Taxation can be a stressful subject for businesses, knowing what you have to pay and when.

In today’s blog we cover some of the main forms of taxation required in the UK to give you an overview.

What are PAYE Services?

P.A.Y.E. (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance contributions (NICs) from employees' pay as they get paid during the year. The term 'employee' also includes directors of limited companies.

As an employer, you'll have to deduct tax and NICs from your employees' pay each pay period and pay Employer's Class 1 NICs if they earn above a certain threshold. You pay these amounts to HMRC monthly or quarterly. If you don't send the correct amount, or if you send it in late, you may have to pay interest.

With the introduction of RTI (Real Time Information) as of April 2013 every time you make payment to any of your staff members you will need to inform HMRC, here at I.A.W Accountancy Services this will be done automatically with the use of professional PAYE software, thus ensuring all your PAYE records are fully up to date.

After the end of the tax year you must send HMRC an Employer Annual Return (form P35 and forms P14).

At I.A.W Accountancy Services we can ensure the staff will get their correct net pay, and that you are advised of how much you need to pay over to HMRC each month or quarter. Using a professional computerised PAYE package ensures all the information is correct and up to date with the latest Inland Revenue PAYE coding.

The services which we can offer are,

Payslips either weekly or monthly
Administration of statutory payments such as PAYE, NIC, SSP, SMP, SPP, SAP
Calculation of Student Loans, Attachment to earnings etc
Completion of statutory forms such as P60, P45, P46 etc
Completion of year end returns when and where applicable.
Production of reports of your choice
Operate PAYE including which forms you'll need and key dates. It also provides links to detailed guidance.

Taxation

We are very aware that taxation of any kind is not the most popular financial aspect in existence.

Being in business, you will want to minimise the effect of taxation on the financial rewards for your hard work. We will help to keep your tax liabilities to the legal minimum and make the best of any tax saving opportunities that may arise. We offer the following tax services:

Business/Personal Tax
Corporate Tax

What is Business Or Personal Tax in the UK?

Business or personal taxation is the tax paid on profits by sole traders and partners of a partnership.

Currently the rates of tax are based on three thresholds.

The standard rate
The higher rate
The additional rate

The standard rate is 20% on profits up to £50,270.

The higher rate is 40% on profits between £50,271 and £150,000.

The additional rate is 45% on profits above £150,000.

Corporation tax covers the preparation of tax computations for limited companies, the completion of Corporation tax returns.

What is Corporate Tax in the UK?

Corporation tax is the tax paid by limited companies on their taxable profits.

Currently the rate of corporation tax is 19%, irrespective of how small or large the profits are.

However, this is changing, what are the details?...........

With effect from April 2023 the thresholds are changing.

Profits up to £50,000 will still be charged at 19%
From £50,001 to £250,000 the rate is a tapered rate of 26.5%
Profits over £250,000 are taxed at a flat rate of 25%

There are ways that we can ensure profit minimisation to ensure the lowest rate of tax is paid, contact us for further details of how this can be achieved.

What is VAT?

Should I register for VAT?

If your business sells taxable goods and/or offers services, as soon as your turnover (sales) reaches the statutory registration threshold you are required to register for VAT.

Currently the threshold of £85,000 in anyone rolling twelve-month period.

You can register voluntarily, even if your turnover is below the statutory registration threshold. This is particularly useful when offering services and good that are zero rated for vat as this allows you to recover the vat you are charged on expenses from other businesses, creating a cash flow injection each quarter.

For some businesses this is desirable to

● Add credibility to your business,
● If the nature of your trade means that your costs or purchases include VAT.
● If the majority of your customers are VAT registered and can claim back the VAT that you have added to your sales.
● If your supplies are mainly zero rated for VAT purposes.

If none of the above apply, then it is often better to delay registration until you are required to.
How does VAT work for UK businesses?

Most registered traders simply add VAT, at the appropriate rate, to their sales and pay this over to HMRC after deducting any VAT input tax paid on invoices from suppliers. This is dealt with through a VAT return.

