As a small business owner, it’s likely you’re used to wearing a lot of different hats. You’re probably still involved in delivering your product or service, as well as overseeing your customer relationships, your marketing, your logistics and your finances.
But it’s not possible for you to be an expert in all these areas.
That’s where I can help from a business finance and accountancy perspective.
I specialise in helping small business owners just like you. I’ll help your business finances work for you – maximising income, minimising tax, and giving you back the freedom to focus on other areas of your business.
If you’ve got a question about business finance and accountancy – there’s a high chance others have that question too.
So ask me anything – my email and LinkedIn are below:
I’ll respond to your privately on email or DM, and anonymously compile any answers here for the benefit of all small business owners once a month.
So, let’s get straight into this month’s questions:
Is corporation tax calculated on profit or turnover?
Corporation Tax is paid by all UK limited companies. It is calculated as a percentage of business profits.
For 2022/23, Corporation Tax is set at 19% of profits for all limited companies.
If your business has profits over £50,000, this is set to change in 2023/24 with an effective rate of 26.5% for any profits between £50,000 and £250,000 and 25% for any profits over £250,000.
If you’re a sole trader or in a partnership, you won’t pay corporation tax. Instead, you’ll need to fill out a tax return and pay income tax on your earnings.
Drop me a line if you need any support on corporation tax, tax returns, or adjusting to the new corporation tax tiers in 2023/34.
Is corporation tax a deductible expense?
Corporation Tax is calculated based on your business profits, after all expenses have been accounted for.
Companies also typically pay Corporation Tax on profits before dividends are issued, so there isn’t a route for dividend payments to reduce the amount of Corporation Tax being paid.
The allowable expenses that will be accepted in the calculation of your Corporation Tax by HMRC include:
- Wages and salaries
- Rent and rates for business premises
- Equipment (including repairs and maintenance)
- Business travel
- Advertising costs
- Office running costs
- Professional service fees
If you need any more support on calculating your Company Tax Return, I’m just an email or phone call away.
Do I need to pay tax on my VAT return?
I’m going to answer this question by taking a few steps back, and looking only at standard VAT (flat rate VAT for businesses with less than £150k turnover is a topic for another time!)
If your business is VAT registered, you need to add VAT (currently 20%) to the charges of your goods and services.
You need to file a VAT return with HMRC every three months – the purpose of this is to declare how much VAT you need to pay.
In your VAT return, you are able to reclaim the VAT you’ve paid for many goods and services for your business.
As an example, if you have collected £2000 in VAT from your sales, but have paid £1000 in VAT for allowable business goods and services – you need to pay £1000 to HMRC.
If you’ve collected £2000 in VAT from your sales, but have paid £2500 in VAT for allowable business goods and services, HMRC will issue a VAT rebate of £500.
Any figures that are used on your Company Tax Return should exclude VAT, so there should be no business tax implications for any VAT rebates.
If I become VAT registered, do I charge no VAT for the first £85,000 of sales – and only charge 20% VAT for sales above this?
Sorry – you’re not correct with your understanding here.
When your business registers for VAT, you need to collect VAT from every sale you make. VAT should be added to all business invoices, with your VAT registration number on all documentation.
You need to register for VAT if you expect turnover of more than £85,000 in the next 30 day period, or if your business had a turnover of more than £85,000 over the last 12 months.
If I take a pay increase and become a higher rate tax payer, do I have to pay 40% on all my income?
You can relax here and take the pay increase with a smile on your face.
No – you don’t have to pay 40% Income Tax on all of your income when you reach the higher rate tax threshold.
The current Income Tax bands are:
|Income Tax Payable
|Up to £12,570
|£12,571 – £50,270
|£50,271 – £150,000
So assuming your salary was £52,000…
- The first £12,570 income would not incur tax.
- Your income between £12,571 and £50,270 would incur tax at 20%.
- Your income between £50,271 and £52,000 would be taxed at 40%.
So you would only pay 40% tax on £1,729 of your income.
I’ve just started my own business and I’m currently managing my own finances on Quickbooks. Do I need an accountant?
My biased answer would obviously be “Yes! You need an accountant!”
But in reality, I think only you can answer this question, based on your current billings, the complexity of your business, and your levels of confidence with business finance.
As a general rule, I would say if your business is a ‘side hustle’ alongside a stable full-time income, and is simple in nature – you can probably do a lot yourself within Quickbooks, reaching out to a trusted accountant on an ad-hoc basis for things you need support with (my number is 01302 613515 if you need it!)
But the minute your business becomes your primary source of income, there’s too much at risk to manage your business finances without professional support on an ongoing retainer basis. It’s at that point I would strongly recommend getting in touch with an accountant.
Is Quickbooks good for managing my accounts?
Yes – I’m a big fan of Quickbooks.
I actually wrote a blog post about the benefits of working with Quickbooks a couple of months ago – there’s a link here: https://www.dkaccs.co.uk/the-main-benefits-of-using-quickbooks-for-your-small-business/
It’s obviously not the only accounting software available, and we’re also fans of Xero (we’re a Quickbooks Platinum ProAdvisor, and also a Certified Advisor for Xero).
So that’s a wrap of the questions I’ve had this month.
Is there a question you have about business accountancy that isn’t in this list?
Drop me a line with any accountancy query and I’ll get back to you as soon as I can!
Telephone: 01302 613515