The Benefits of Working with an Accountant Specialising in Solicitors
There’s a common, misguided believe among people who are otherwise unaware that solicitors and lawyers should have a hand in all forms of money management, both when it comes to the finances of their clients and their own personal wealth and tax allowances.
This is simply not the case. Though it’s indeed true that many solicitors and lawyers could see to their own accounts should they so wish, it’s generally agreed that this is not a good use of your precious (and let’s be honest, expensive) time.
There are a wide-ranging number of benefits to working with an accountant specialising in the accounts of solicitors and lawyers. Just a small number of these benefits are as follows:
We can help you choose an appropriate business structure
If you’ve not yet done so, our professional accountants here at Tax Agility can help you choose an appropriate business structure if you’re currently an independent solicitors or law firm.
From working with many solicitors and law firms over the years we have identified which business structures are more appropriate for which types of solicitors and law firms (depending on your size, ambitions, and more). This can include alternative business structures, if operating your business in an alternative manner will allow you to stand out from your competition.
We will become your full-service accountancy firm
You have a lot on your plate. We mean, you really have a lot on your plate (more than our resident accountants during a typical Christmas dinner). For this reason, we’ve found that our solicitor and lawyer clients appreciate our full-service approach to working for you.
Here at Tax Agility, we provide a full suite of accounting, bookkeeping, and tax services to solicitors and lawyers in order to help take the guesswork out of your accounts. We know you work in a stress-filled environment; our job is to remove the stress of your accounts out of the equation.
We’re here to help you grow, while avoiding growing pains
Here at Tax Agility, we recognise that the legal sector is changing very quickly, which can be tricky at a time when law firms are trying to become more innovative with their pricing.
Growing your solicitors or legal practice comes with a lot of baggage. We’re here to help. We’ve worked alongside (and continue to work alongside) numerous solicitors as they attempt to grow their business over time, and from that we’ve learned how complex such an operation can be. Here at Tax Agility we talk all of our solicitor and law firm clients through the most effective growth strategies for them, keeping in mind tax reduction and ease-of-growth, in order to help grow their business the right way.
Experienced Accountants for Solicitors
To speak with a professional accountant to discuss our unique accountancy packages for solicitors and lawyers, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
How Would Brexit Affect Your SME
If you’re a small or medium-sized business (SME) owner who currently exports to Europe, whether business-to-business or business-to-consumer, the upcoming European Union (EU) referendum on 23 June may hold a significant weight on your business’s future earnings.
Because the EU operates as a single market with no tariffs imposed on imports and exports between member nations, small businesses exporting from the UK to other EU member states have had it pretty good up until this point; but that could all change should the ‘leave’ camp gain more than 50 percent of the vote at the end of June.
If you currently export to Europe, here are five things to think about regardless of the potential Brexit:
1. There’s a ‘Wealth’ of Potential
It’s no exaggeration to say that some of the wealthiest counties in the world reside within Europe (and, for the most part, are EU member states). High wealth means high consumer spending, and if you’re not tapping into this spending you could be leaving money on what is currently a very reachable table.
2. Does Exporting to Europe Significantly Add to Your Bottom Line?
With that said, you have to ask yourself if exporting to Europe will significantly add to your bottom line, especially if you have high marketing and advertising costs (see below). You can argue that making a smaller profit in Europe is worth it for a short period to gain brand recognition, but if this doesn’t soon pick up you may want to rethink your decision to sell abroad.
3. You’re Geographically Close
Regardless of whether or not Britain is still in the EU after 23 June, we’re still very close to the continent geographically, which means Europe will continue to be a cheap (compared to the rest of the world) location to export to.
4. You Have to Keep Foreign Taxes in Mind
Exporting to Europe means you not only have to pay taxes in the UK but, depending on what you’re selling and how much, there’s a good chance you also have to pay tax in the countries you’re exporting to. These will change should the ‘leave’ camp succeed, but this is a complicated topic nonetheless.
