Starting a side hustle, investing in premises, selling equipment, or making more money than expected – all these things can lead to an unexpected bill once tax season rolls around. Avoid the anxiety by understanding exactly what tax you need to pay, when to pay it and what to do if you can’t cover the cost.
What types of tax do you have to pay?
Corporation Tax – This is the tax paid to HMRC if you’re registered as a limited company in the UK. It’s worked out on the basis of your taxable profits – that is, the amount left from your turnover once all of your expenses have been paid and the tax-deductible ones have been taken into account. The Corporation Tax rate for small businesses currently stands at 20%.
Income Tax – To pay your Income Tax, to need to generate a Self Assessment tax return showing all your own income streams, profits and expenses. As a sole trader, you can benefit from a Personal Allowance – currently that means your first £11,000 of income is tax-free, and then from £11,001 to £43,000 you pay Income Tax at a rate of 20%.
Value Added Tax (VAT) – This is a tax charged by all businesses as an extra on top of the price of most goods and services they provide, generally at 20%. You may also reclaim any VAT you’ve paid on business-related goods and services. You only have to register for VAT if your turnover exceeds £83,000 in a 12-month period.
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When should you pay your taxes?
The deadline for your tax return is 12 months after the end of the accounting period it covers. You’ll have to pay a penalty if you miss the deadline.
There’s a separate deadline to pay your Corporation Tax bill. It’s usually 9 months and one day after the end of the accounting period.
You’ll usually need to pay your VAT bill by the deadline shown on your VAT return. VAT-registered businesses submit their VAT Returns and payments to HMRC 4 times a year.
Most of us get a nasty surprise from the tax authority once in our lives.
What if you can’t cover your tax bill?
Most of us get a nasty surprise from the tax authority once in our lives – especially if we’re just getting to grips with a new business. However, since it happens to us all, there are plenty of people to help. Borrowing money can be an imposing prospect, but small business lenders like iZettle specialise in loans that you can pay back quickly, so that you don’t have a debt hanging over you.
A short-term loan from a reputable small business lender will cover your bill and stop you from having to pay a late-fee to HMRC. These come with a fixed monthly repayment amount and can be repaid in as little as 6 – 12 months.
A cash advance is an advance on your future earnings. If you’re already taking payments with iZettle, we can take a look at your previous sales and immediately see if you’re eligible for an advance, which you then pay back from daily cards sales.
An advance is easy to apply for and fast to pay back, so it’s ideal for the recurring large expenses your business needs to pay each year, such as tax bills. Find out more about iZettle Advance!
Our top 5 tax tips …
Check out https://www.gov.uk/browse/business/business-tax for all sorts of background information about businesses and taxation
Speak to an accountant. Some may offer you a free initial consultation.
Join a professional association or even a Facebook group – these are available for most industries and willingly give help and advice.
Make a plan. Identify all the taxes you need to pay, do your research and be sure you know the implications of each move you make.
Keep your paperwork, receipts and invoicing up-to-date with the iZettle app. This is a surefire way to stay on top of your business finances.
Do you have any more tax questions? Like what to do when you’re short on money to pay your VAT bill? Don’t miss our previous article The 3 best ways to budget for VAT season!