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Business taxation

Geoff Leese Sept 1999 revised Sept 2001, Jan 2003, Jan 2006, Jan 2007, Jan 2008, Dec 2008 (special thanks to Geoff Leese)

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Taxation

        You and your employment Your personal income tax (?IR35), and national insurance Taxes for your company Corporation tax Capital gains tax Vehicles and tax Business rates VAT – to register or not to register Source of much good advice and next stages: ‘No-Nonsense Guide…’

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You and your employment

    Sole trader or partner Could be classed as employee or self employed If work comes via an agency or arranged as a service, could be ‘IR35’ status Must sort this out at the start of any business

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Who is self-employed?

Not necessarily for all work, may also be employed IR 35 status for those who use agencies, or for whom a limited company or partnership supplies their services Self employment usually means:     Person provides the money and equipment for the business Person takes on staff and work (often at fixed price) Person may have regular clients Person controls when and where they work, and deals with problems in own time, at own cost

Self employment issues

5      Must be registered within three months of start-up National Insurance less than for employees, fewer benefits. Your own responsibility Personal tax your responsibility, on the whole of the profits, not just your drawings Can deduct allowable expenses from revenue. Accountant very useful in this complex minefield Taxed in arrears on previous employment

Limited Company

6       You are taxed as an employee Pay As You Earn PAYE Employee’s national insurance Must register payroll with Inland Revenue, even if only you Company liable to tax on profit (sales – business expenses) You are tax on anything you receive from the company (return on investment, dividends, benefits, loans)

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Corporation tax

       Company responsible for this cash outflow Assess when looking at project’s desirability You calculate and pay on profits over £10000 p/a Accounting periods to suit you, up to a year. Returns sent in before 9 months Detailed records for all income and expenses, keep for 6 years PAYE must be correct if limited company Deduction from net profit, shown as current liability on balance sheet Offset by allowances on new assets of capital expenditure

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Capital gains tax

     For companies and individuals Income from the sale (or disposal) of the company or other assets These can be intangible, such as brand or goodwill Taxes the increase in value of the asset during the period of your ownership Usually best handled by accountant

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Value Added Tax VAT

        On goods and services, not profits Compulsory registration for supplying >£67000 per year (Dec 08) You collect the VAT for the Government Input tax – payment for goods/services Output tax – charge on what you sell Output>input – difference to HM R&C Input>output – HM R & C refund you http://www.hmrc.gov.uk/vat/index.htm

VAT rates, records

10        Standard rate 15% (Dec 08 – temporary!) Reduced rate 5% Zero rate Exempt All records need to be complete and accurate Returns 3 monthly, within the month, (or monthly), keep for ay least 6 years Methods allowed such as cash accounting, flat-rate

Vehicles and tax

11     You need to tax (pay vehicle excise duty) all company owned vehicles, as well as your own Tax is payable on the use of cars in the business   Self employed – actual expenses or AMAP – Authorised Mileage Allowance Payment Employee – taxed as benefit, or use own car VAT rules Capital allowance

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Rates

    Own or lease, register Payment to local council Covers council supplied services   Roads and lighting Business waste collection may not be included If working from home, possibly some partial rate in addition to your council tax

Keeping records

  All records kept for tax purposes must be available for at least 6 years The company must comply with the law   The Data Protection Act is covered in detail in lecture 19 Other legal issues may be noted on the website: 13 http://www.informationcommissioner.gov.uk/eve ntual.aspx

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Data Protection Act 1998

      Company will have to register to hold personal data Processing personal data must comply with eight enforceable principles of good practice. Personal data covers both facts and opinions about the individual.

Also includes information regarding intentions of data controller towards individual With processing, definition is now far wider Link to act at OPSI

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Data must be:

        fairly and lawfully processed; processed for limited purposes; adequate, relevant and not excessive; accurate; not kept longer than necessary; processed in accordance with data subject's rights; secure; not transferred to countries without adequate protection.