Starting Out

The first step to sorting out your tax is to define your business in to one of the following categories:

• Sole trader
• Partnership
• Private limited company
• Limited liability partnership

Also you need to estimate your projected earnings to see if you will qualify to pay VAT, which has a registration threshold of earnings exceeding £67,000 per annum. Make a note of how many employees you currently have, and then contact the HM Revenue & Customs (HMRC) to register your business. If you have work premises you will also be liable for business rates, so you must contact your local council to inform them which address you have started trading from.

Sole Traders

Sole traders are registered with HMRC as self employed, and will need to complete and submit their own self assessment tax return each year. Generally sole traders pay either Class 2 or 4 National Insurance contributions (NICS), which are calculated on a flat weekly rate and can be paid by direct debit. NICS contributions count towards incapacity and maternity benefits.

Partnership

Partnership traders also register as self employed, but each partner will need to complete their own individual self assessment tax return each year, and pay their own tax and NICS contributions. Also each partner will have to submit the required partnership supplement (SA104), and a nominated partner must also submit the Partnership Tax Return (SA800).

Private Limited Company

Private limited companies are liable for Corporation Tax, and must complete and submit a corporation tax return (CT600) each year and also supply a copy of their accounts. Most private limited companies use accountants to ensure these forms are filled in and submitted correctly.

Limited Liability Partnership (LLP)

LLPs also need to register as self employed, and each partner must submit a self-assessment tax return every year as well as the SA104 and SA800.

To find out more about how to register a business, and what taxes you will need to pay you can visit the HMRC website at www.hmrc.gov.uk

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If you have employed workers for a long time under the wrong wage levels this could be a significant amount of money. For example if you had underpaid two employees by just £2 an hour for a year (on a 37hr week), then this could cost you over £7,000 to repay, plus any legal charges in the process of sorting out your case.

There is a National Minimum Wage Helpline on 0845 6000 678 if you are unsure exactly who qualifies for minimum wage, but basically, with a few exceptions, most UK citizens over the age of 16 are legally entitled to the following rates:

• Adults (aged 22 and over) – £5.73 an hour
• Young Adults (aged 18-21) – £4.77 an hour
• School leavers (aged 16-18) – £3.53 an hour

The main exceptions include:

1. Self employed workers
2. Agricultural workers, as they have their own payment system set up by the Agricultural Wages Board
3. Certain apprentices under the age of 19 years old
4. Voluntary workers

You will need to consider the costs of the National Minimum Wage when you are employing new workers. At £5.73 an hour even a basic worker on a standard 37hr week is earning just over £10,000 a year, which is a lot of money to a small business. Think about the type of business you own, and whether you can minimise the number of staff you employ without compromising overall efficiency. Utilise every member of staff to their full potential, and make sure the workload is spread evenly.

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