the no-nonsense guide to government rules and regulations for setting up your business

8/14/2019 The No-Nonsense Guide to Government rules and regulations for setting up your business

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The No-Nonsense Guideto Government rules and

regulations for setting up

your business2006


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Thinking of startingup on your own?

Need help with

rules, regulationsand forms?

If youre thinking of running a business or

working for yourself, The No-Nonsense Guidesaves you time, stress and money. It tells you

what you need to know about the legal andofficial side of starting up on your own.

And if youre working out what could happen

as your new business develops, the Guidealso explains the regulations that might

affect a growing business from getting newpremises to employing people.

Get it right fromthe start with

Business LinkWhen you decide to go ahead and set up

in business, the best thing you can do is tocontact your local Business Link at an early

stage. The Business Link Service is availablelocally and provides the information, adviceand support you need to start, maintain and

grow a business.

This No-Nonsense Guide explains the rulesand regulations that might affect your new

business. But your Business Link, besidesadvising you on these rules, will also help

with all the other important issues youneed to consider before starting up from

researching your market to preparing abusiness plan and raising finance. Initial advice

is free, with other services at affordable rates.

Contact Business Link for a wealth ofinformation and support services to suit your

individual needs: www.businesslink.gov.uk or

0845 600 9 006. For the equivalent services inScotland, Wales and Northern Ireland, pleasesee page 90.


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How to useThe No-NonsenseGuide

Finding a subject

Check the two pages opposite to find thesubject you want and its page number.

The guide is arranged into 12 colour-coded main sections. Within these sections,

individual topics are covered separately,each with its own sub-heading.

So if you want to find out about thevarious ways of accounting for VAT, go to the

main section headed What VAT Will MeanFor You. Just over halfway down, one of the

sub-headings for VAT highlights your topic Accounting Methods For VAT and its

page number.Its unlikely youll have to be bothered

with all the requirements listed in theContents opposite or at least not at the

beginning of your business venture. But you

can see at a glance what might apply to you,now or in the future.

Next steps

Sometimes things are mentioned in the

text that require further action orinformation such as registering yourpayroll or getting the right VAT form. You

will find what you must do and where to getmore information in the Next steps box at

the end of the sub-section. Next steps alsogives you page numbers for other entries in

The No-Nonsense Guide that are relevant tothat topic.

Case studies

And to give you some tips on how othersmall businesses have tackled Government

rules and regulations, weve included thefirst-hand experiences of people who have

already set up in business.

Check for changes in the law

Regulations, figures and sums of moneymay have changed since publication.Update check: 0845 600 9 006

www.businesslink.gov.uk/figures

a

b

c

d


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Forming a business 4

Sole trader 4

Partnership 4

Limited liability partnership 4

Limited company 5

Choosing the right name 8

Franchises, social enterprises,co-operatives and charities 9

Sorting out yourtax andNational Insurance 10

Your employment status 10

Employed or self-employed? 10

Tax and National Insurancefor the self-employed 11

Tax for a limited company 12

Calculating expenses of the

business 13

Capital allowances for

equipment and premises 13How capital gains tax works 15

The tax return for individuals 16

The tax return for companies 17

Working out tax and NI for

employees 17

Paying employees tax and NI 18

Statement of employees pay,tax and National Insurance 19

Employees pay records at theend of the tax year 20

Tax forms when an employee

leaves or dies 21

Business vehicles and tax 21

Special tax rules for theconstruction industry 22

Your business rates 23

What VAT will meanfor you 24

What is VAT? 24

What VAT rate will I have to

charge? 24

Keeping VAT records 25

Accounting methods for VAT 27

VAT on imports 28

VAT on exports 28

VAT on business vehicles 29

Premises and healthand safety 30

Planning consent forbusinesses 30

Using your home as yourworkplace 30

Fire protection 31

Ensuring easy access fordisabled people 32

Managing and transportingwaste and packaging 33

Other environmental concerns 35Health and safety essentials 35

Minimum workplace standards 35

Carrying out a risk assessment 36

Registering your business 36

Insuring your employees 37

Informing your staff about

health and safety 37

Protecting your employees 38

Computers and employees 39

Reporting incidents 39

Protecting yourintellectual property 40

Business names and domainnames 40

Protecting your trade marks 40

Patents and their benefits 41

Understanding copyright 43

Registered design anddesign right 44

IP protection overseas 44

Software copyright and

licences 45

Is your business in aspecialised sector? 46

Food businesses 46

Entertainment and leisure 46

Health and care services 46

Transport businesses 47and many other specialcases 47

The No-Nonsense Guide

Contents


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Trading regulationsand data protection 48

