How to File Taxes as a Business in the UK
Advice and guidance on paying your taxes as a business.
Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.
Whatever type of business you run, it’s vital that you file your taxes correctly. The way you do this depends on your business structure. Here is a simple guide to what you need to know.
What are business taxes?
If you are a sole trader (self-employed), you do not pay business taxes. You simply pay tax on your income. In other words, you pay regular Income Tax and National Insurance (NICs).
If you are in a partnership, the partnership itself does not pay business taxes. Its profits go directly to the partners, who pay their own taxes. The taxes they pay depend on whether the partner is a sole trader or a limited company.
Limited companies pay Corporation Tax. If they have employees, they also need to register with HMRC as employers for PAYE deductions. If money is taken out of the business, it is subject to separate taxation. For example, bonuses are subject to Income Tax and National Insurance. Dividends are subject to Dividend Tax.
All businesses need to register with HMRC for VAT if their turnover is over the VAT threshold. Similarly, many businesses need to register with their local authority for local taxes such as business rates.
Self-employed freelancers working from home may not. This is something of a grey area, so check the rules set out by your particular local authority.
Filing taxes as a sole trader
Filing taxes as a sole trader is very straightforward. Simply register as self-employed with HMRC. It’s also advisable to register for the Government Gateway at the same time. This allows you to file your taxes online under most circumstances.
The process of completing a tax return is very similar to the process of filling in a questionnaire, albeit a very detailed one. You are required to declare your income and expenses according to their categories (e.g. income from your self-employment versus income from letting out property). At the end of this process, HMRC tells you how much Income Tax and National Insurance you owe (or if you are due a refund).
If you wish, you can nominate somebody else to file your taxes on your behalf. This is normally your accountant. In exceptional circumstances, it could be someone with financial power of attorney for you.
Currently, you only need to file your taxes once a year. The deadline is 31st January the year after the tax year for which you are filing. For example, the deadline to file taxes for the 2022–2023 tax year will be January 31st 2024. It is very possible that this frequency will be increased. If it is, this will be communicated by HMRC.
Filing taxes as a limited company
The process of making a company tax return is rather more complicated than the process for sole traders. If your company is new, file your first set of accounts with Companies House no later than 21 months after the date you registered with Companies House.
File annual accounts with Companies House no later than 9 months after your company’s financial year ends. Settle any Corporation Tax due by no later than 9 months and 1 day after your ‘accounting period’ for Corporation Tax ends.
Your accounting period is the period for which you plan to declare your income and expenses on your Company Tax return. This is generally the same as your standard financial year. You must file your Company Tax return no later than 12 months after your accounting period for Corporation Tax ends.
If you are an employer, you also need to record and pay the relevant PAYE deductions for your employees. This is straightforward but does involve extra administration. It is worthwhile checking if company directors need to be employees or if they can be engaged under a contract for service (self-employed).
Filing VAT returns
Both sole traders and limited companies may need to file VAT returns. These are filed separately to returns for Income Tax/National Insurance and Corporation Tax. Generally, send HMRC a VAT return once a quarter. If you believe you do not owe VAT, you must actively state this rather than just skip a return.
Paying what you owe HMRC
HMRC accepts a number of payment methods including Direct Debit, Instant Bank Payment, bank transfer and debit card. There is a surcharge for using business debit cards. HMRC does not accept credit cards at all.
Importance of proper record-keeping
As a rule of thumb, documents related to tax must be kept for a minimum of 7 years. This is also known as 6+1 years as it is the year to which they relate plus 6 years. Documents related to payroll must be kept for at least 4 years. This is the year to which they relate plus 3 years (or 3+1 years).
For completeness, other types of business documents have different retention periods. Also, the rules governing retention periods can and do change. So stay informed of the current rules for the relevant document types. In most cases, electronic records are perfectly acceptable and GDPR is unlikely to apply. This means that the safest approach could simply be to keep all financial records indefinitely.
Minimising your tax liability
HMRC requires you to submit tax returns declaring your income. HMRC gives you the option to list tax-deductible expenses. Regardless of whether you’re filing a company tax return or a personal tax return, list all the expenses you are permitted to deduct.
If you have an accountant, they will advise on this. An accountant also offers broader guidance on managing your tax liability in general. For example, they can analyse if it’s better for you to operate as a sole trader or as a limited company. If that means changing your company structure, they can walk you through the process.
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