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TAXATION FOR COMPANIES AND BUSINESSES

In the UK there are a number of taxes that may apply to your company and you personally as an officer of your limited company. We have listed a number of the most common taxes in the UK for both business tax and personal tax.

Corporation Tax

Corporation Tax is a tax charged on the taxable profits of limited companies. If your company or organisation is based in the UK, you'll have to pay Corporation Tax on all your taxable profits - wherever in the world those profits have come from.

If your company is not based in the UK but operates in the UK- for example through a branch (known as a 'permanent establishment') - you'll only have to pay Corporation Tax on any taxable profits arising from your UK activities.

If your company is registered in the UK but does not actually trade in the UK and does not have a permanent establishment then the organization may not be liable to pay corporation tax.


Double Taxation Treaty

At 1 Click 2 Start A Company we often come across Non UK Residents believing that registering a limited company in the United Kingdom, whilst working in a different country, would make his/her business taxable in United Kingdom. This is one of the most common mistakes of individuals which may create potential problems in the future.

Double taxation treaties are essentially an agreement on a fundamental principle: a company must be taxed where it is managed, that is, where is its centre of interest.

For example; if an Italian citizen living in Milan incorporates a UK Limited that is still managed in Italy will be subject to Italian law and will pay taxes in Italy. This rule applies to most European countries, with the exception of Switzerland, from where you can manage a company without being taxed automatically by the tax authorities.

If you are not resident in the UK you may have to pay UK tax on any income or capital gains you have in the UK. But you may also be charged tax on your worldwide income or gains, which will include the UK, in the country in which you are resident. Double taxation agreements aim to ensure that you pay tax on your income and gains once only.


You can find a full list of the UK's double taxation agreements in HMRC publication Double Taxation Digest http://www.hmrc.gov.uk/taxtreaties/dtdigest.pdf.

The current Corporation Tax Rates in the UK starting on the 1st April 2014 are as follows;

  • Small Profits Rate - 20% (can be claimed by qualifying companies with profits not exceeding £300,000)
  • Main Rate (Higher Rate) - 21%

*As from 1st April 2015 the small profits rate will be unified with the main rate, so there will be only one Corporation Tax rate for non-ring fence profits - set at 20%.

VAT (Value Added Tax)

VAT (Value added tax) is a tax that's charged on most goods and services that VAT-registered businesses provide in the UK. It's also charged on goods and some services that are imported from countries outside the European Union (EU), and brought into the UK from other EU countries.

VAT is charged when a VAT-registered business sells to another business or to a non-business customer (output tax).When VAT-registered businesses buy goods or services they can generally reclaim the VAT they've paid on the goods/services purchased (input tax). If you are not VAT registered you will not be able to reclaim any VAT on purchases.

In the UK there are three rates of VAT, depending on the goods or services the business provides. The rates are:

  • standard - 20 per cent
  • reduced - 5 per cent
  • zero - 0 per cent

Registering For VAT

You are able to register for VAT whether you are a limited company, an individual (sole traders), or a partnership. You cannot register for VAT if you only sell goods or services that are exempt from VAT or you are not in business according to the definition HMRC uses for VAT purposes.

If your place of business is in the UK or you intend to start up you may need to register for VAT, or you may choose to register voluntarily. However, if your turnover of VAT taxable goods and services supplied within the UK for the previous 12 months is more than the current registration threshold of £82,000, or you expect to go over that figure in the next 30 days alone, you are legally required to register for VAT.

If you have received goods from other EU countries in the UK (these are known as acquisitions) with a total value greater than £82,000 in the current year since 1 January, or you expect to acquire more than that value in the next 30 days alone, you must register for VAT.

How To Register for VAT

You are able to register for VAT with HMRC by completing a VAT registration form online or completing the paper form through the post. Most applications are able to be processed online but there can be circumstances where the application must be send by post.

Unfortunately we cannot give you a guaranteed timescale of when you will have your application processed and you receive your VAT number from HMRC. However we would expect this to be completed 10-14 days after the application has been submitted.

During the time whilst you are waiting for the VAT to be processed we advise you to keep a record of all accounting records including invoices and VAT transactions. However, please be aware you will be unable to charge VAT on your sales invoices until you receive your VAT registration number.