Describing goods and services 48

Terms and conditions of sale 48

Special rules for shops 51

Distance selling 51

Selling and marketingelectronically 53

Accepting credit and debitcards 53

Getting paid on time 54

Court action for debts 54

Preventing money laundering 55

Insuring against liabilities 56

Data protection 56

Recruiting your firstemployee 58

How to recruit and selectemployees 58

Eligibility to work in the UK 58

Drawing up employment

contracts 59

Changes to employmentcontracts 61

Understandingemployees rights 62

Insuring your employees 62

Workers and employees 62

The national minimum wage 62

Staff who are off sick 63

Arranging employees pensions 64

Length of the working week 65

Giving staff rest breaks 65

People working at night 67

Paid annual leave 67

Time off work other than

annual leave 68

Discrimination due to race, sex,

age, religion or belief 69

Workers with disabilities 71

Rights of part-time workers 71

Right to belong to a trade

union 72

When an employee is pregnant 72

Pay on maternity leave 75

Paid paternity leave 76

Paid leave for adoptive parents 77

Unpaid leave for parents 78

Employees and flexible

working 79

Resolving problemswith employees 80

Discipline and grievance

issues 80

The Acas Code of Practice 81

Monitoring email and Web use 81

Valid reasons for dismissal 82

Dismissals which areautomatically unfair 83

Dismissals which are

automatically unlawful 84

Giving notice of dismissal 84

Written reasons for dismissal 85

Constructive dismissal 85

Handling redundancy 87

Qualifying for redundancy pay 88

Sale or transfer of a business 89

Government adviceand support 90

Make Business Link yourfirst port of call 90

Grants and other types ofgovernment support 90

A government grant couldhelp you start 91

How the Government canhelp you get a loan 91

Government tax relief andcredits to help research and

development 92

Equity finance from venturecapital funds and businessangels 92

Training for you and your

workforce 93

A boost for business in

Enterprise Areas 94

Help with exporting 95

Help from your council 95

Useful contacts 96



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Sole trader

Becoming a sole trader is the

most straightforward way to set

up in business

Setting up in business as a sole

trader is quick and easy andinvolves little of the form-filling

associated with starting andrunning a limited company. Sole

traders make their own businessdecisions and dont have to

answer to anyone else.However, sole traders are

personally responsible for any

losses the business makes.This means your own

possessions including your

home could be at risk if youcant pay your debts. And you

may also find it difficult to getfinance to fund your business.

Once youre operational,

you must keep a record of thebusinesss income and outgoings.

Despite the name, you donthave to be on your own; a sole

trader can take on employees.Although sole traders are

often taxed as self-employed,this isnt automatically the case

even though youll be working foryourself. If you are self-employed,

you must register with HMRevenue & Customs within three

months of starting up (see Next

steps below).

Next steps

See Employed Or

Self-Employed?, page 10

Its a good idea to seek help

from a business adviser orsolicitor when deciding the best

legal form for your businessIf you are self-employed, you

must register with HM Revenue& Customs. Contact 08459 15 45

15; www.hmrc.gov.uk/startingup

Partnership

Forming a partnership allows

two or more people to set up

in business together, sharing

profits, management burdens

and risks

Partnerships allow you to share

the responsibility of managinga business. And joining forces

with other people may mean youhave more money to invest in thebusiness.

Partners share personalresponsibility for business debts.

They put their own possessionson the line including their

homes if things go wrong. Ifone partner cant pay their share

of any debts, the other partnersbecome responsible for it.

Remember that a partner canmake business decisions or enter

into binding contracts withoutthe consent of other partners. Its

sensible to draw up a partnershipagreement, setting out how the

partnership will be run and how

the proceeds will be split (itsbest to use a solicitor). This willhelp to prevent disputes.

Partners are often taxed as

self-employed but this isntalways the case. If you are self-

employed, you must register withHM Revenue & Customs within

three months of starting up (seeNext steps below).

