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Free Guides for new and growing businesses from HRBS - fixed fee accountants and business advisors

Thinking of starting a business?

hrbs.biz guide to starting a business Thinking of starting a business?If you are turning a hobby into a business or starting a whole new venture, here are some tips to help you get up and running without falling foul of the (UK) tax authorities.

Bear in mind that your self employment income will be added on to your income from all other sources when calculating your tax bill. If your self employment costs are less than £1,000 you can claim the £1,000 trading allowance. Further information is on the HMRC website.

However, if you make losses you can offset those against your other income for the tax year, thereby potentially getting a tax refund.

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Planning for your self assessment tax bill

hrbs.biz guide to paying your self assessment tax bill Planning for your self assessment tax billThe UK income tax year is 6 April to the following 5 April and so the tax year 2018/19 ran from 6 April 2018 to 5 April 2019.

You will need to complete a self assessment tax return if you are self employed, have untaxed income (eg rent, dividends), or if you, or your partner, have an individual income of more than £50,000 and one of you gets Child Benefit or contributions towards the upkeep of a child. Limited company directors are often required to submit a tax return.

A self employed person will pay both income tax and class 4 national insurance (NI) on their profits, the fixed rate of class 2 NIC plus income tax on any other income and capital gains tax on any relevant capital gains in the tax year.

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How to form a limited company

hrbs.biz guide to forming a limited company How to form a limited companyMany businesses are making the change from being a sole trader to running their business through a limited company to take advantage of the limited liability and also the opportunity for tax planning. The potential tax savings reduced from April 2016 onwards due to the change in the taxation of dividends.

Suppliers and customers often prefer to deal with a limited company as it can imply stability, longevity and also the company’s accounts and details of directors are in the public domain. This makes it easier for credit reference agencies and debt insurance providers to recommend credit limits. Unfortunately your competitors can find out about your company’s performance, ownership and mortgages etc at Companies House for free!
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A quick guide for your new limited company

hrbs quick guide to limited company A quick guide for your new limited companyGetting at your profits

Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. To pay a dividend the company must have sufficient after tax profits.
eg for a £10,000 dividend to be paid the company must have at least £12,346 pre-tax profits (corporation tax rate of 19%).
ie £10,000 = £12,346 profit minus £2,346 corporation tax

Do not be tempted to withdraw more than is legally available as dividend, as it would be void and treated as a loan repayable to the company. If the loan is to the director it would be a taxable benefit in kind if over £10,000 .

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