5. Exporting to Europe Helps to Solidify Britain's Place in the World
Not that this should rest on your shoulders alone, but choosing to export to Europe helps to solidify Britain's place (and importance) in the greater world. It also, depending on what you’re exporting, allows the rest of the world to benefit from the exceptional talent and creativity within Britain’s shores.
Experienced EU Tax Accountants
To speak with a professional accountant to discuss the positives and negatives of exporting to Europe, both now and in the future, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
Brexit: Opinions on the Impact on SMEs
There’s no doubt that you’ve read hundreds of articles and opinion pieces on Brexit and the European Union (EU) referendum over the last few months. For this reason, we’re going to keep this brief.
This is our roundup of varying (and often wildly different) opinions on the potential impact of Brexit on small and medium-sized businesses (SMEs) across the country. If, like 42 percent of small business owners surveyed earlier in the year, you are still on the fence over whether to vote for a British exit from the EU or not, this neutral roundup may help to sway you one way or another.
Remain: Free Movement of Individuals
Though this is a topic of debate that has primarily come up regarding us Brits’ ability to move around Europe (or rather, let’s be honest, the Mediterranean coast) on our holidays with the same ease we enjoy now, research published by the Federation of Small Businesses (FSB) suggested that 70 percent of SME owners said the continued free movement of individuals, and thus, labour, across Europe would influence how they vote come 23 June.
The key here is talent, and it’s a contentious issue among voters. From a small business’s point of view it makes sense to wish to hire the most qualified person for the job, as long as they’re able to legally work in the UK. Voters, on the other hand, argue that British citizens should have precedent in the job market over non-British members of the EU.
Leave: Flexibility and Adaptability
Back in March, and in response to a letter published the week before by the heads of 36 FTSE 100 companies urging Britons to remain in the EU, 200 small business owners signed an open letter urging the British people to ignore “…a minority of managers from Britain's largest companies,” and instead support Britain’s small businesses with a ‘leave’ vote on 23 June.
The emphasis of the letter gave a strong focus to the ideas of flexibility and adaptability; something the signatories of the letter said EU membership hinders, namely commenting that “…we deal with the EU's constant diet of unnecessary regulations which add to our cost base, reduce our bottom line, and raise prices for our customers for no return.”
Remain: Better Trading Channels with Europe
This point has been argued so much it barely bares repeating. But we will because, well, it’s one of the biggest inflection points for SME owners who export to the rest of Europe.
Unsurprisingly, the ‘remain’ campaign has gained almost unanimous support from large companies who do business with Europe on a daily basis. Equally unsurprising is the fact that small businesses who also happen to do business with Europe have also been piping up in favour of a ‘remain’ vote, as despite assurances on both side, it’s hard to predict what trade relations with the rest of Europe will look like post-Brexit.
Leave: Cost of Membership is Too High
The often-cited figure that you see splashed across our television screens (not to mention busses) is that the UK sends £350 million per week to the EU. Though this figure has come up against scrutiny (it’s said that a rebate is deducted before payment, making the actual figure around £280 million per week), it’s difficult for anyone on either side of the equation to argue that that’s not a significant sum.
Though the cost of membership isn’t as big a deterrent to staying in the EU for small business owners than it is to the general public, it’s still a point of contention, with 69 percent of SME owners saying that the high cost of EU membership will affect their vote, according to the FSB.
Experienced Tax Accountants
To speak with a professional accountant to discuss the potential impacts, positive or negative, the results of the EU referendum may have on your small business, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
Preparing SME Accounts for Your Accountant
If you’re a small or medium-sized business (SME) owner looking to prepare your accounts for an accountant, there are a number of things you can do to ensure our experienced accountants here at Tax Agility can work through them faster and you don’t lose out on anything you may be owed.
Before we move on to the main points below, we can’t overstate enough the importance of you keeping good, user-friendly records. If you’re unsure of exactly what this means for your SME, ask your accountant how they would like your records to look when you hand them over to them.
