Financial guidance for start-ups

Contents

1. Managing Your Finances
2. Cash Flow
3. Tax

Tax for the self-employed

When you’ve got a job, your employer deducts tax from your wages and sends it to HM Revenue & Customs (HMRC). If you’re self-employed, you have to do this yourself. Knowing what tax you have to pay can seem so confusing you may want to hire an accountant to help you pick your way through the maze, but even if you do, it’s still down to you to make sure everything gets to the tax office on time. The HMRC site is packed with great information but if you’re a MORE TH>N BUSINESS customer you can also get free 24-hour telephone support. Our experts can answer queries on anything from VAT and PAYE related matters, to tax and staffing issues.

In the meantime, here’s a breakdown of what you have to pay, and when.

What to do first

Let the HMRC know that you’re going to be self-employed as soon as you can. If you fail to tell them within three months of the end of your first month in business, you could face a penalty test. A step-by-step guide of how to register can be found at the Direct Gov site.

Self assessment

Once you’re registered, you’ll become a self assessment taxpayer - this means you’ll have to fill in a tax return each year stating how much you’ve earned. The tax office takes this information to work out how much tax and National Insurance you’ll have to pay. You can also use the self assessment form to claim any tax allowances and reliefs you may be entitled to - see below for more details.

Your tax return will be sent to you shortly after the tax year ends every year in April. You can either do it by hand or fill it in online. Doing it online is easier - your tax calculation will be made instantly and you can pay straight away by credit card.

No matter how you decide to complete your form, make sure it’s not late (check out the deadlines below) or you could have to pay a £100 penalty charge, plus interest on the amount you owe.

VAT

One of the decisions you’ll have to make when starting up your new business is whether or not to register for value added tax (VAT). If your turnover is more than the VAT threshold of £67,000 you are legally obliged to, but even if it’s not, there are benefits if you register voluntarily. Your accountant will be able to advise you whether it would be worth your while, and there’s also a guide available on the Directgov site.

Deadlines for tax returns

Self assessment deadlines

30 September - the deadline for sending in your paper tax return if you want HMRC to work out your tax for you (this doesn’t apply if you’re filling it in online as the tax will be calculated instantly).

31 January - the deadline for sending in your tax return (paper or online) to avoid a penalty fine of £100. This is also the deadline for all tax payments. Interest will be charged if you’re late.

31 July - Some people may have to make ‘payments on account’. Each payment will normally equal one half of the previous year’s tax liability (after taking off tax deducted at source and tax credits on dividends). The payments are due on 31 January in the tax year and 31 July following the tax year.

More information on key dates can be found here on the HRMC site.

VAT return deadlines

When you register for VAT you’ll usually be given a quarterly ‘ tax period’. HMRC will send you a VAT return towards the end of each tax period with a date when it has to be sent back.

Tax breaks for new businesses

If you’re just starting out, you may be entitled to certain advantages which could reduce your tax bill, such as allowances for premises and equipment and tax relief for research and development. But as you don’t receive these allowances automatically, if you don’t know what they are, you could miss out. Full details can be found in this leaflet from the HMRC, but MORE TH>N BUSINESS is on hand to tell you the basics.

Capital allowances - lets you deduct a proportion of the cost of business equipment (like computers, cars, tools or furniture) from your taxable profits. Capital allowances are available to all, but there are also some extra tax enhancements if you’re in your first year of business. From April 2008 there will be an Annual Investment Allowance for the first £50,000 of investment in plant and machinery. There will also be a new tax credit on designated “green technologies”.

Business Premises Renovation Allowance -If your business is in an area designated as disadvantaged’ by the government, you could claim 100% in capital allowances on the costs of renovating. HMRC has a Business Premises Renovation Allowance Guide.

Tax relief on computers lent to employees - Only applies to employers. This relief means you don’t have to pay tax or National Insurance contributions on the value of any computer worth up to £2,500 that you lend to an employee for business purposes. Find out more at the HMRC website.

Tax relief and credits for research and development - Qualifying small and medium-sized companies can deduct an allowance of 150% of appropriate research and development spending when calculating their taxable profits.

Stamp duty exemptions in disadvantaged areas - Businesses in specified disadvantaged areas are exempt from stamp duty on residential property transactions up to £150,000. Find out more at the HMRC website.

Enterprise Investment Scheme - This scheme helps certain types of small companies to raise capital by providing tax relief for investors in these companies. Find out more at the HMRC website.

• Sign up for a tax deadline email alert
• Find more government information on VAT
• For tax exemptions for small and medium companies, see the Companies House Website