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Business tax in a box

07/03/18 | Advice & Guidance, Pay, Tax Advice

When must you register for VAT?

You must register for VAT when your turnover is over, or expected to go over the threshold.

It is compulsory for you to register for VAT if:

  • your VAT taxable turnover is more than £85,000 threshold in a 12 month period
  • you think you will go over the threshold in a single 30 day period

You must notify HMRC of your liability to be registered for VAT within 30 days following the last day of the month in which you first met one of the above criteria. If you fail to do so, you may be liable to penalties/interest and VAT on sales that you may not have actually charged VAT on.

You can register voluntarily if your business turnover is below £85,000. You must pay HMRC any VAT you owe from the date they register you.

 

How does flat rate VAT scheme work?

The amount of VAT you pay or claim back from HMRC is usually the difference between the VAT charged by your business to customers and the VAT you pay on purchases.

  • With the Flat Rate Scheme you pay a fixed rate of VAT to HMRC
  • You keep the difference between what you charge your customers and pay to HMRC
  • You can’t reclaim the VAT on your purchases – except for certain capital assets over £2,000
  • To join the scheme your VAT turnover must be £150,000 or less (excluding VAT), and you must apply to HMRC.

 

What is Corporation Tax?

Corporation Tax is a tax levied on company profits which is payable to HMRC. The current rate for UK Corporation Tax is 19% (2017/18). This is 1% lower than the Corporation Tax rate for the 2015/16 tax year, which was 20%

Corporation Tax is calculated by deducting all expenses from the company’s turnover to give a profit before tax figure. From this, there are a number of adjustments that need to be made to take into account various tax treatments of certain items.

To submit the figures to HMRC the company has to submit a CT600 (Corporation Tax return) along with a tax computation and a copy of the accounts. These are all due to HMRC 12 months after the year end.

Payment of the Corporation Tax is due to reach HMRC no later than 9 months and 1 day from the year end.

 

Could you benefit from Dividends?

 

What are dividends?

Dividends are an alternative way of paying yourself from the profits available in the company. Dividends are a portion of the company’s earnings that are returned to shareholders and in the case of a limited company run by you; this is profit you receive after tax.

How do dividends work?

Some limited company shareholders draw a salary from the company, however, this is subject to tax, Employers NI and Employees NI. Profits taken as dividends do not attract National Insurance and there is a lower rate of tax to pay. You don’t need to take all available funds from the company, you can leave the money within the company and make use of tax planning. Get in touch with Your Sidekick to help you with your tax planning.

What if there are two or more shareholders?

If there are two shareholders, all shareholders will receive their dividends at the same time e.g. two contractors, both with 50% shareholding, will receive 50% of whatever dividend is taken, even if one contractor did all the work and the other was on holiday. This is an important consideration if choosing to go into a partnership as disputes about workload often occur at dividend time.

When and how often can dividends be taken?

Dividends can be paid at any time providing there are available profits. It’s entirely up to you when and how much you pay, they are your profits after all. If you draw dividends before you pay your corporation tax, make sure you have enough money in the business to cover any tax liabilities! With our software, you can see how much money is available in your business to take as dividends at any point during the year.

What is a dividend declaration / dividend voucher?

A dividend voucher is a way to keep a record of when, how much and who has received a dividend.

It should include the following:

  • Limited company name
  • Name and address of shareholder
  • Total number or percentage of shares owned by shareholder
  • Amount of tax credit
  • Dividend amount paid
  • Date
  • Signature of the company director

 

Do I need to be inside or outside IR35 to be eligible to be paid through dividends?

You must be outside IR35 to receive dividend payments.

Do I pay tax on Dividends?

Yes, however, the tax rate is lower than that of PAYE tax.  There are few regulations around allowances, dividend tax credits, and the fact that company profits have already been taxed. Below is a brief overview of the dividends tax rates.

Tax-free dividends            First £2,000 of dividends per tax year

Basic rate (7.5%)              Total income up to £43,430

Higher rate (32.5%)         Total income up to £150,000

Additional rate (38.1%)  Total income above £150,000

 

If you would like more information on VAT or want to find out how to April changes may effect you contact our team for support.

Have you seen our blog about Claiming tax free expenses? Check it out!

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