Needless to say, the better you prepare your SME accounts for your accountant, the less time they will need to go through them, and the lower your bill. This starts with keeping good records.
Communication
Good communication is essential when preparing your accounts, as without it both you and your accountant can find yourselves going around in circles.
Though good communication is important throughout your relationship with your accountant, it’s especially necessary should there be any changes in your business which, you believe, may affect our work. Typical changes of this nature include changes in your product or market (what you’re selling, and who you’re selling to), your bookkeeping system/software, your key employees, and your overarching business approach.
Part of the communication process requires us to jointly agree on a timetable for our accounting processes to tale place. This timetable can be flexible, but it’s good to have it arranged in advance.
Keeping Your Books Organised
There’s nothing that will help your accountant work through your accounts faster than ensuring that your books are kept organised and maintained. And this isn’t just a useful practise for your accountant: keeping your books organised makes it easier for you to see the current state of your business, and understand why that is.
There are many ways to keep your books organised depending on your type of business, but in general we always recommend that the SME’s we work with do the following:
- Balance your books on the regular - this allows you to notice any mistakes (and correct them) sooner rather than later,
- File your invoices in a standard order, such as numerical or by date - doing so will make finding a particular invoice much easier,
- Consistently analyse the payments you receive, and the receipts for these payments, so this information is readily on hand.
Maintaining Good Procedures
Ahead of preparing your SME accounts for your accountant it’s good practise to maintain good procedures so you know what’s going on within your business at all times.
One procedure you’ll wish to perform on a regular basis is reconciling your records to ensure they’re accurate, with your bank accounts, control accounts, and statements from your suppliers all requiring a look-over. If your SME holds physical stock it will need to be counted every twelve months. This can be done by yourself or independently, however if you hold a particularly large amount of stock you may wish for us to undertake our own count.
Part of maintaining good procedures ensures that you produce the relevant schedules to assist in the preparation of your accounts. These schedules include a list containing your debtors at year end (how much they owe, the likelihood of it being paid), additions and disposals of your fixed assets, bank and cash balances at year end, and creditors at year end.
We understand that keeping on top your accounts and practising recquires a decent knowledge of the tax implications involved in certain transactions. For that reason, we have a range of online calculators to help you along the way.
Experienced SME Accountants
To speak with a professional accountant to discuss how to prepare your SME’s accounts, with advice unique to your business, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting. In the meantime, feel free to take a look at our services page to get a more indepth look at what we have to offer.
Experienced Accountants & Other Advisers Benefit SME Owners
If you’re a small or medium-sized business (SME) owner you may find that you can benefit by working alongside experienced advisers who have been there, done that (whether for themselves in the past, or for other clients) and can help you navigate the choppy waters of business.
You don’t have to do everything on your own. Even if you’re in a partnership (or you’re planning on hiring an employee very soon), running an SME can be a lonely experience, especially in the early days. For this reason, when you work with experienced advisers, whether accountants, business advisers, or human resources professionals, you’ll gain not just from their insight and experience, but also from their presence. That's why it is important to embrace such relationships with experts and once you've done the appropriate research to seek out experienced advisers, don't shy away from reaching out to them.
Get Measurable Motivation
When you work alongside an experienced adviser, whether in one particular field (such as accountancy) or in a more general role, they will give you measurable motivation going forward, even if they don’t realise they’re doing it.
For some reason we’re incredibly good at breaking our word to ourselves, but most of us find it incredibly hard to break our word to somebody else. When you’re frequently checking in with an adviser you’ll find that they make a point of asking whether you followed through with something you discussed last time you spoke - thus acting as an accountability partner and motivating you to do what you said you’d do.
Gain New, Professional Connections
Whether you’re paying them for their services or not, it’s never an advisor’s job to introduce you to their network of professional connections. With that said, an experienced advisor (including accountants) will be happy to introduce you to somebody if and when they believe such an introduction will be beneficial both to you, and to the professional in question.
