Managing Tax
The three main taxes to be considered are as follows:
• Income tax is a tax that is paid to the Government and is calculated based on an individual’s ‘own circumstances and their level of income. Income tax is deducted directly from employees’ pay by their employers. Self-employed people must calculate their own income tax and provide a tax return regularly, paying the correct amount of tax
• Value Added Tax (VAT) is a tax charged on most goods and services in the UK. VAT is charged when a VAT-registered business sells to either another business or to a non-business customer. Businesses add VAT to the price they charge when they provide goods and services. When VAT-registered businesses buy goods or services they can generally reclaim the VAT they’ve paid. A business has to reach a certain level of turnover before they are required to be registered for VAT (currently £79,000 a year — July 2011). If a business is not VAT registered, they cannot charge VAT to customers or reclaim the VAT on goods and services purchased. VAT is charged as a percentage of the price of the product or service which is set by the Government
• Government social security scheme that provides income loss, maternity, and sickness benefits, and retirement pension, to the working population. National Insurance is funded by regular contributions by both employees and employers, and by government through taxation which is deducted from salary by the employer. The self-employed are required to calculate and deduct National Insurance themselves via an HMRC self-assessment form.
Links:
‘Working for yourself’ from gov.uk.
‘Accounts and Tax’ from smallbusiness.co.uk.
‘Business Taxation – what are the main taxes?’.
