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TAX MATTERS RELATING TO BUSINESS

There are various taxes which have to be paid by businesses which vary based on their trading area and profitability.

New businesses may well qualify for certain tax incentives as start-ups and they may not meet minimum turnover (sales) thresholds which require them to register and pay taxes such as VAT in the UK. Some incentives exist for voluntary VAT registration which may be worthwhile to consider, the principal benefits being twofold;

• claim VAT back on purchases especially set up costs.

• if trading with companies being able to issue VAT invoices gives the business a status of size and a more professional approach.

Private people (who cannot claim VAT back) will be keener to trade with smaller, often one person firms who are not VAT registered (due to a low sales turnover) to avoid that surcharge on costs of goods or work done.

One person businesses in the UK operating as self employed persons are required to pay National Insurance contributions as well as tax on profits and VAT if sales are sufficiently high.

Accounts

You will need to produce each year accounts of your trading, business assets and profit and loss for the state tax authorities. For small one person activities this can be done yourself and is quite easy (see links below and other pages). For large activities you need to engage an accountant or book keeper.

Tax Year

You need to decide when your tax year ends, many UK traders use 5 April which co-insides with the normal personal tax year end. Others, the end of a month to suit. As a start up you can end you first year within 15 months of starting, or lesser periods - start in February and end in December for example.

Accountant

You need an accountant if you;

• employee anyone in your business

• are in partnership with anyone in the business

• are a limited company business

• have a growing turnover

• borrow money from a bank

An accountant produces an annual set of audited accounts which gives credibility to your business with investors, banks and to some degree customers and clients. If your business is incorporated the accounts become public knowledge when filed.

Also accountants can provide useful advise about how to develop and expand the business, or act more cautiously.

Also to mitigate your tax liability by recommending how you invest your profits to grow the business. Also to arrange your own investment and income from the business to best personal tax advantages. This is especially vital if you have a family owned and run business which may carry on through future generations.

With a successful business, owners can benefit from various key factors funded by the company as legitimate expenses including;

• personal pension fund build up for the benefit of the owner/director as a tax free or tax efficient investment for your retirement.

• car, and other vehicles essential for business  transport and to impress clients and customers.

• hotels used for business meetings and conferences.

• home based office and equipment essential for the business.

• clothes used as an essential for business.

• your accountant will advise what other expenses you can claim on the business based on your type of business.

Useful web sites

For specific tax information relative to your country contact your local or national tax office, accountant or using Google or Yahoo search for " Small Business Tax <country> " where <country> is your country. UK and USA links are below. Or " Business Tax <country> <trade> " where <trade could be your type of business e.g. business tax uk plumbers - this may find information, tips and hints applicable to your situation.

HM Revenue & Customs -  VAT is a tax on the final consumption of certain goods and services. Our Introduction to VAT guide provides a summary of the basic principles of VAT.

Please feel free to Contact Us with questions or to give us information to add to our knowledge base.