Overview of Business Tax

This week’s blog is about Business Tax. 

This blog will give you an overview on some of the taxes businesses are expected to pay. 

The first and main area is Tax on Business Profits

As a sole trader or partnership business, business profits are reported via self assessment and the tax calculated is known as Income Tax. If you are interested in knowing more about income tax, check out last week’s blog! 

If you are running an incorporated business such as a limited company then the tax on profits is known as Corporation Tax. 

Other taxes on businesses include VAT, CIS tax, PAYE, alcohol duties, off-payroll working, pension scheme administration, stamp duty and importing & exporting taxes.

This blog will give you an overview of Corporation Tax, CIS and PAYE. If you would like to know more about any other taxes or if you would like to discuss your business to understand what taxes applies, then just get in touch to book a free consultation. 

If you are interested to know more about VAT, look out for next week’s blog!

Corporation Tax

Corporation tax is an annual charge and is charged for each financial year. The financial year runs from 1 April to 31 March. 

Corporation tax is charged with reference to accounting periods. An accounting period is usually 12 months but can be shorter or longer if for example, a company changes its accounting reference date. However, by default, the accounting reference date is usually around the date of the incorporation date. 

Corporation tax is charged on profits which is made up of income and chargeable gains. Income from companies may for example, consist of trading income so that is income generated from running a business, property income (from company owned property which is let on a residential or commercial basis) or income from loan relationships.

The Corporation Tax Main Rate is 19% and from 2023, it is expected to rise to 25%. However, there will be a Small Business Profits Rate of 19% for those businesses with profits up to £50,000.

Companies must file Corporation Tax Returns once a year and like self assessment tax returns, there will be an automatic £100 fine for non-filing. 

Construction Industry Scheme (CIS)

This tax applies to contractors and sub-contractors working within the construction industry. If you a contractor or sub-contractor and you are not sure if the work you are doing falls within the scope of CIS work, then get in touch with us. 

If you are carrying out CIS work, then you will be expected to be registered as being in business AND be registered under CIS. You (under self assessment) or your Company will have a UTR (Unique Taxpayer Reference) and when you carry out work for a registered contractor, that contractor will need the UTR to verify you as a registered CIS sub-contractor. Once you are verified, a 20% deduction of tax will be applied to your gross pay (your earnings). If you are not registered under CIS, they will not be able to verify you and the contractor will be obligated to deduct 30% tax from your earnings AND they will continue deducting 30% until you either register under CIS or you stop working for them. So its really important to ensure that if you are required to register, you must register without delay. If you are registered under self assessment, it is then necessary to file the annual tax return to calculate the right amount of tax & to request a repayment of overpaid tax. In terms of a company, any credit will be used to reduce any PAYE tax but a repayment can be requested if there is little or no PAYE balance for it to be used against. This can only be done once a year, after the tax year has passed. 

Pay As You Earn (PAYE) 

This tax relates to those employed by a business. Employees do not generally worry about reporting their income to ensure that they pay the right tax as it is the employer who processes payroll, deducts tax and national insurance and then pays these deductions direct to HMRC. As a business however, it may be liable for employers national insurance if it has employees. As an incentive for employers to recruit employees, an employment allowance was created and the value of this in the current tax year (2020-21) is £4000. This means that employers will not be liable for the first £4000 of employer national insurance in a tax year. Remember, a tax year runs from 6 April to 5 April. As a guide, if you are an employer and have an employee earning more than £170 a week, you will be required to pay 13.8% as employer national insurance contributions.

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