When you set up a company in the UK, a wide range of issues can often take your attention, with taxes often taking a back seat while you deal with more pressing concerns. However, it is important to remember that there are significant penalties for businesses that pay their taxes too late. Therefore, it is important for small business owners to have a good understanding of their tax obligations. So, when should you start paying taxes? How much tax does the business need to pay?
When should you start paying taxes?
For 2020, the tax year is from April 6, 2020 to April 5, 2021. Different taxes have different payment schedules. In case of company formation in the UK with the taxpayer, we provide you with an overview of the different taxes and when the payment is due.
Types of Taxes in the UK
Corporate Tax
Corporate income tax is a tax imposed on the profits made by your business during the financial year. It is due nine months and one day after your business’s accounting period ends. This is usually March 31, which means that you have to pay corporate tax on January 1. Currently, the corporate tax rate is set at 19%.
Income Tax
Income tax is paid on income you receive personally, such as salary and dividends. If you are a director of a limited company, income tax is paid through your business’ pay-as-you-earn (PAYE) scheme. For sole traders, income tax will be payable based on the profits from the business included in the self-assessment tax return.
National Insurance
National Insurance helps you increase your state pension and pay for public services. As with income tax, National Insurance is collected through pay-as-you-earn (PAYE) for limited company directors. For sole traders, the payment process differs slightly. It is calculated as part of the annual self-assessment and paid to HMRC by January 31 and as part of your payment on account (July 31).
VAT (VAT)
VAT is a consumption tax added to the cost of goods and services. Companies are not automatically registered for VAT and do not need to pay it unless annual turnover exceeds the VAT threshold (£85,000). If you are required to pay VAT, it is due quarterly and VAT returns are sent to HMRC within 37 days of the end of the quarter. If you exceed the specified turnover amount, you can take advantage of Mükellef’s advantageous prices and have your VAT application made by our expert business partners and have your quarterly return prepared.
It is important to note that your company’s tax obligations are determined by your business structure, which also specifies when your taxes are due.
Tax Obligations for Limited Liability Companies
Limited companies are required to submit an annual tax return to Companies House, compile statutory accounts, submit a company tax return to HMRC and register for VAT (if earnings exceed £85,000). In addition, the director of a limited company is required to file a self-assessment tax return and pay tax/National Insurance through pay as you earn (PAYE) if they receive a salary from work. As part of our annual accounting service, our specialized partners will handle all necessary filing and return preparation.
Tax Liabilities for Partnerships
Partnerships have similar tax obligations. First, partners must pay income tax on their share of the business’s profits (the same breakdown for sole traders applies to partnerships). They are also required to pay National Insurance, submit a personal self-assessment tax return and register for VAT if their earnings exceed £85,000. In addition, the nominated partner is required to file a partnership self-assessment tax return annually.
Tax Liabilities for Limited Partnerships and Limited Liability Partnerships
The partners of the limited partnership or limited liability partnership must submit a partnership self-assessment tax return each year and register the partnership for VAT if the business’ earnings meet or exceed the threshold. In addition, each partner is obliged to pay income tax on their share of the company’s profits, submit a personal self-assessment tax return and pay National Insurance.
All of the services mentioned in this article, such as filing and declaration preparation, are offered to you by our expert partners in our annual accounting service.
