Running your own business What you need to know from a tax perspective if you choose to work for yourself. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 1
Running your own business • Important to choose how you will operate. • Main options are to be self-employed (sole trader) or incorporate as a limited company. • There advantages and disadvantages to both options. • Information that you need to provide to HMRC. • Do you need an accountant and advice on choosing an accountant. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 2
Running your own business • Advantages of self-employment 1. From a tax compliance point of view it is fairly simple. 2. You do not necessarily need to employ an accountant to file your tax return. 3. Cost of using accountant should be lower than if operating through a limited company. • Disadvantages of self-employment 1. You will pay more tax than if you operate through a limited company. 2. You have to pay 50% of the tax due for the following tax year in advance. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 3
Running your own business • Advantages of incorporation as a limited company 1. You will pay less tax to HMRC. 2. The liability of shareholders is limited to share capital issued. • Disadvantages of incorporation 1. There is a lot more tax compliance as well as dealing with Companies House. 2. You will need to employ an accountant and they will charge more than if they are just preparing your income tax returns. 3. The company accounts in an abbreviated form has to be filed at Companies House. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 4
Running your own business What you need to tell HMRC Self Employment 1. 2. 3. 4. You need to inform HMRC that you are self-employed. You will have to file a tax return. You will also need to prepare accounts for your business. If your turnover in an accounting year is over £ 81, 000 you must register for VAT. You can choose to register for VAT even if your turnover is less than the registration limit. 5. You will pay Class II NIC at £ 2. 75 per week unless your earnings are below £ 5, 885. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 5
Running your own business What you need to tell HMRC Operating through a limited company 1. The name and registered office of the company. 2. You will also need to register for PAYE as you will take at least some of your income as salary. 3. You will also need to file an income tax return. 4. The company is required to file accounts and an annual corporation tax return. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 6
Running your own business Do you need an accountant? • If you decide to operate through a limited company. Yes you will need an accountant. • Strongly recommend that the accountants that you choose are regulated by either The Institute of Chartered Accountants or The Chartered Association of Certified Accountants. • Most accountants will offer a free initial consultation. • You may be able to reduce the fees you pay your accountants by doing some of the accounts preparation yourself. 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 7
Running your own business Total tax if trading Annual Earnings with Ltd Co Tax & NI self employed sole trader Saving £ 20, 000. 00 £ 4, 400 £ 1, 500 £ 30, 000. 00 £ 4, 800 £ 7, 400 £ 2, 600 £ 40, 000. 00 £ 6, 700 £ 10, 500 £ 3, 800 £ 50, 000. 00 £ 10, 700 £ 14, 600 £ 3, 900 £ 60, 000. 00 £ 14, 700 £ 18, 700 £ 4, 000 £ 70, 000. 00 £ 18, 600 £ 22, 800 £ 4, 200 £ 80, 000. 00 £ 22, 500 £ 26, 900 £ 4, 400 £ 90, 000. 00 £ 26, 400 £ 31, 000 £ 4, 600 £ 100, 000. 00 18/03/2018 £ 2, 900 £ 30, 400 £ 35, 100 £ 4, 700 Martin Connell FCCA martin@martinconnell. co. uk 8
Running your own business Links to useful web-sites https: //www. gov. uk/set-up-sole-trader http: //www. hmrc. gov. uk/selfemployed/index. shtml http: //www. hmrc. gov. uk/ct/getting-started/newcompany/start-up. htm 18/03/2018 Martin Connell FCCA martin@martinconnell. co. uk 9
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