This is how you build your network. It could be that your adviser knows how to personally help you with ninety percent of your queries; but when it comes to that final ten percent, advisers worth their salt will known who to introduce you to.
Delegate Elaborate, Time-Consuming Work
Most advisers, especially when it comes to the financial side of business, will offer you advice but will stop short of doing work on your behalf. Though receiving financial advice is incredibly useful, especially when you’re just starting out in business, if you require assistance in dealing with the financial side of your business you should look into hiring an experienced, professional accountant.
Professional accountants allow you to delegate the elaborate, time-consuming accountancy tasks that, up until this point, have likely been taking up far more of your time than you originally thought they would. A professional accountant will also work on your behalf to ensure you receive all the tax reliefs available to you. That said, we have an extensive bank of information on our blog that should give you more than enough information to digest before needing to take on experts fulll time.
Experienced Accountants
To speak with an accountant to discuss the benefits of handing the financial side of your business over to our experienced professionals, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting. In the meantime, feel free to check out our services page to see what we offer in more detail.
What the Dividend Allowance Changes Mean for SMEs
Announced during last year’s emergency (summer) Budget, the proposed dividend tax changes, known as the new tax-free Dividend Allowance, are due to come into force on 6 April 2016, replacing the old Dividend Tax Credit.
Under the tax-free Dividend Allowance changes, all UK residents won’t be taxed on the first £5,000 of dividend income they receive each year, with dividend income above the new £5,000 threshold taxed at:
- 7.5% on dividend income that falls within the basic rate band
- 32.5% on dividend income in the higher rate band
- 38.1% on dividend income in the additional rate band
It’s important to keep in mind that these changes will not affect dividends received via tax-exempt pension funds, as well as dividends you have received on shares in an Individual Savings Account (ISA), as is the case now.
Impact on Small Business Owners
Designed to tax small businesses who purposely pay their owners and executives a small salary (in order to secure their access to the State Pension), with the bulk of their income coming in a larger dividend payment, the government has marketed these changes as a boon for the majority of the population: a £5,000 Dividend Allowance, on top of the current £11,000 personal allowance, sounds rather attractive after all.
However, the impact of the proposed dividend tax changes on small and medium-sized business (SME) owners has the potential to create a negative affect on small business bottom line’s across the country.
In an online petition created under the title “Reconsider the new Dividend Tax for small businesses,” petition creator Frauke Golding noted that:
“The Government have stated that business is going to be at the heart of their programme for the next 5 years. Small businesses make up 99.3% of all private sector businesses and we provide just under 50% of all private sector jobs. There is a real danger that this new tax, along with auto enrolment and minimum wages increases, will have a significant effect on those people brave enough to start up a business that could make a meaningful contribution to the economy and jobs market.”
In response to Mr. Golding’s petition, which at time of writing has received 46,627 of the 100,000 signatures it needs to be considered for debate in Parliament, HM Treasury commented in defence of the dividend tax change, noting that “The Government is fully committed to supporting business and entrepreneurship,” before launching into three paragraphs that touched upon the government’s desire to reduce Corporation Tax from 20 to 18 percent by 2020, as well as a rundown of the benefits small business owners are also soon to receive:
“Owners of small companies will also benefit from a range of other measures announced at the Summer Budget, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016. They will also pay less tax as a result of the increases to the tax-free Personal Allowance to £11,000 and to the Higher Rate Threshold to £43,000 in April 2016.”
Our Advice
In light of the tax-free Dividend Allowance coming into force on April 6, our advice for small business owners is to take some time to look through the numerous examples the government provide in their Dividend Allowance factsheet to get an understanding of whether you will be better or worse off as a result of the change. For more information on governement changes and the effects they have on you or your business, have a read of our pieces on the following:
Budget 2016: Key Takeaways for Contractors
Budget 2016: Key Takeaways for Companies
Budget 2016: Key Takeaways for Individuals
If that's not enough, we have a wealth of information on our blog too.
For personalised advice to this effect, we encourage you to contact your tax adviser.
