| By :
Mark Jenner
When you start a new small business it is a good idea to give serious thought to your tax obligations right from the beginning. It is easier to administer if you plan ahead and hard to catch up if you leave it too long. If you do not comply with your tax obligations this can be very serious. Not only can Revenue and Customs come chasing for unpaid tax years after it was due, but they can also charge penalties and interest which together can exceed the amount of unpaid tax. Trying to prove to the tax man that you did not make as much profit as they are assuming can be very difficult years later, particularly if your accounting records are not up to scratch, lost or destroyed. Therefore, once you have decided to commence your business, your first priority should be to inform Customs and Revenue. You should make sure that you do this within three months of starting your new business. At the same time, you should consider what records your business must keep and begin recording transactions immediately. Even if you think that not much is happening at the start, it soon becomes difficult to catch up weeks and months later. Any business will need to keep, at the very minimum, a record of income and expenditure supported by underlying vouchers and receipts. In a small business this would consist of a cash book and files of bank statements, sales invoices and purchase receipts. In a larger more complex business, the accounting system would be more complicated and also serve to control the accuracy of the record keeping as well as providing a system of fraud prevention and detection. Now that your business is up and running and you are keeping appropriate records, your taxation obligations will arise depending on the size and type of the business that you are running. Your tax will be different if you decide to set up as a limited company or stay as a sole trader. As a sole trader you will only be paying income tax, just like when you used to be employed. However, instead of your employer deducting tax and national insurance like before, you now are responsible for paying this tax. Your tax and national insurance will be assessed on your annual tax return, depending on your yearly profits, but the tax will not be paid regularly each month or week like when you were working. Now you will have to make provision and retain enough tax to pay over when it is due. Now tax is paid in two equal instalments in January and July - you need to make sure you put the right amount away so that you are not left short! If you run your business as a limited company, you will also need to account for corporation tax. This means a whole new set of tax returns and a need to decide on whether you will take a salary or receive dividends from the business. This route can seem a little daunting, but it does provide more security should things go wrong in the future. You should be prepared to look carefully into the ins and outs of your taxation position, or at least employ a good tax accountant. The last main business tax to consider is value added tax. If you are trading and your supply of goods or services exceed an annual threshold - currently £68,000 - you must register for this. This adds another obligation to the administration of your business. Now you must charge an additional amount for value added tax on everything you sell - at a rate of 15% in 2009. It must be paid over to Revenue and Customs, typically every three months. The benefit is that you can offset this amount by any similar tax you have paid on your purchases. Beginning a business comes with a number of tax administration duties. Not only do you have to worry about making a profit, you also need to keep the tax man happy. Do not underestimate the importance of this!
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