Next steps

See Employed Or Self-Employed?,

page 10Its a good idea to ask a solicitor

to help you set up a partnershipagreement

If you are self-employed, youmust register with HM Revenue

& Customs. Contact 08459 15 45

15; www.hmrc.gov.uk/startingup

Limited liabilitypartnership

A limited liability partnership,

or LLP. shares many of the

features of a normal partnership

but it also offers reduced

personal responsibility for

business debts

Members of an LLP are

protected from personalresponsibility for business

debts.Their liability is limited to

the amount of money they haveinvested in the business and to

any personal guarantees they

have given to raise finance.As with a traditional

partnership, you share

management responsibilities


When youre setting up in business, youll need to decide on the trading form it will take.Getting the right option for you means finding the right balance between keeping theadministration simple, protecting your personal assets and how you will be taxed in each case

Forming a business


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Regulations, figures and sums

of money may have changed sincepublication. Update check:

0845 600 9 006www.businesslink.gov.uk/figures

and potentially have more money

to invest in the business.But forming an LLP is more

expensive and complicated thansetting up a partnership.

You have to send a registrationdocument (Form LLP2) to

Companies House and pay a 20fee (50 for same-day service).

A solicitor or company formationagent can help you set up an LLP.

An LLP also brings a numberof extra running costs. For

example, you have to makefinancial information about your

business publicly available bysending a copy of its annual

accounts to Companies House.

You must also submit an annualreturn giving key details of theLLP and its members.

LLPs also have to have theiraccounts audited. But those with

a turnover of less than 5.6m anda balance sheet total of less than2.8m are normally exempt.

You should draw up apartnership agreement setting

out how the LLP will be run andhow profits will be shared.

Members of limited liabilitypartnerships are often taxed

as self-employed but this isntalways the case. If you are self-

employed, you must register withHM Revenue & Customs within

three months of starting up (seeNext steps below).

You cant form an LLP if yourbusiness will be a charity or not-

for-profit organisation.

Next steps

See Employed Or Self-Employed?,

page 10Its a good idea to ask a

solicitor to help you draw up apartnership agreement


& Customs. Contact 08459 15 4515; www.hmrc.gov.uk/startingup

You can get Form LLP2 fromCompanies House. Contact

0870 33 33 636;www.companieshouse.gov.uk

For more information read:Limited Liability Partnerships

Formation And Names

(GBLLP1). Contact0870 33 33 636;www.companieshouse.gov.uk

Limited company

A limited company may offer

reduced responsibility for

business debts but it

brings a range of extra legal

duties, too

Private companies are limited

by shares that generally protectthe individual from personal

responsibility for businessdebts. Your personal risk will be

restricted to how much you investin the business and any financial

guarantees you have given in

order to obtain financing.However, if the company fails

and you have not carried out your

duties as a company director, you

Forming a business


John LawlerMadventurergap-year travel companyNewcastle-upon-Tyne

}We went for limitedcompany status straight

away as we felt it would gain

our customers confidencemore quickly

~


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After I was made redundant,

working with the Internetseemed to be something I

could do from home without alot of development funding.

I set up as a limited

company because I decidedto be a service to other

businesses primarily. SoI wanted to be able to put

'limited company' on ourletterheads, and sign myself

'director'. It made it look as ifwe were well-established and

not just one guy working fromhis spare room which is

what we were really.It was a perception thing

but when we started tryingto get business from large

organisations I'm sure that's

what got us through the door.We VAT-registered for the

same reason.

Dawn and I did look at forming

a partnership but it didn't seemto have enough advantages

for us. Also, we wanted abusiness that would grow, sowe knew we'd have to go limited

eventually. We thought we may aswell do it from the start.

We could have bought an off-the-shelf company but our legal

adviser said it would benefit usto incorporate under a name

of our choice and handle theprocess ourselves. Our solicitors

interviewed us, asking us whatwe wanted to do, and they made

sure our Articles of Associationcovered all the areas we

intended to work in. It was quitepainless.

We'd already spent a lot of

time thinking about a name andhad had several ideas. One wasAmaze, but although that was

It worked for me

How I wentaboutforming my

businessAfter being made redundant,

computer engineer Roger Bee

set up Netguides Limited with

his wife Dawn, operating at

first from their spare room.

Today, their Internet services

company turns over 00,000

a year and employs 13 people

}available as a domain name on

the Internet it was already takenat Companies House. We needed

to consider both aspects.A lot of Internet service

providers have search facilities on

their websites where you can typein a name and see if it's available

as a domain. We did the onlineCompanies House search for an

available name, too. It's a freeservice and very valuable.

We plumped for Netguidesbecause the business strategy

then was to write an Isle of WightNet guide followed by others.

