
You should decide whether it is in your best interests to register for VAT from commencement, at some future date, or not at all if your trade is outside the scope of VAT. The decision you make on this point will affect both profitability and cash flow of your business. If your turnerover is more than £70,000 per year on VAT taxable goods or services, you must register for tax.
Tax Traps to avoid:
Tax Penalties
When you have set a start date for your business ensure that you notify HMRC of your intention to commence trading. Sole Traders face a fine of £100 if you fail to register your business with HMRC within 3 months of starting up, companies face a penalty of £300.
VAT Penalties
Do not represent yourself as registered for VAT if you are not, this is fraud. If you are liable for VAT you must get registered and pay HMRC quickly otherwise you will incur interest and surcharges. For more information on VAT please visit HMRC at http://www.hmrc.gov.uk/vat/index.htm.
Missing Invoices
Always obtain a proper invoice for any business purchase and if you are registered for VAT you must obtain a VAT invoice. Invoices assist you with your application for tax relief, they are evidence of your costs and plant & machinery. If you do not keep appropriate invoice you may be denied tax relief that you are trying to claim.
Company Car
Whether you are self employed or a limited company planning for the use of a car in your business needs to be thought through carefully. Self-employed people will need to keep a log of business mileage to backup any claim for tax relief. Limited company owners will need to compare the cost of running a car either inside or outside the company – potentially high personal tax charges may be payable if this cost comparison exercise is not undertaken.
Copyright ©2011 Edward Hands & Lewis Limited | Terms of Use | Contact Us | Privacy Policy | Business Information
Solicitors in England and Wales regulated by the Solicitors Regulation Authority under number 533589
VAT no: GB 114 0804 18
0116 266 5394