HMRC Small Business Tax: What You Need to Know as a Business Owner

Dealing with company taxes can appear to be overwhelmingly confusing when you have started your own business, especially because it is your solely your responsibility to adhere to – if you don’t know where to start, we’ve broken it down into layman’s terms below.

1. Work out your business type

Most likely, you will be one of the following:

• Sole Trader – you work for yourself, and you’re responsible for any losses your business makes.
• Business Partnership – Yourself and your business partner share the profits of the business, and the responsibilities: you both pay taxes.
• Limited Company – Your business is set up as an organisation separate from yourself as the director, and is responsible in its own right. In other words, the business finances are completely separate from your personal finances. Profit is owned by the company, not you, and these proceeds are shared between all shareholders. Any debt is also the responsibility of the business.

2. Get registered

• If you’re a sole trader, registration is extremely simple and can be completed online.
• If you’re a limited company, there is slightly more to go through, but the process is still simple. You will need to register with Companies House including a fee of £15. To do so, you will need to disclose information about all directors. You will also need to register to pay Corporation Tax, which can be completed on the HMRC website.

3. Record everything!

As soon as your business has been registered (and this is important – right from the start), you need to keep on top of your business’ finances.

The easiest way to do this initially is likely to be in an excel sheet, but use a method that works for you. As time goes on, you may want to do the appropriate research and invest in the use of accounting software.

There are several that are specifically designed for use by small business owners, such as Xero, FreeAgent, Kashflow and RecieptBank.

Keep all receipts organised in a folder, as you never know when you may need to provide them as proof.

4. Keep on top of your tax returns

• Annually, HMRC requires by law that you submit tax returns to let them know how your business has been performing – this needs to be completed by a certain date.
• As a sole trader, just go to your Government Gateway Account to complete your tax return online. If you prefer, you can submit it as a paper copy, but it’s considerably easier to use the digital process.
• If you are a limited company, you will need to complete your full annual accounts. The easiest path is to hire an accountant to take care of this for you, but be aware that you will need funds available to pay for the service, and make sure that you check that the files have been submitted on time to avoid fines and prosecution. In our experience, some directors place too much trust onto their accountants and once the business has filed late, it is public information for anyone to see.
• If your business turns over less than £70,000 a year, you’ll only have to fill out the ‘short’ tax return form.
• You can access the government’s guide to completing your self-assessed tax return here.

5. Deadlines

Here are the dates to circle on your calendar:

• 31st October – this is the latest date you are able to submit paper copies of tax returns
• 31st January – Online tax returns can be submitted 3 months later at the latest.

If you are a Limited Company, the first deadline will depend on the registered date of your business with Companies House:

• File first accounts with Companies House 21 months after the date you registered with Companies House
• File annual accounts with Companies House 9 months after your company’s financial year ends
• Pay Corporation Tax or tell HMRC that your limited company doesn’t owe any 9 months and 1 day after your ‘accounting period’ for Corporation Tax ends
• File a Company Tax Return 12 months after your accounting period for Corporation Tax ends

For more information, have a look at the gov.uk website.

Many people feel daunted about tax at first, but it really is easier than it first seems as long as you keep on top of your records – it’s been designed to be as easy as possible, and you will receive reminders to your registered office address of upcoming deadlines.

The most important thing is that you’ve already started – if you do your research now, the process is likely to seem much less daunting because you will know what to expect before the deadline is looming.