Start up legal and tax issues GCSE Business Studies Year 10

Lesson Objectives Know the difference between VAT, NIC and income tax. Understand why a business keeps records Understand why a good business name is important. Be able to identify the different types of taxes paid by a sole trader and a Ltd company.

Deciding on a business name A business name should be… Unique, Memorable And Appropriate

Which is a good name and which is a bad one? Waffles The Famous US Waffle Co.

Which is a good name and which is a bad one? Used and bruised cars Outstanding Audi!

Can you think of a good business name?

What are the advantages of a good business name?

What type of records might a company keep? It is important for a business to keep records. But what would they keep a record of? Customer records – e.g. name and address of customer, what work they did etc. Financial records – e.g. income/revenue, costs and profit/loss

So why do we keep records? Here is an example. Half the class should be a company that keeps records and the other half of the company do not.

Where does the money come from to run these??????? Schools Police Hospitals Library's Fireman

Taxes

So who pays taxes Employees of a business will pay tax on their income (the money they make) A business will pay taxes on the profits it makes

First let’s look at employees/sole traders Jake has a job working as a Ski instructor in Chatel. He earns £25,000 per year. This is his income. Jake will have to pay a percentage of his income to the government. This is known as income tax. Income = £25,000 Income tax paid to government = £6,000 How much does Jake get to keep?

Now let’s look at a business The equivalent to an income within a business is the profits it make. Therefore a Limited business will pay tax on the amount of profits made. This is called corporation tax. Virgin Trains Ltd has made £50,000 in profits in 2009. Profits = £50,000 Corporation tax = £10,000 How much does Virgin Trains Ltd keep?

VAT – Value Added Tax Vat is paid on all sales made by a company. A business only needs to pay VAT if it makes over £70,000 a year in sales. E.g. if a business sell a bag of sweets for £1. 17.5p will be paid in VAT to the government and 83.5p will go to the company.

VAT Price £40 HMR&C £33 goes to the business that sold the product £7 goes to the Government

That doesn't sound fair! A business will increase their price by the amount of VAT they need to pay. E.g. if a business wants to make £1 on a sale they will charge £1.15 for a product to the customer.

I’ve got 3 kids and I don’t work I get money from the government to pay my rent and help me buy food etc I’m retired and I get money from the government. This is called a pension Benefits

NIC (National Insurance Contributions) Benefits and pensions are paid for by NIC A Business pays 2 types of NIC’s The sole trader will pay NIC. If you are employed by a business then the business will take out the NIC before you get paid The business will also pay extra NIC depending on the number of employees they have. The more employees the more they pay

Task – Sole Trader Tax Shelly’s gym is a sole trader. She is a personal trainer. What tax will she pay? Sales - £60,000 Income/Salary - £50,000 (same as profits) Make a list of the different types of taxes Shelly will pay.

Shelly’s Gym taxes Answer: Income tax – this will tax her salary/income. She will not pay corporation tax as she is a sole trader. National Insurance – she will only need to pay it once as she is a sole trader

Where is all my money going? Task – Limited Co. Tax Tyres Ltd has a limited company with 10 employees. What tax will the business pay. Sales - £100,000 Profits - £25,000 Where is all my money going?

Trains Ltd taxes Corporation tax – this is a tax on the profits the business makes VAT – this is a tax on all of the sales. He will pay it as his sales were more than £70,000 NIC – the business will need to deduct the NIC for each of the employees before they are paid NIC – the business will need to pay additional NIC based on the number of employees they have.

I’m Maude and I run a fruit shop Task What tax would the following sole trader pay Sales of £100,000 Income/Salary of £50,000 I’m Maude and I run a fruit shop

Our business is fishing. Task What taxes would the following business pay. It has 20 employees Sales of £500,000 Profits of £80,000 Our business is fishing.