Setting up any new business is exciting, but the process isn’t as straightforward as just registering your business to begin trading. There are a number of compliance laws and tax regulations that you need to be aware of for the longevity and success of your business which, in this guide, we outline for you.
The Compliance Basics
Proper record-keeping is a fundamental requirement of all businesses which if you don’t do from the start, can cause a lot of problems down the line. Record-keeping helps to manage cash flow, monitor performance and ensure you’re complying with tax regulations. You’ll need to track income and expenses, recording all sales, receipts, purchases and expenses; as well as assets, such as property and equipment, and liabilities, such as loans.
Tax for UK Small Businesses
Corporation Tax
Corporation tax is paid by limited companies and charged on the annual profits that a company makes. Whilst all profits are taxable, certain expenses can be deducted. Taxable profits include money made from:
- Doing business – your trading profits
- Investments
- Chargeable gains – selling assets for more than they cost
You’ll have to register for corporation tax within three months of starting to do business, which includes advertising, buying, selling, renting a property or employing staff. Sole traders are not required to pay corporation tax.
VAT
VAT Value Added Tax (VAT) is a consumption tax levied on goods and services at each stage of the supply chain. Businesses can charge VAT on their sales and reclaim the VAT they pay on their purchases, often referred to as output and input tax. To get a better understanding, have a read of our detailed Small Business Guide To VAT.
National Insurance
If you create a limited company and register yourself as the director, you’ll have to pay National Insurance through the company itself as an employer and personally on your director’s salary. You’re required to report directors’ pay and NI deductions in your Full Payment Submission to HMRC.
Business Rates
If you plan on running your business from a non-domestic property, such as an office or a factory, then you’ll likely be charged business rates. Your local council will send you a business rates bill in February or March for the following tax year. You can estimate your business rates bill here. You may qualify for business rates relief from your local council to reduce your bill, which is sometimes automatic, though you may need to apply.
Dividend Tax
Dividends can be paid to a company’s shareholders if the company has made a profit, after paying liabilities and taxes like VAT and Corporation Tax. You do not pay tax on any dividend income that falls within your personal allowance; which is the amount of annual income you can earn without paying tax. You also receive a dividend allowance each year, only paying tax on dividend income above the allowance, for the tax year 6th April 2024 to 5th April 2025, the dividend allowance is £500. The rate you pay also depends on your income tax band:
Basic Rate: Taxed at 8.75%
Higher Rate: Taxed at 33.75%
Additional Rate: Taxed at 39.35%
You can work out your tax band by adding your total dividend income to your usual income.
Capital Gains Tax
CGT is applied on any profit made from selling or ‘disposing’ of business assets, such as equipment, property or shares that have increased in value. The tax is only payable on the gain and not the total amount received. You may be able to reduce the CGT you pay if you’re eligible for tax relief.
Should I Use a Compliance Advisory Service?
Should I Use a Compliance Advisory Service? Understanding the compliance landscape can be complex, and as your business grows, so will your compliance obligations. Compliance advisors ensure that you meet all the necessary legal requirements and can save you from hefty penalties, legal action and fines, whilst advising on best practices.
At HV, we can handle the entire formation process for you, from initial planning and registration to ongoing compliance and governance. Our advisors save you time and handle the complicated legal stuff, so you can focus on building your business. We’ll weigh up factors like liability, tax implications and adherence to regulations, to create the best possible structure for your business. Starting a business? Get in touch to see how we can help.