UK Business Taxes and Hiring Accountants

This article covers UK Business Taxes and submitting taxes through an accountant.

What Taxes Do UK Businesses Pay?

In the UK, Value Added Tax (VAT) is a compulsory contribution to state revenue. It is levied on the sale of goods and services provided by registered businesses and also on some imports.

Another type of tax paid by businesses in the UK is Corporation Tax.

How is VAT Calculated?

VAT is an indirect tax paid by businesses to the government rather than paid by the consumer of goods and services and HM Revenue and Customs collects it under the Value Added Tax Act 1994. The rates of VAT differ in several cases, as seen below:

  • Standard. stands at 20% and is charged on most purchases.
  • Reduced rate. Charged at 5% on goods and services such as energy-saving measures, children’s car seats and sanitary products.
  • Zero rates. As the name implies the charge of VAT stands at 0% and applies to books, children’s clothes and other items. It should be noted, although nothing is charged, someone must still file this on a tax return
  • Exempt items. Include financial and property transactions. Nothing is charged on the goods and services and this does not need to be counted in taxable turnover.

How Is Corporation Tax Calculated?

The main rate of corporation tax in the UK is set at 19% for business profits. However, certain expenses can be deducted and some allowances help to reduce tax liability and tax relief applied in some cases.

All business profits are taxable and corporation tax has to be paid by all limited companies, those exempt from corporation tax are:

  • Sole traders.
  • Partnerships.

Who Has to Pay Corporation Tax?

Those required to pay corporation tax are:

  • A limited company.
  • A foreign branch of a UK company.
  • A group or sports club.

How Can a Business Submit a UK Business Taxes Without Outside Help?

It is possible to do all of this in-house, although it is time-consuming and often confusing. To self-register for corporation tax and/or VAT as a business the HMRC government website is the easiest way to do so.

A business will have to do this within three months of beginning trading and it is the duty/responsibility of a company director to follow the protocol.

Businesses with a turnover of more than £85,000 must register and pay and/or charge VAT on products and services that they may buy and sell to consumers.

Businesses can register themselves online or can use an agent, such as an accountant, to submit VAT returns and deal with HMRC on your behalf. If done in house, the procedure can be done by registering a VAT number online.

When registering the business, you will receive a VAT registration certificate. This will confirm:

  • Your VAT number 
  • When to submit your first VAT return or payment 
  • Your effective date of registration

Some rules must be adhered to when filing VAT returns:

  • Charging the right amount of VAT on goods and services 
  • Paying any VAT due to HMRC 
  • Submitting VAT returns
  • Keeping VAT records and a VAT account

Should a UK Business Hire an Accountant?

The bigger the business the more likely it is outside help such as an accountant will provide helpful resources and prevent penalties from HMRC.

A business can hire an accountant to deal with VAT and corporation tax who will ensure that the returns are done correctly and on time.

Accountants can also help to reduce tax bills by making sure that all expenses the business is entitled to are claimed for.

They inform the business about various reliefs possibilities and tax schemes available to help decrease bills further where possible.

However, ultimately, it is the director of the company that will be held accountable for any mishandling of returns because any minor mistake can be treated as fraud, so it is important to deal with returns carefully.

If an accountant is hired, they should be trusted and accredited with the correct qualifications because the business could end up failing to comply with important legislation if not.

How Long Should I Keep Business Taxes Records?

You should keep your financial records for at least 8 years or as long as possible depending on your business type. When destroying physical financial records, ensure that it is done by a professional shredding company and you receive a certificate. If your records are digital, you can store them long term in protected systems such as AWS Glaciar.