Understanding your Tax and VAT

For new business owners, understanding your tax and VAT responsibilities should be a priority. 
HMRC has increased its fight against unpaid business taxes, and smaller firms have become a growing target.

To support you with this I hope the following will help-

What is a tax return?

For small business owners, sole traders and the self-employed, income tax on your profits must be paid annually to HMRC.

For those running smaller firms this generally means a self-assessment tax return. It is a yearly submission of business profits and loss, containing your revenue, national insurance (NI) and capital gains.

Although staff wages and workplace pension schemes must also be taxed, these are usually made automatically each month.

After registering for self-assessment, HMRC will issue a Unique Taxpayer Reference (UTR). You can find out how much you owe in taxes via www.gov.uk

A business owner must prepare accounts for the same “year-end date” every year. It is advised to match this with HMRC’s tax year-end of 5th April . The tax office has upped its action against business owners failing to report tax information. 

HMRC guidance also states business owners should keep a record of all sales, takings, purchases and expenses for a minimum of six years.

Remember - you don't have to follow the herd and leave it until 31st January each year!!


What is a VAT return?

The value added tax (VAT) return is a calculation of how much VAT is due from revenue minus how much VAT you can reclaim on business expenses. It is submitted quarterly to HMRC.

A completed VAT return will either show how much is owed to HMRC, or whether you are due a VAT refund. If the amount reclaimable is greater than VAT due on sales, HMRC will repay you the difference.

To register for VAT returns, your company must have annual turnover of £85,000 and above.

For business owners below the threshold, a Flat Rate VAT scheme was introduced to offer smaller companies a fixed VAT rebate. Businesses can also choose to register voluntarily.

VAT is paid for by the customers paying for your product or service. For the VAT return, you must calculate every business expense in that quarter which you are able to deduct.

For the majority of goods, the current VAT rate is 20 per cent. A reduced rate of five per cent is added to home energy and goods such as children’s car seats, for example. VAT is not added to property stamps, most food, children’s clothing or property and financial transactions.

There are also some odd VAT rates for things like biscuits and cakes and even Gingerbread men.

If you need support with this, HMRC has some very informative Webinars or ask your bookkeeper. 

Failing to keep every receipt for business transactions is one of the most common VAT mistakes.


If I can help further with any of the above, please get in touch

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