Small Business Tax

If you operate as a sole trader, self-employed or as part of a partnership then the tax you pay is based on the profits made from your business.  Because essentially you are the business, the profits you make are declared in your annual self-assessment tax return.

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What taxes could you be liable for?

  • Income tax and National Insurance will be due on the profits you make from your business. In simple terms this is your turnover for the year less allowable business expenses.
  • If you employ staff then PAYE may be due monthly. This will be the tax and national insurance deductions made during the payroll process.
  • If you work within the construction industry and utilise sub-contractors then CIS may be due monthly. This is the CIS tax deducted from the labour element of your sub-contractor’s invoices.
  • If you are VAT registered then you will need to file a VAT return and pay the VAT owed. This is the VAT collected from your customers less the VAT incurred on the business purchases.
  • If you sell any business assets for a profit then you may be liable to Capital Gains Tax.

Income tax

Income Tax is a tax you pay on your personal income.  You pay Income Tax on income and benefits received from PAYE employment, pension income, interest on savings, profits made when self-employed, your share of partnership profits, on income from property rentals and dividends received from a limited company.  How much Income Tax you pay depends on how much you earn above the Personal Allowance each year and how much of your income falls into each Tax Band.  The personal allowance and tax rates are published in the Government’s annual Budget Report.

Pay As You Earn (PAYE)

Most people pay Income Tax through PAYE, where income is taxed at source. This means that your employer or pension provider calculates and deducts the Income Tax and National Insurance contributions required before your wages or pension are paid to you.  Your tax code tells your employer how much to deduct and then what hits your bank account is yours to spend.

Construction Industry Scheme (CIS)

Within the construction industry there are Contractors and Sub-Contractors. If you work as a Sub-contractor then the Contractor will usually deduct CIS tax from your payments and pass it to HMRC on your behalf.  There are different rates and statuses within the scheme and Sub-contractors will either receive gross payments or will have CIS deducted at 20% or 30%. The deductions count as advance payments towards your Income Tax and National Insurance bill. Contractors and Sub-Contractors must register for the CIS scheme and file an annual self-assessment tax return.  In most cases subbies will receive a tax rebate at year-end.

Self Assessment

If your income is not taxed at source then you must complete a Self-Assessment Tax Return each year.  This is where you combine all sources of income and calculate the Income Tax and National Insurance due to HMRC.  The tax year runs from 6th April to 5th April and your Self-Assessment must be filed, with tax paid, by 31st January the following year.  In some instances you will be required to make a Payment On Account, which is a payment of tax in advance, based on next year’s estimated income levels.

National Insurance

National Insurance contributions are paid to qualify for certain benefits and the State Pension.  There are different types of National Insurance (known as ‘classes’). The type you pay depends on your employment status, how much you earn, and whether you have any gaps in your National Insurance record.  The National Insurance thresholds and rates are published in the Government’s annual Budget Report.

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