The UK’s business landscape is a vibrant and fertile one, with more and more entrepreneurs biting the bullet to visualise their aspirations. With around 46,000 new businesses created each year, industries are benefiting from major surges in fresh talent. If you are one of them, you will be embarking on a totally unique entrepreneurial journey.
Whatever the context or geography of your new business – consultancy service in Liverpool, freelance journalist in Coventry, graphic design agency in Halifax or beyond –, there is one entirely unavoidable aspect to your business which you will need to understand, address and comply with: tax. How, then, do you manage tax as an emerging business?
The Importance of Tax Management
As a business of any kind, it is absolutely crucial that you have a comprehensive understanding of your tax obligations. Different business types, as we are about to explore, have different expectations on them with regard to taxation – and there can be serious consequences for failing to properly address these obligations.
Failure to meet your obligations with HMRC can result in profound legal and even criminal ramifications. At best, your business can find itself under audit by HMRC; at worst, business leaders responsible for evading tax can face prison sentences of up to 14 years. It is nigh-impossible to land a prison sentence for anything other than wilful, malicious and significant tax evasion practices, so new business owners worried about making mistakes on their returns needn’t worry. Still, this illustrates what may be at stake when it comes to tax.
Taxation Structures for Businesses
Different businesses are expected to pay tax in different ways, depending on the structure of the business. For instance, freelancers, running a business as a sole trader, pay tax through self-assessment tax returns; all income above a personal allowance threshold of £12,570 is eligible for taxation at a 20% rate, and a 40% rate above £50,270; business expenses are subtracted from the pre-tax total. Incorporated companies, meanwhile, face Corporation Tax obligations proportional to business size and type, as well as Capital Gains Tax obligations for the sale of chargeable assets from stocks and shares to company property.
Reducing Liability
There are many different ways by which a business can legally reduce its tax liability, without straying into tax evasion territory. This is where accounting services can be especially worthwhile, as advisors with knowledge of tax obligations and processes can help chart a safe course around tax relief opportunities and financial structuring in order to properly maximise tax savings.
Most financial manoeuvres regard expenses, which can be deducted from profits before tax. Expenses can encompass a wide variety of costs, from stationery and travel to percentages of your energy and building costs. There are numerous tax relief measures you can avail of too, from the personal tax-free allowance for freelancers to Corporation Tax relief and even boons attached to hiring apprentices or veterans.
