Martin taggart

---

1. Sole Traders and Self-Employed Individuals

If you operate as a sole trader or are self-employed, you are obligated to pay Income Tax and National Insurance on your profits.

• Registration: Register for Self Assessment with HMRC by 5 October following the end of the tax year in which you commenced trading.
• Tax-Free Allowance: You can earn up to £12,570 tax-free (as of the 2023/24 tax year).
• Tax Payment: Income Tax and Class 4 National Insurance Contributions are due by 31 January following the end of the tax year. For example, if you started your business in June 2024, your first tax payment would be due by 31 January 2026.
• Payments on Account: If your tax bill exceeds £1,000, you may need to make advance payments towards your next year’s tax bill, due on 31 January and 31 July.

2. Limited Companies

For limited companies, Corporation Tax is applicable on profits.

• Registration: Register for Corporation Tax with HMRC within three months of starting to trade.
• Tax Payment: Corporation Tax must be paid within nine months and one day after the end of your company’s accounting period. For instance, if your accounting period ends on 31 December 2024, the tax payment is due by 1 October 2025.
• Tax Return Filing: Submit your Company Tax Return within 12 months after the end of your accounting period.

3. Value Added Tax (VAT)

VAT registration is mandatory if your business’s taxable turnover exceeds £90,000 in a 12-month period.

• Registration Threshold: £90,000 (as of 2024).
• VAT Returns: Once registered, you must submit VAT returns, typically on a quarterly basis.

4. National Insurance Contributions (NICs)

Both sole traders and limited company directors are responsible for NICs.

• Sole Traders: Pay Class 2 and Class 4 NICs based on profits.
• Limited Company Directors: Pay Class 1 NICs through the Pay As You Earn (PAYE) system on salaries drawn from the company.

Frequently Asked Questions

Q1: Do I need to pay tax if my business doesn’t make a profit in the first year?
If your business operates at a loss, you may not owe Income Tax or Corporation Tax. However, you are still required to file the appropriate tax returns.

Q2: What happens if I miss the tax payment deadlines?
Missing tax deadlines can result in penalties and interest charges. It’s crucial to adhere to HMRC’s timelines to avoid additional costs.

Q3: Can I delay registering for tax until my business becomes profitable?
No. You must register with HMRC as soon as you start trading, regardless of profitability.

Q4: Are there any tax reliefs available for new businesses?
Yes. New businesses may be eligible for various reliefs, such as the Annual Investment Allowance or Research and Development (R&D) tax credits, depending on the nature of the business.

Q5: How can I ensure compliance with tax obligations?
Maintaining accurate financial records, understanding your tax obligations, and consulting with a tax professional can help ensure compliance.

Conclusion

New businesses in the UK are subject to tax obligations from their inception. Understanding the specific requirements based on your business structure—whether as a sole trader or limited company—is essential. Timely registration, accurate record-keeping, and adherence to HMRC deadlines will help you navigate your tax responsibilities effectively.