|
Starting in Business
A brief outline of the information and advice we are commonly asked for by clients. This is not intended to cover all your possible queries; it only deals with those who are going to be self-employed and not anyone forming a limited company. If you don't fall into this category or if you need any further information please contact us directly.
Taxation
It is a commonly held myth that there is no tax payable during the first year of self-employment. While it is true that you are unlikely to pay tax during the first year, you are due to pay tax on your profits from the day you start. The Inland Revenue cannot tell how much profit you will make, and therefore how much tax you are due to pay, until after the end of the year. So, although you are due tax from the beginning, you will not be asked to pay until the second year. The disadvantage of this is that by the time you are asked for the tax on the first year you will be due to pay part of the tax on the second year as well.
The tax in the first year is calculated on the profits earned from the start of the business to the following 5th April. Thereafter, tax for each year is based on the profits earned in the accounting year ending within the tax year. Thus, if you make up your accounts each year to 30 September, the accounts to 30 September 20010 will be used to establish the tax for the tax year 2010/11. The tax for each year is paid in two instalments in January and July; in the above example January 2011 and July 2011. In most cases these payments will be estimated and a correcting payment made the following January.
You will be taxed on your profits, calculated by taking all allowable business expenses from business income, regardless of the amount you draw out of the business personally. This calculation is complex - one reason to employ a qualified accountant.
The Inland Revenue, Contributions Agency, and, where required, Customs and Excise should be informed about the commencement of your business. We keep a supply of appropriate forms and will help you to complete one. We will also ask you to sign a tax mandate which is our authority to deal with your tax affairs. The Inland Revenue should then address all queries to us and send us copies of all correspondence.
Tax Planning
For all our clients we do everything we can to minimise or delay tax payable. (You don't need to ask us, we can't stop ourselves!) If you are looking for an accountant who will tell you "you must spend lots of money quickly before the year end" - especially on a fast car - look elsewhere! Another myth unfortunately. If you are planning expenditure it is more beneficial to make it before your year end rather than just after. You will be bringing the tax advantage forward a year. However you should never spend money just for the sake of saving tax. Tax planning is complex, needs a lot of thought and expertise - leave it to us!
National Insurance
The self-employed pay Class 2 and Class 4 NIC. Class 4 is based on profits and is payable to the Inland Revenue along with your tax (it is really part of your tax bill). Class 2 is a flat rate weekly contribution which gives you a restricted range of benefits - mainly basic state pension and basic statutory sick pay, not unemployment benefit. We can provide you with a booklet giving full details. If your profits are below a specified level you may be able to obtain exception from payment of Class 2. Again we can advise you and provide all the necessary forms.
Wages
If you employ anyone at all you may need to keep wages records and make returns to the Collector of Taxes. With SSP, SMP, minimum wage, student loan repayments, tax credits, and stakeholder pensions this is a complex area. You should always check with us before committing yourself to taking someone on in case you are getting more than you bargained for. We can maintain your wages records for you or show you how to complete them yourself.
|
|