If you do not live in the UK or your place of business is not in the UK, from the 1st December 2012, the UK registration threshold will no longer apply to you. Your registration date will be the earliest date that you make taxable supplies here; or you expect to make taxable supplies here within the next 30 days.

Filing your VAT return will have to be completed for the period in question and submitted and paid electronically one month and 7 days after the period end date. The VAT periods range from 1 month, 3 months or annual returns, but the most common VAT period is the quarterly return. The return usually shows VAT you have charged on your sales to customers to the period in question (output tax) and the VAT you have paid on your purchases (input tax). If the amount of output tax is more than the input tax, then you send the difference to HM Revenue & Customs (HMRC) with your return. If the input tax is more than your output tax, you claim the difference back from HMRC. There are special schemes that some businesses can use to help them work out and pay their VAT. These include;

  • Annual Accounting Scheme
  • Flat Rate Scheme
  • Cash Accounting

VAT Helpline

If you require further information regarding VAT then please call HMRC’s VAT helpline and get the most of your questions answered. Please call 0300 200 3700 or if your calling from abroad please telephone +44 2920 501 261.

PAYE

Pay As You Earn (PAYE) is the system that HM Revenue & Customs uses to collect Income Tax and National Insurance contributions (NICs) from employees (including directors of limited companies). The tax and NICs is deducted throughout the tax year based on the employees' earnings and then paid to HMRC. You must deduct tax and NICs from employees' pay each pay period and pay your employer's Class 1 NICs if they earn above a certain threshold. You will pay these amounts to HMRC monthly or quarterly.

You must submit a Full Payment Submission (FPS) online, on or before each payday, to tell HMRC about payments made to all your employees and confirm the tax, NICs and other deductions. Again, your software should do this each time you run the payroll to calculate PAYE. You will need to do this regardless of the amount you've paid them or how long they've been working for you. You must pay the correct amount, based on your FPS submission on time. If you don't you may have to pay interest or penalties.

If you employ someone - even if it's only yourself - you'll usually need to register as an employer with HM Revenue & Customs (HMRC). Most new employers can register online, but some will need to register by email, by telephone, or with an HMRC office.

As soon as you first employ someone, you will need to register as an employer with HMRC if any of the following is true:

  • you're paying them at or above the PAYE threshold
  • you're paying them at or above the National Insurance Lower Earnings Limit
  • the employee already has another job
  • they are receiving a state, company or occupational pension
  • you're providing them with employee benefits

You might need to register as an employer even if you're the only person working in your business (perhaps because you're the only director of your limited company). If any of the conditions above apply to you as an employee, you'll need to register - you'll be both the employer and employee.

To register as an employer you'll need the following information to hand. Items marked with an asterisk (*) are necessary and you will not be able to register without providing that information.

Information required from all employers

Please provide:

  • name, business name, partner's name, company name (as appropriate) *
  • business or home address, including postcode (as appropriate)*
  • business or home telephone number
  • a contact email address *
  • a contact telephone number *
  • a name and address to send correspondence to
  • the date of your first payday or, if earlier, the first date you made payments of expenses and/or provided benefits to your employees *

Self Assessment

This form of tax may apply to a wide range of individuals for both directors and shareholders of a limited company, LLP members, and also sole traders.

If you’re registered for Self Assessment, you’ll usually get a letter in April or May from HM Revenue and Customs (HMRC) telling you to send a tax return. You should send your tax return, even if you don’t have any tax to pay.

You can send your tax return online or using paper forms but you must be registered for self assessment with HMRC.

You are required to send a tax return if you are;

  • a self-employed sole trader
  • a partner in a business partnership (LLP)
  • a company director

Filing your tax return

The 2013 to 2014 tax year ended 5 April 2014. The main deadlines are:

  • paper tax returns - midnight 31 October 2014
  • online tax returns - midnight 31 January 2015
  • final payment of any tax due - midnight 31 January 2015

If you miss the paper deadline, send your return online instead to avoid a penalty. You should send your tax return, even if you don’t have any tax to pay or you’ve already paid it. You’ll get a penalty of £100 if your tax return is up to 3 months late. You’ll have to pay more if it’s later than this, or you pay late.