Establishing your own start-up is an exciting time: your dreams are finally being realised and you’re doing the job you love. But when it comes to setting up your tax account, you might begin to question why you went ahead with the self-employment route to start with! With your own start-up, you’ll need to pay tax, and with so many different regulations, it’s easy to feel overwhelmed if it’s not a sphere you’re familiar with.
The first step is making sure you have the basic documentation in order, such as your HMRC business registration. You also need to confirm the tax status of your company, which depends on the type of business you will be running.
Whether you’re a sole trader, limited company, or business partnership, your company status is what determines the type of tax you pay and the relevant HMRC deadlines you will need to look out for.
NI payments due depend on the structure of the business. If you have employees working for your company, you will pay NI to HMRC directly when you pay your employees’ salaries. As a sole-trader, you will also need to pay your own NI contributions: Class 2, and Class 4 if your earnings exceed the £8,424 in threshold in 2018/19 (increasing to £8,362 from 6.4.19). The amount you pay depends on the profits of your business.
If your business falls under the limited company status and you are deemed to be an employee of the company, you will need to pay Class 1 contributions, calculated on your salary. Dividend payments, on the other hand, are not subject to NI.
As a sole trader, you have to pay income tax, which is calculated on the profit of your business - if the profit exceeds the £11,850 threshold in 2018/19 (increasing to £12,500 from 6.4.19) and you’re under the age of 75, assuming you don’t have any other sources of income outside your own business. As a director of a limited business, however, the income tax due is based on the dividends and salaries paid out from the company.
Whether you’re a director of a limited company, a sole-trader or in partnership, you are liable to pay VAT if the sales of your goods and services exceed the £85,000 threshold. To start with, you will need to register your business for VAT with HMRC to become a VAT-registered company.
This only applies if your business is registered under the limited company status. Corporation tax is calculated on the sum that remains, once the business deducts tax relief, allowances and expenses. The current rate is 19% of the profits generated but it is due to decrease to 17% for the year starting 1 April 2020.
Depending on where you operate your business from, you may be charged for business rates. Business rates apply to you if you run your business in dedicated premises, such as retail shop or office. However, some premises, such as farms or your own home, are exempt from business rates.
Getting your head around all the tax options and identifying the ones which apply to your business set-up can indeed be daunting initially. If you’re seeking assistance or guidance with any start-up related issues, get in touch with a member of our team – we’re happy to help your business aspirations become a reality.