For anyone running a small business, there will be Tax and National Insurance liability. It can be good practice to research what Tax and National Insurance liability you will have before starting your business. If you are setting up as a sole trader or a limited company, your tax liability will vary. For anybody looking to run a legitimate business, it will be necessary to pay tax.
If you are a sole trader or self employed then it will necessary pay tax on your business profits. Of course you will be able to claim business expenses where tax is not paid on any business expenses. It is also necessary for sole traders to pay Class 2 and Class 4 National Insurance contributions (NICs).
Tax contributions for Limited Companies
If you run a limited company, you are classed as an employee; therefore you must pay income tax through the company’s PAYE scheme. National insurance contributions must also be paid. As a limited company, you are also liable for corporation tax to HMRC. This is payable each year and amounts to 20% of company profits after expenses and allowances have been deducted.
Another expense that needs to be considered is VAT. This is levied on the sale if most goods and services. If your business turns over more than £83000 a year then it is necessary to register your business for VAT. You will charge VAT and then submit you VAT return each year to the HMRC.
Financial Record keeping
For any business operating, it is a legal requirement to keep financial records which should detail any money that enters or leaves your business. You can employ an accountant to manage this for you. Either way it is important to ensure that you keep all accounts for at least 6 years even if the business ceases to trade.
The best way is to have simple system in place from the start to ensure that all of your accounts are kept in a logical system.
There are various accounting systems now available such as QuickBooks which can be used to record and manage your accounts. These can be ideal for keeping accurate booking keeping records