1 Business taxation Geoff Leese Sept 1999 revised Sept 2001, Jan 2003, Jan 2006, Jan 2007, Jan 2008, Dec 2008 (special thanks to Geoff Leese)

2 Taxation n You and your employment n Your personal income tax (?IR35), and national insurance n Taxes for your company n Corporation tax n Capital gains tax n Vehicles and tax n Business rates n VAT – to register or not to register Source of much good advice and next stages: ‘No-Nonsense Guide…’

3 You and your employment n Sole trader or partner n Could be classed as employee or self employed n If work comes via an agency or arranged as a service, could be ‘IR35’ status n Must sort this out at the start of any business

4 Who is self-employed? n Not necessarily for all work, may also be employed n IR 35 status for those who use agencies, or for whom a limited company or partnership supplies their services n Self employment usually means: ä Person provides the money and equipment for the business ä Person takes on staff and work (often at fixed price) ä Person may have regular clients ä Person controls when and where they work, and deals with problems in own time, at own cost

5 Self employment issues n Must be registered within three months of start-up n National Insurance less than for employees, fewer benefits. Your own responsibility n Personal tax your responsibility, on the whole of the profits, not just your drawings n Can deduct allowable expenses from revenue. Accountant very useful in this complex minefield n Taxed in arrears on previous employment

6 Limited Company n You are taxed as an employee n Pay As You Earn PAYE n Employee’s national insurance n Must register payroll with Inland Revenue, even if only you n Company liable to tax on profit (sales – business expenses) n You are tax on anything you receive from the company (return on investment, dividends, benefits, loans)

7 Corporation tax n Company responsible for this cash outflow n Assess when looking at project’s desirability n You calculate and pay on profits over £10000 p/a Accounting periods to suit you, up to a year. Returns sent in before 9 months n Detailed records for all income and expenses, keep for 6 years n PAYE must be correct if limited company n Deduction from net profit, shown as current liability on balance sheet n Offset by allowances on new assets of capital expenditure

8 Capital gains tax n For companies and individuals n Income from the sale (or disposal) of the company or other assets n These can be intangible, such as brand or goodwill n Taxes the increase in value of the asset during the period of your ownership n Usually best handled by accountant

9 Value Added Tax VAT n On goods and services, not profits n Compulsory registration for supplying >£67000 per year (Dec 08) n You collect the VAT for the Government n Input tax – payment for goods/services n Output tax – charge on what you sell n Output>input – difference to HM R&C n Input>output – HM R & C refund you n

10 VAT rates, records n Standard rate 15% (Dec 08 – temporary!) n Reduced rate 5% n Zero rate n Exempt n All records need to be complete and accurate n Returns 3 monthly, within the month, (or monthly), keep for ay least 6 years n Methods allowed such as cash accounting, flat-rate

11 Vehicles and tax n You need to tax (pay vehicle excise duty) all company owned vehicles, as well as your own n Tax is payable on the use of cars in the business ä Self employed – actual expenses or AMAP –Authorised Mileage Allowance Payment ä Employee – taxed as benefit, or use own car n VAT rules n Capital allowance

12 Rates n Own or lease, register n Payment to local council n Covers council supplied services ä Roads and lighting ä Business waste collection may not be included n If working from home, possibly some partial rate in addition to your council tax

13 Keeping records n All records kept for tax purposes must be available for at least 6 years n The company must comply with the law n The Data Protection Act is covered in detail in lecture 19 n Other legal issues may be noted on the website: ntual.aspx

14 Data Protection Act 1998 n Company will have to register to hold personal data n Processing personal data must comply with eight enforceable principles of good practice. n Personal data covers both facts and opinions about the individual. n Also includes information regarding intentions of data controller towards individual n With processing, definition is now far wider n Link to act at OPSI Link to act at OPSI

15 Data must be: ä fairly and lawfully processed; ä processed for limited purposes; ä adequate, relevant and not excessive; ä accurate; ä not kept longer than necessary; ä processed in accordance with data subject's rights; ä secure; ä not transferred to countries without adequate protection.