New tax laws for small businesses often cause confusion for small business owners. Many come to Peninsula UK with account questions for small businesses.
And we are always happy to help.
How to prepare taxes for small businesses
Peninsula understands that you may have more small business accounting questions for small businesses. We offer comprehensive advice and tax-saving tips for small business owners with our expertise.
Learning how to prepare taxes for small businesses is challenging but essential. Keep your expenses and incomes organised. This way you can accurately report your taxes.
There are some essential tax tips any business owner should know. For example, separating your personal and business accounts.
VAT adjustments can apply to purchases paid for. Calculate your profits and determine how much tax you need to pay. Higher profits need higher tax payments.
Employee income taxes are also required by HMRC from each employee's pay.
One of the wisest tax tips for small business owners to act on is enlisting the help of a tax accountant.
You can learn how to prepare taxes for businesses. But the help of a tax accountant frees up time for you to focus on other business matters.
Our tax experts can answer your accounting questions.
Understanding how to prepare taxes for a small business is essential. Hire a tax accountant or learn how to file taxes as a small business owner. Then you can save money and please HMRC.
If you do not have a tax accountant or bookkeeper, you will need some accounting software. This can estimate your taxes and VAT costs.
Small business taxes
Understanding how to prepare taxes includes knowing how VAT works for small businesses. There are four categories of business VAT:
- Standard rate: The standard rate for businesses or limited companies VAT is 20%. This is on all goods and services that aren’t applicable to a reduced rate, a zero rate or are not exempt supplies.
- Reduced rate: The reduced rate for business VAT is 5%. This applies to fuel & power used within the home and used by charities.
- Zero rate: You need to apply for the zero rate for business VAT. Zero rate registers for many different goods and services. These include, but aren’t limited to, prescriptions, new house sales, children’s clothing, and food.
- Exempt supplies: Exempt supplies are services that you need not register for and are exempt from vat. Unless your business doesn’t solely use exempt supplies, then you will have to register. This may be difficult though and applies to input tax. Insurance, medical services, and education are examples of exempt supplies.
If your small business requires registration for these categories of business VAT, you must do so as soon as possible. Failure to do so may invoke fines from the HMRC.
VAT explained for small businesses
How does VAT work for small businesses? This is a common question for small business owners.
It is vital to know how to file taxes for small businesses. Failing to comply with VAT rules can be a costly mistake.
Business VAT is either output tax or input tax. Input tax is VAT paid for business purchases and business expenses. Output tax is VAT paid by those you charge for your business.
Fortunately, VAT is available with different schemes. The Flat Rate VAT Scheme is one of these, which is payable as a single, flat rate on your turnover.
New tax laws for small businesses also introduce new business VAT schemes. This includes the Cash Accounting Scheme. This scheme bases VAT payments on payments you have made or received, rather than on invoices.
HMRC has a list of different business VAT rates. These vary from industry to industry.
They can grant small businesses more freedom with rates, percentages to pay, and the choice to keep the difference with VAT you charge.
You can also claim a refund for VAT from the HMRC if you often pay out more VAT than you collect. However, there are exceptions to reclaiming VAT.
For example, you cannot reclaim VAT for:
- Anything purchases solely for private use
- Goods sold under one of the VAT margin schemes
- Business entertainment costs
- Anything bought from an EU country
There are some purchases that you can reclaim business VAT on. This includes the VAT on new cars used solely for business and staff travel expenses. However, these have limits and can be are subject to whether you use them for personal purposes.
In order to reclaim business VAT, you must keep records to support your claims, as well as valid VAT invoices.
Tax tips for small business owners
Understanding small business VAT is useful. But, there are other tax tips for business owners that can make a significant difference.
One of these is working from home. HMRC allows specific tax savings for those working from home. You may be able to deduct many different expenses if you are a self-employed business owner.
Some of these expenses deductions include:
- Mortgage interest
- Council tax
- Household maintenance & repairs
- Utilities, such as water, landline, and internet costs
It can be helpful to learn other tax-saving tips. These vary from being beneficial to a small business to benefits for staff members.
Some may think that only large organisations can gain these tax-free benefits. This is not true, as even small businesses can take advantage of certain business tax tips.
Other small business tax tips can greatly benefit your business, including:
Separate accounts: Keep your personal and business accounts separate. This will make finding business transactions and expenses simple.
- Remain organised: Don’t lose any financial information. Keep track of all transactions and expenses. Understand exactly where and when you need to pay the HMRC to avoid fines.
- Industry-specific tax: Research your industry trade body or union. They can help you understand special dispensations and allowances approved by HMRC.
- Sticking to tax deadlines: You will incur fines if you fail to make tax payments on time. Remember and make note of any tax deadlines to avoid this.
- Maintaining accurate tax records: Create profit & loss statements as often as possible. Summarising your expenses, costs, and revenues can be useful when reporting to HMRC.
- Staff benefits: Tax-free childcare vouchers and the cycle-to-work scheme. There are other tax-free benefits that save tax and are tax-free benefits to staff.
An essential tax tip for small business owners includes seeking professional help. The HMRC runs a free workshop for introductions to business VAT and more.
Call us on 0800 028 2420 to speak to one of our experts.