Experienced Tax Accountants
To speak with a professional accountant to discuss the tax implications of the new tax-free Dividend Allowance, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
Business Rates - Celebrations for small business owners?
Does George Osborne's budget announcement come with reason to celebrate for small business owners? Well, don't make a gin and tonic.
For around 600,000 small business, there maybe a temptation to raise a glass to Mr. Osbourne, no matter how unpalatable that may seem for some, when their zero rated business rates kick-in next year, but just make sure it’s not a Gin & Tonic.
This news, the highlight for many small business owners, has been somewhat overshadowed by the news that there will be a new sugar tax applied to soft drinks. Whether this will go any way to reducing childhood obesity in this country is now a hotly trending topic on social media, as is the side effect of increasing the cost to adults of soft drink mixers, such as tonic water - there’s always the slimline option though.
So, even if the Chancellor wants to sugar coat bad news in the future, he may have to pay for it.
Business Rates - Small business owners benefit
It’s truly excellent news for a lot of small business owners as they could see savings of nearly £6,000 a year.
However, this is still overshadowed by the introduction from April onwards of the new dividend tax scheme. This sees the scrapping of the notional 10% tax credit on dividends and the introduction of a £5000 tax free allowance on dividends. Above this level dividends will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
More welcome news is that corporation tax will drop to 17% by 2020.
Capital Gains Tax - Investors also given a helping hand
The higher rate of tax on capital gains will reduce from 28% to 20%, while the lower rate will see a reduction from 18% to 10%. This is particularly good news for investors looking to sell shares. This doesn't apply to residential property, but does happy to the sale of equity in businesses.
Also, capital gains on newly-issued shares in unlisted companies, kept for at least three years, will be capped at 10% with an allowance up to £10 million.
Highlights
- Corporation tax to be cut to 17% from 2020
- Capital gains tax slashed by 8% for both top rate and basic rate taxpayers
- Small business rate relief to increase from £6000 to £15000. They will also be linked to CPI and will track inflation.
- Personal allowance increase to £11,500 and the higher rate, 40% threshold, will increase to £45,000.
- CGT earned from small business investment will be capped at 10%.
- ISA extension to £20k
Issues To Watch
Trading income received in non-monetary form.
Exchanges that don't involve cash, receivables or payables is the target of new legislation being introduced. Trading receipts at their full value will be taken into account for tax purposes.
Partnership taxation
Consultation is set to begin on how partnerships calculate their tax liabilities. This may have an impact of the company structure you choose when starting out.
The administration of tax on employee benefits and expenses
The government plans to introduce a package of measures that will hopefully make the process of administering employee benefits and expenses a simpler task.
Salary sacrifice
Considering is being given to the practice of salary sacrifice, where employees can give up salary in return for ‘benefits-in-kind’. The government is looking to limit the range of benefits that attract income tax and NICs advantages under such schemes.
Find out more
If you're interested in finding out more on George Osborne's Budget, take a look at the following:
Budget 2016: Key Takeaways for Contractors
Budget 2016: Key Takeaways for Companies
Budget 2016: Impact on Individuals
Alternatively, if you'd like some friendly advise on the current reforms and are looking for help taking your business forward, feel free to get in touch via our contact form.
Budget 2016: Key Takeaways for Companies
Following on from this morning's summaries on the key talking points from Budget 2016 for individuals and contractors, below we’ve summarised the key talking points for companies from Chancellor of the Exchequer George Osborne’s eighth full Budget.
Focusing on small and medium-sized businesses (SMEs), this is the final part in our article series on Budget 2016. To speak with us directly about this year’s Budget, or for anything else, our contact details are at the end of this article.
New Stamp Duty Rates for Commercial Properties
Coming into effect at midnight on 17 March/last night, the new stamp duty rates for commercial properties represent a complete overhaul in the way in which stamp duty on freehold commercial property and leasehold premium transactions is calculated.