All UK VAT registered businesses are now required to file their return via compatible making tax digital for vat software, contact us for further details of this and how we can offer software packages at less than the RRP.

For small businesses this can cause cash flow issues. You may have to pay over VAT charged on sales invoices that have not been paid by your customers, thus creating a cash flow problem.
HMRC have recognised this and have created a number of Schemes to assist small businesses and their cash flow.

Schemes available are:

What is Cash Accounting? - If your turnover is within the limits for the scheme (currently turnover of no more than £1.3M), you will only need to pay VAT to HMRC when you are paid by your customers. This is a significant advantage for businesses that have to grant extended payment terms to their customers. However, you can only deduct input tax on invoices and costs paid by you in the VAT return period.

Flat Rate Scheme - What is the Flat Rate Scheme? - Traders eligible to join this scheme can simplify their VAT accounting by applying a flat rate percentage to their sales and paying this amount to HMRC. You are only able to join this scheme if your annual turnover is less than £150,000, if it exceeds this, you will have to leave the scheme.

What is Annual Accounting? - With this scheme you agree to an annual liability, based on the previous year's figures, and pay this over on an instalment basis. At the end of each year a final return is submitted and any balance due is paid or an overpayment refunded.

What are Retailer Schemes? - Ordinarily, registered traders are required to keep detailed records of every transaction. For retailers this could prove to be a time-consuming chore. To avoid this, affected businesses can use one of the schemes set up with retailers in mind.
What other services does VAT accounting include?
Advising and registering you for VAT
- Looking at what scheme may be the best for you
- Completing VAT returns for you and filing them online, this is a requirement for all newly registered businesses and those with a turnover exceeding £85,000.
- Providing VAT advice and planning
We are experienced in dealing with VAT and can take the worry away and deal directly with HMRC for you.

We also offer a compliance service which for a small fee will cover you for the fees of any HMRC VAT enquiry.

Income Tax

What is income tax?

Income tax is based on what you earn yourself and is only payable on certain types and amounts of incomes. You pay income tax on money you earn from employment, self-employed profits, dividends received, state benefits, pensions, savings, rental incomes and benefits you receive from your job. As an employer you would have to deduct the correct amount of taxes from your employees' pay based on their yearly earnings.

As part of our services we offer advice on the areas of tax planning that we believe are most important and beneficial to you to start trading in the direction and stay on track. We can also plan and deduct the correct amount of taxes from your employees and make sure all information is up to date to follow this compliance procedures as set by the regulatory authorities.

Those that are employed by a business pay their taxes through P.A.Y.E, information on this can be found on our other page under 'Pay As You Earn'. It is important that although taxing isn't the highest valued aspect in businesses making profits, you have to adhere to it.

What is Corporation Tax in the UK?

Any established company that is known as a limited company will have to pay Corporation Tax on their taxable profits and keep detailed records of these payments. A taxable profit can be classed as anything that your business makes their income from, i.e. making business trades, investments and selling anything for more than it originally cost you.

Corporation tax only applies to businesses operated in the UK, for example if you have a business up and running in a foreign country, but have offices in the UK, you will only pay this type of tax on the business activity based in the UK. The tax system works alongside the financial year from 1st April, although not all limited companies have their corporation tax liabilities calculated in line with the tax year, these are prepared and returned n the basis of the company financial year end, which can be any month of the year and usually ends at the month end of the month in which the company was incorporated .

When you use I.A.W Accountancy Services, we will set up your corporation tax within the first three months of your business starting which will keep you within the legal requirements set out by the HMRC.

We will calculate and advise of corporation tax liabilities falling due, together with the dates and relevant information in order for cash flow planning to be implemented for the same.

That’s all we have for you today. For a more detailed understanding please go to the HMRC website or just give us a call on Tel: (+44)1803 470011 or (+44)1803 855758.

In our next blog we will talk about Auto Enrolment in the UK and what it entails…