Transcript Start Up and Legal Tax Issues

Topic 1.4 Making the Start up effective
Unit 21
What’s in this section?
 In this section the different Start Up and Legal Taxes
for a new business are explained and discussed.
 It looks at naming the business, record keeping and
the different taxes that a business may be liable for.
Objectives
The students will: Understand the need to establish a unique trading and
business name,
 Understand the importance of a new business keeping
careful and accurate records
 Understand the implications of VAT, National
Insurance and Corporation tax
What’s in a name?
 The name of a new business should be different from
any other business. You can not just use the name of
an existing business especially one that carries a
trademark.
 A company name must be unique and will be checked
by Companies House.
 For a Sole Trader the name may not be the same as
another company in the same area.
What’s in a name?
 The name may also promote the business.
 “Bad Service Company”, “The Bad Service Company”
are names that should not be used (for obvious
reasons)
 “Feel Safe Company”, “Ambitious”, names like this give
customers then right impression.
 If a company is set up as a Sloe Trader there is no
requirements in the name.
 If the business is set up as a Limited Company it must
have “Limited” in the name.
Keeping Business Records & Taxes
 All businesses have to keep records as evidence of what
has happened in the past, for example details of
customers, products etc.
 It is good practice to keep a wide variety of records.
 Some records have to be kept by Law, these are mostly
Taxes that have to be paid to Her Majesty’s Revenue
and Customs.
 HMR&C expect businesses to keep tax records and also
calculate how much tax she should pay. They can
inspect Tax records.
Keeping Business Records & Taxes
 Businesses are also responsible for registering with
HMR&C, this means that they have to tell HMR&C
that they have to pay them.
 The Taxes are based on: The amount of sales over a year,
 Weather or not the business employs staff,
 If the business is set up as a Sole Trader or Limited
Company
Taxes on Small Business
There are a variety of Taxes that a small business may
have to pay.
VAT – Value Added Tax –
2. Income Tax
3. National Insurance
4. Corporation Tax
1.
Task
 Find out what each of these taxes is and what it means
to the business when they have to pay it.
VAT – Value Added Tax
 VAT is the tax on the value of sales of a business. A
small business only has to pay VAT if its sales are more
than £67,000 a year (Nov 2008)
 VAT is payable at 17.5%. So.....if sales are £100,000 then
£17,500 is payable in VAT.
 When a business buys things it is charged VAT by its
suppliers – it can claim this back if it is not registered
for VAT. The VAT system is time consuming and
paperwork heavy!
Income Tax
 A business is responsible for paying Income Tax in
two ways
1. If it employs any workers it must take away the
income tax due by those workers on their wages and
pass it to HMR&C, this is called PAYE (pay as you
earn)
2. If the business is a sole trader, the owner must pay
tax on their earnings, their earnings are the
difference between the sales revenue and the costs of
the business
National Insurance Contributions
(NIC’s)
 These are a type of tax linked to a n umber of government
benefits such as the State Pension, and Incapacity Benefit.
To get these and other benefits the employee has to have
paid a certain amount of National Insurance
Contributions.
 Businesses have to pay different types of NIC’s. If the
business employs people it has to pay two types:1. It has to deduct the NIC’s for its employees as with
income tax,
2. Employers NIC’s, calculated as a portion of the employees
wages, they also have to pay the owners NIC’s, again as
with Income tax.
Corporation Tax
 This tax is only paid by limited companies.
 Corporation Tax is a tax on the profits of a company.
In contrast Sole Traders pay income tax on their
profits.
And all that means.......?????
 The tax issues are one of the factors that influence
entrepreneurs about weather to set up as a sole trader
or as a limited company.
 Some businesses start off as Sole Traders then decide
when or if to change their type of ownership.
 Keeping accurate and detailed records of finances is a
major cost and task to businesses – they often end up
as unpaid Tax collectors for the government.
Review Questions
 Chapter 21: Start-up legal and tax issues
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What is meant by the term ‘VAT’?
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What is ‘income tax’?
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What is ‘corporation tax’?
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Explain how National Insurance contributions work.
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What is the role of HM Revenue and Customs?
6
State two reasons why it is important for businesses to
keep records for tax purposes.
7
State two reasons why it is wise for businesses to keep
records of their customers.
Review Questions
Romano Tilson trained as a shoemaker and repairer.
He had a dream of opening his own business. He was
considering calling his business ‘Cobblers’ as this
reflected what he did.
 Why might his friend have advised him to call his
business ‘Sole Mate’ rather than ‘Cobblers’?
 As a shoe repairer, what sort of legal responsibilities
might Romano have in running his business?
 Give two benefits of having a unique trading name to
Romano.
Homework
 Unit 21 Homework