A boon for small and medium-sized business (SME) owners, under the new rules instead of stamp duty rates applying to the whole value of a commercial property, Mr. Osborne described how the new rates and tax bands will result in a 0% stamp duty rate for commercial property up to the value of £150,000, with a 2% rate applying for the portion of a commercial property’s value between £150,001 and £250,000, and a 5% rate applying for the portion above £250,000.
Business Rates Abolished for Properties With Value up to £12,000
We touched upon this in our key talking points for contractors summary, though it’s more relevant for companies than it is contractors. One of the biggest talking points from Budget 2016 was that of business rates being abolished for all business (commercial) properties with a rateable value up to £12,000, from April 2017. There will also be a ‘tapered’ relief rate on properties between £12,001 and £15,000.
With the current relief rate set at just £6,000, this poses a hugely beneficial increase for small businesses and contractors working from a commercial space. The government estimate that under the new rules 600,000 small businesses will pay no rates at all.
Employers to Pay National Insurance Contributions on Pay-Offs
If you have taken on employees at your SME, from April 2018 you will need to pay National Insurance Contributions (NICs) on any pay-offs (typically employee termination payments) you make above £30,000.
As is currently the case, should you have to make an employee’s position redundant that employee can receive a pay-off from you of up to £30,000 without you or they having to pay NICs on that amount.
Corporation Tax to Reduce to 17% by 2020
Though it’s a little while off yet, at yesterday's Budget the Chancellor announced that Corporation Tax is due to drop from 20% to 17% by 2020.
Should this reduction come to fruition it will mark a particularly low Corporation Tax rate, given that it was 28% when the Conservatives came to power in 2010. At it’s current rate of 20%, the UK has the lowest Corporation Tax rate in the G20.
Understanding Budget 2016
To speak with a professional accountant to discuss the impact of Budget 2016 on your company, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
If you're an individual or contractor, you needn't go to the trouble. Check out our pieces that are best suited to you:
Budget 2016: Key Takeways for Contractors
Budget 2016: Key Takeaways for Individiuals
Ban on Anti-Invoice Finance Terms in Work Contracts
From next year (2016) small and micro-businesses across the country will have a new option for growing their business and improving their cash flow thanks to a decision by The Department for Business, Innovations, and Skills (BIS) to allow small business owners the right to secure finance against money owed to them through invoices for all working contracts.
This decision was made possible due to a ban on anti-invoice finance terms, with the ban being seen as a direct method of speeding up economic growth and, as a result, helping to create jobs.
Invoice finance is particularly beneficial for small and micro-businesses because it give them the option to receive the income that’s owed to them sooner, thus avoiding falling into negative cash flow. Speaking on the ban, Small Business Minister Anna Soubry said “While invoice finance may not be right for everyone and is absolutely no excuse for late payment, I want small businesses to have the option of using it to increase their cashflow. This is all part of our plan to maintain the UK’s position as the best place in Europe to start and grow a business.”
What is Invoice Finance?
Invoice finance is a option that allows small and micro-business owners to receive finance for invoices that contain money (often late payments) owed to the business. The Asset Based Finance Association (ABFA) estimate that over 44,000 businesses in the UK receive over £19 billion of invoice finance in this manner at any given time.
Invoice finance allows small and micro-businesses to receive the majority of the money owed to them much faster (often within a standard thirty-day invoicing cycle) than if they simply waited for their customers to pay their invoice.
Regular, positive cash flow is the lifeblood of small business, which is why invoice finance has become increasingly popular among small and micro-businesses in recent years, with the ban on anti-invoice finance terms likely to increase this. Despite this excellent new change, it would still be advised to keep up to date with the best practices on How to Minimise Late Payments.
The Changes
In the past clauses within working contracts looking to prevent sub-contracting would often (and sometimes inadvertently) make it impossible for invoice finance to take place on said contract.
The ban on anti-invoice finance terms in contracts, which was made possible by terms set out in this year’s Small Business, Enterprise and Employment Act, received cross-party support in Parliament, with almost-identical bans in Australia, Canada, and the United States said to confirm its necessity.
