Do I need to pay tax as soon as I start a business?
When should I pay my taxes? This question is present in every entrepreneur’s mind. When you ask any entrepreneur: “what are you thinking about?” – don’t be surprised when he/she gives you two answers – benefits and tax. If you are going to start your own business and you feel concerned about the taxes you’ll need to pay, then let this article enlighten you.
Before thinking about the questions: “When and How,” let us summarize the different taxes. There are fives main taxes in the UK: income tax, corporation tax, employment tax, national insurance and value added tax (VAT).
As the name suggests, income tax (IT) is a tax which takes your income into account. This will concern all businesses except limited companies and non-UK resident companies. IT is calculated within a system called PAYE, or you can calculate it by percentage.
The second main tax is corporation tax. A lot of people confuse corporation tax and income tax. Contrary to IT, corporation tax is only for companies and particularly for limited companies. Each year, they need to pay taxes on their income or profits. Corporation tax is calculated using a percentage that you can find here.
The next one is closely linked with employment tax. In other words, it will concern all employees and the self-employed. It’s called National Insurance. These contributions concern the State Pension, the maternity allowance and bereavement benefit. Employee and Employer’s contribution are the same, they refer to class 1.
The last one is called Value-added tax (VAT), it’s a tax charged to the final consumption of goods and services. Usually, the basic rate that companies use is 20%. However, it can depend on the type of goods/services that your company uses.
Now that you know the main taxes, let’s answer the question of ‘when’.
Your payroll date depends on the fiscal year that you choose. In the UK it starts on 6 April and ends on 5 April of the next calendar year. In this sheet, you can find a summary of the payroll dates of the differents taxes.
|Income tax||5 April of the following year|
|Corporation tax||9 months and 1 day after the end of your accounting period|
|Employment tax & Self-employment||Every month|
|National Insurance||The previous tax month|
|VAT||The next 30 days or in a 12 month period if your VAT taxable turnover is more than £82,000|