The end of the UK tax year is a great time to knuckle down and get your books organised: ensuring all of your invoicing, expenses and banking are under control and ready for the start of the new financial year. As such, we’ve put together a guide with everything you need to know about the tax year ahead for your business, starting with one of the most-asked tax questions we’ve had.
Why does the tax year start in April instead of January?
The tax year in the UK starts on the 6th April until the 5th April the following year.
The reason for this is to do with historical calendars as from 1155 to 1752, our new year started on 25th March in England and Ireland. In the 1500’s England used the Julian Calendar. However, as time went on it slowly became out of sync with the solar system. Europe took on the new Gregorian Calendar (our current calendar) in 1582, taking them out of line with Britain. It was decided in 1752 that Britain should come back in line with Europe as they were 11 days ahead. This meant Britain had to drop 11 days in the month of September. However, the treasury were concerned about taxes so they extended the tax year by adding 11 days. This took us to the 5th April, and later in 1800 it moved to 6th April due to a leap year.
Since then, April 6th has remained the start of the tax year in the UK.
The main UK business taxes
Depending on the type and performance of your business, you may be subject to different taxes. Ensure you know what taxes you need to consider for your business and meet the deadlines to avoid any unpleasant fines from HMRC. The main taxes small business owners need to know about are:
You must pay income tax as a sole trader on the profits your business makes above the personal tax allowance. If it is a limited company, you will pay income tax on your salary or any dividends taken from the company. Usually, income tax is collected via PAYE (pay as you earn) on a monthly basis and directly paid to HMRC.
Only limited companies need to pay corporation tax. It is self-assessed, which means the business calculates how much corporation tax it owes before filing their return and payment to HMRC. It is worked out as a percentage according to the profit of the business or taxable income. Corporation tax needs to be paid for nine months after your business’s accounting period.
VAT – Value Added Tax
Your business may need to charge VAT if you offer a service or product. In the UK, VAT is set at 20% across most products and services and you can register your business at any time for VAT. You must register your business by law if the turnover is more than £85,000 and the VAT is paid to HMRC quarterly. Your business can claim back VAT on products or services it needs once you have registered.
You may need to pay business rates depending on your location and the nature of your company. If you operate your business in a dedicated office or space, you will usually have to pay these rates. However, there are many business tax relief grants and schemes you can apply for.
Your business must pay National Insurance if you employ staff and it is paid to HMRC when you pay their salaries. There are different classes of National Insurance depending on the type of business you run.
Key Changes To Business Tax
Chancellor of the Exchequer, Phillip Hammond, announced in the Autumn Budget 2017 that business rates review will take place every three years instead of five – this is to reflect the rental value of properties. In the recent Spring Statement, he went on to announce that the revaluation of the business rates has been brought forward from 2022 to 2021.
Will Brexit have any impact on tax?
Indirect taxes such as VAT, customs duty and excise duty are EU-based taxes, so it is likely these will be impacted by Brexit more than direct taxes. For any EU-based and regulated taxes, the UK will have to have their own taxation systems in place. It could affect the current systems or cash flow, but we are yet to know the outcome. We won’t know for sure what will happen to UK taxes until the negotiations have concluded.
Small business owners often have enough on their plate without having to sift through reams of jargon to understand what they owe the HMRC. Hopefully this article has helped to define some of the most common taxes you will encounter as an SME. Remember: they may seem daunting, but it’s vital that you complete your taxes fully and in good time. The faster they’re done, the faster you can get back to managing your day to day and growing your business.
If you’re looking to grow your business and reach your goals but you need extra capital to do so, we’re here to help. At Boost Capital, we are champions of small business: our loans are designed for small businesses and we can have the funds with you in just two days. That way, you can worry less about cash flow and focus on taking your business to the next level. Get in touch for an instant, no obligation quote or read our blog for more insights into the industry!
Call 01245 240 889 or click here now to join the Boost Capital Broker Programme!