Speaking of the importance of small businesses, Small Business Minister Anna Soubry said: “Small businesses are the economic backbone of Britain and we will do everything possible to make sure they continue to grow and create jobs. By scrapping restrictions on invoice finance, thousands of firms across the country could benefit from faster access to hard-fought funds.”
The Federation of Small Businesses was also complimentary of the ban, with National Chairman John Allan stating that “The decision to outlaw the ban on terms in contracts to prevent businesses from choosing who they want to go to for invoice financing is overwhelmingly positive for businesses around the country.”
For more tax information in relation to business, click here.
Experienced Accountants
If you’re looking to start applying for invoice finance, or you just want to know how to go about applying when the time comes, your accountant can work with you to simplify this process.
To speak with a professional accountant to discuss the new anti-invoice finance terms, or for anything else, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
SME Taxes You Should Know About
If you’re a small or medium-sized business (SME) owner there are a few taxes that you should know about in order to stay on top of what you owe.
Though not all of the below taxes will apply to your current tax situation, it’s helpful to be aware of all that may show up during the lifespan of your business to make sure you’re not taken by surprise. If you’re not yet working with an accountant you should consider hiring one immediately, as they can keep you up to date with your tax liabilities to ensure you’re always paying what you owe, when you owe it.
Income Tax
If you run your business as a sole trader the most important (and expensive) tax you should be aware of is income tax, which you’ll have to pay on your small business’s profits in the same way that an employed person pays income tax on their monthly earnings.
You pay income tax on your business’s profits over the personal allowance, which is currently set at £10,600 per year (2015-16) for those under seventy-five. If you run your business as a limited company you’ll be required to pay income tax on any salary or dividends you receive from your company over £10,600; including income from any other job or dividends from a second company.
National Insurance Contributions
National Insurance Contributions (NICs) are paid by SME owners and employed people alike, though the method of payment is different for those running their own business.
If you run your business as a sole trader you’re required to pay two different kinds of National Insurance; Class 2 and Class 4. The former is a flat weekly rate of £2.80, unless your business’s profits are under the newly-introduced Small Profits Threshold of £5,965 per year, in which case you’ll be exempt from Class 2 National Insurance. If your small business’s profits are £8,060 or more per year you’ll also be required to pay Class 4 National Insurance, which is set at 9 percent of your business’s profits up to £42,385, and just 2 percent thereafter (2015-16). From April 2016 Class 2 and Class 4 National Insurance Contributions are to be combined.
If you run your business as a limited company and you receive a salary of £8,060 or more per year then your business will have to pay Class 1 National Insurance on your salary.
Corporation Tax
If you run your business as a limited company you’ll have to pay Corporation Tax on all profits immediately, so long as you business hasn’t previously made a loss under which Corporation Tax can temporarily be offset against.
Corporation Tax is currently set at 20 percent (2015-16). It must be paid nine months and a day after the end of your business’s accounting period; this being something your accountant will make you aware of to maximise your cash flow.
Value Added Tax (VAT)
Value Added Tax (VAT) is payable by businesses operating as sole traders, partnerships, or limited companies if you make sales that should have VAT charged on them (known as the VAT taxable turnover) of more than £82,000 per year.
If you believe you’ll have a VAT taxable turnover of more than £82,000 in the next twelve months you or your accountant should register your business for VAT as soon as possible, to ensure any necessary payments can go through on time. VAT is charged at three rates; 20 percent (standard), 5 percent (reduced), and 0 percent (zero rate).
More Information from Experienced SME Accountants
To speak with a professional accountant to discuss the taxes you’re likely to come up against as an SME owner (including business rates, not discussed here) contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
Alternatively, take a look at our other tax related pieces to further increase your knowledge:
Homeworking Tax Relief for Your Employees
3 Ways to Make Tax Efficient Charitable Donations
For a wealth of information on most accountancy related issues, feel free to have a read of our blog too.