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What are the basic tax issues for my start up?

Taxes are a proverbial inevitability. We can help you be sensible with your tax structure, so it's not all bad news. There are a few basics to comply with when starting a business – VAT registration for example, being one.  After that, tax law has a few tax-efficient bolt-ons that businesses can take advantage of – tax relief on investments and tax relief on share options. You can find more tax planning information on this by following this section on Tax Planning for Founders. Note, it’s also worth keeping in mind the tax consequences when planning for exit (as this may have an impact on how your company is set-up) and this is covered in the Tax Planning for Founders section.

This section therefore covers some of the basics of tax for start ups.

VAT

On registration, HMRC will send you a VAT certificate confirming your VAT number, when to submit your first VAT return and your date of registration.  Once registered, you must submit VAT returns and keep VAT records, and pay any VAT due to HMRC. Please see your section on VAT enclosed. 

Corporation Tax

Any overseas company with a UK branch or any UK limited company must pay corporation tax on profits from its business. You must register your business for corporation tax within 3 months of starting to do business (for example, entering into contracts, buying or selling, advertising or renting commercial premises). Following incorporation, HMRC will send you your company’s 10-digit Unique Taxpayer Reference (UTR), you can then register for corporation tax online. More information on business tax, including corporation tax is found in the section on Business Tax enclosed. 

Income Tax and National Insurance Contributions

Once the business has employees (including directors), then each UK company or branch will be required to withhold tax under the Pay As You Earn (PAYE) scheme and collect income tax and national insurance.  You will be exempt from PAYE if none of your employees is paid £116 or more per week, receives expenses or benefits, has another job or receives a pension. However, even in those circumstances, you must keep payroll records. PAYE must be withheld in respect of all salary, bonuses and other benefits granted to employees.  

You also need to deduct national insurance contributions for employees and pay employer’s NIC. Payroll software can help calculate how much tax and national insurance you owe, we use Xero to keep things streamlined. If you expect to pay less than £1,500 per month PAYE and NIC, you can arrange to pay HMRC quarterly rather than on or before each payroll run. More information on paying yourself and your staff can be found in the section on Paying Yourself


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