We use cookies on this website, you can read about cookies and GDPR Privacy Policy here
We offer popupar and secure payment methods
Coddan CPM Ltd. – Company Registration Agent in the UK
Home Corporate Services Top Tips for Starting Your Own Business Start a Business & Pay Taxes: What Will You Pay

Start a Business & Pay Taxes: What Will You Pay

Start a business & pay taxes: what will you pay

Start a Business

The UK draws a distinction between employment income and self-employment income. Directors are taxed on the basis that they have employment income. But in some countries the dividing line would be drawn at a different point and directors who are not full-time officers may be treated as independent contractors (that is, as if they were self-employed). All businesses have to comply with certain legal requirements. This can include requirements in relation to Health and Safety, Trade Descriptions Act, Data Protection Act and Employment Law, to name but a few.

As well as being a legal requirement, good health and safety practices pay for themselves by improving your reputation with customers, the local community and most importantly your own employees. If you employ five or more people, you are required to prepare a statement of policy on health and safety at work and to make arrangements to put this policy into practice.

There are two rates of corporation tax depending on the level of profits you make. In 2011 to 2012, you will be charged 20 per cent on profits of up to £300,000. This is known as small companies' rate and will apply to IT contractor companies. The main rate is 26 per cent on profits of £1.5 million and above.

Trading and Non-Trading for Corporation Tax Explained

HM Revenue & Customs (HMRC) may consider your limited company or organisation to be 'active' for Corporation Tax purposes when it is, for example, carrying on business activity, trading or receiving income. However, there are a number of circumstances where HMRC would not consider your company or organisation active for Corporation Tax purposes.

In this case, your private company or organisation is 'dormant' for example - not active or not trading. HMRC may also deem your unincorporated organisation, such as a members' club, dormant for Corporation Tax purposes if it is active or trading but it's due to pay Corporation Tax of less than £100.00 for an accounting period.

What is Active for Corporation Tax Purposes

Generally your company or organisation is considered to be active for Corporation Tax purposes when it is, for example:

  • Carrying on a business activity such as a trade or professional activity
  • Buying and selling goods with a view to making a profit or surplus
  • Providing services
  • Earning interest
  • Managing investments
  • Receiving any other income

This definition of being active for Corporation Tax purposes is not necessarily the same as that used by HMRC in relation to other tax areas such as VAT, or by other government agencies such as Companies House. It may also not match definitions in the various accounting conventions that are used to prepare audited accounts, such as the Financial Reporting Standards (FRS) issued by the Accounting Standards Board, or the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

When Your Company or Organisation Has Not Yet Started Trading

Generally, HMRC considers that your company or organisation has not yet become active or started trading if it has not yet engaged in any business activity. In this context, business activity means carrying on a trade or profession, or buying and selling goods or services with a view to making a profit or surplus. Your newly formed company or organisation may not be active.

However, you may still carry out activities (known as ‘pre-trading activities') or incur costs (known as ‘pre-trading expenditure') before you officially open your business without HMRC deeming that you have started trading. Activities or expenditure to do with setting up a business that are not considered trading by HMRC for Corporation Tax purposes include:

  • Preliminary activities such as writing a business plan or negotiating contracts
  • Preliminary expenditure such as incurring costs with a view to deciding whether to start a business

You need to keep all of your records for at least six years, and some would argue it's sensible to keep them longer than that. This includes all receipts and invoices, and the record of all sales and purchases made. HMRC says it is acceptable to keep records in legible alternative such as an optical imaging system, where documents are scanned into a computer.

Private Companies Deadlines and Penalties

You can send your company tax return in any time after the end of your accounting period (your year end). You have to do it by the statutory filing date. This is usually the later of 12 months after the end of your accounting period, or three months after you get a notice to deliver a company tax return.

If you send the tax return in late your company will be charged a penalty. There may also be a penalty if the tax return is incorrect.

If you do owe any corporation tax, this is due nine months and one day after something called your normal due date. This is the last day of your accounting period. If that was 31st December, your tax payment will be due on 1st October. There may be a penalty and interest charges if you pay it late.

Coddan specialising in incorporation of a private limited companies by shares or limited by guarantee, public limited companies by shares or limited by guarantee, partnerships (in England, Wales, Scotland and Ireland incl. Republic of Ireland) and secretarial, notary and accounting services.

If required, we can provide a registered office address facility (we are offering registered office addresses in London, registered office addresses in Bristol, Cardiff, Edinburgh, Glasgow, Sussex, Manchester, and also in Birmingham. Upon special request, we can provide a registered office address in any city or town in England or Wales. We can also provide a telephone number for your company with call forwarding from any UK city and town.

If your business is at an advanced stage of development your needs may be varied and you will need to make an appointment with us to discuss your circumstances. You can use our office where we will store all your company records and provide you with a summary of the financial position of your business. Every quarter you can then meet with one of our accountants for a health check on your business and plan for any new developments. Alternatively you may need specific services such as VAT returns, PAYROLL or/and statutory accounts preparation.

Company Administration and Accounts

If you want to focus on earning company turnover and do not want the burden of company administration and accounts, this service will suit you. Get rid of the hassle without losing control! This service is designed for the busy executive who wants to focus on earning company income without being bogged down with the daily administration involved with running a company.

  • Coddan will handle all administration and run a PAYROLL for directors and shareholders
  • We will provide you with a detailed breakdown of your company position as and when you need it
  • We will do all company administration including all statutory requirements for Companies House and Inland Revenue
  • We will complete VAT and corporation returns and ensure these liabilities are provided for and paid on time

All you will have to do is invoice your client for your income and provide us with a copy of these along with the business expenses that you incur. This service will cover the following:

  • Company administration - general administration, answering queries from Companies House and Inland Revenue
  • PAYE registration and returns
  • VAT registration and quarterly VAT returns. We ensure that provision is made to meet and pay the VAT liability and ensure that payment is made on time
  • Annual shuttle return to Companies House
  • Run a PAYROLL, paying directors, staff and shareholders on behalf of the company
  • Ensure timely payment and provision for tax and National Insurance liabilities
  • Daily bank reconciliation of a company bank account
  • Production of two sets of financials to account for contracts that fall outside IR35 and those that fall within the IR35 legislation
  • Cessation accounts and company closure if required
  • Submission of Annual Reports and Accounts to Inland Revenue and Companies House