That never happened becausethe business took off in a totally

different direction but the nameis still fine. We see ourselves

as Internet consultants, guiding

people in how to use the Net. Ithink it would be a disadvantageto pick a name that was too


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Advice in Scotland

Business Gateway in Lowlands

(0845 609 6611;www.bgateway.com);

Highlands & Islands Enterprise(01463 234171; www.hie.co.uk)


You can get the standard

registration documents(Forms 10 and 12) for setting

up a limited company fromCompanies House.

Contact 0870 33 33 636;www.companieshouse.gov.uk

Forms for the memorandumof association and articles of

association are available fromlegal stationers

For more information read:Company Formation (GBF1).

Contact Companies House:0870 33 33 636;

www.companieshouse.gov.uk

Choosing theright name

The right name for your

business can help you stand out

from the crowd but there are

a few restrictions which could

affect your choice

Sole traders or partnerships

can trade under their ownnames or choose a different

business name. However, if youchoose something other than

your own name you will have toinclude your own name and the

business address on all businessstationery.

You must register the nameof a limited company or limited

liability partnership when it is

formed.You cannot use offensive

names. And your proposed

company name must not be the

same as another name already

appearing on the register atCompanies House.

There are restrictions on theuse in a business or company

name of a number of sensitivewords and expressions such

as Royal or Institute. Furtherdetails of what is allowed can be

found in the Companies Housebooklets listed in Next steps

below.You should check the

availability and suitability ofcompany names with Companies

House before completing thecompany registration documents.

You cant reserve intended

company names for your possiblefuture use.

When choosing a name, you

may want to consider whetheryou will want to set up a website

using the same name.If so, its a good idea to check

the name is available as a web

address (domain name) andregister it, so your customers

will be able to find your websiteeasily.

Nominet UK is the registryfor UK domain names and also

provides advice on registeringand maintaining your Internet

name (see Next steps below).

Rosie EllisScene Craft UK Ltdset design company

York

}As a limited company wehad to check no-one else

was already using the same

name. Carrying out a searchon the Companies House

website was really easy

~


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Buying a franchise allows you

to set up your business withoutstarting from scratch. You buy a

licence from an existing business(the franchisor) to use their trade

name, business idea or productsand services.

This normally involves payingan initial fee followed by an

ongoing management fee orroyalties on sales. In return

you get support and advicefrom the franchisor.

Franchising has a number ofadvantages and disadvantages

a business adviser will be ableto tell you more and you should

get a solicitor to check any

franchise agreement.Social enterprises are

businesses that aim to make a

profit to help them fulfil socialaims such as creating or saving

jobs, keeping money withinthe local economy, providingservices to the local community

or training.Social enterprises are

accountable to their membersand to the wider community for

their social, environmental andeconomic impact.

Remember that a socialenterprise isnt a trading form

in itself. If youre interested insetting up a social enterprise you

should ask your business adviserwhich structure would be most

suitable.Co-operatives are one form of

social enterprise. A workers

co-operative is a business ownedand democratically controlled byits employees.

The Community Interest

Company or CIC is a business

form designed to give socialenterprises the flexibility of the

limited company form.If you want to set up a charity,

you normally have to registerwith the Charity Commission.

Charities benefit from certaintax advantages but have a range

of restrictions placed on theiractivities.

Charities can take a range ofbusiness forms you should

contact the Charity Commissionfor further guidance (see Next

steps below).

Next steps

You can get more information onsocial enterprises, co-operatives

and franchises on the BusinessLink website. Contact

www.businesslink.gov.uk/startingup

For more information on

community interest companies,contact 029 2034 6228;

www.cicregulator.gov.ukThe Charity Commission

can provide you with moreinformation on registering a

charity. Contact 0845 300 0218;www.charity-commission.gov.uk

Forming a business


Next steps

You can check your name isnt

the same or similar to that ofanother company or limited

liability partnership on theCompanies House website.

Contactwww.companieshouse.gov.uk/info

Make sure your companyname doesnt conflict with any

registered trademarks. Contactthe Patent Office Trade Mark

Database: www.patent.gov.ukYou can check availability of

domain names at Nominet(www.nic.uk) or NetNames

(www.netnames.co.uk)

See Business Names AndDomain Names, page 40

For more information on naming

your business, read: CompanyNames (GBF2); Business Names

(GBF3). Contact CompaniesHouse: 0870 33 33 636;www.companieshouse.gov.uk

Franchises,social enterprises,co-operatives andcharities

Your new enterprise may

have different aims or ways of

running itself, such as those

featured below. But you still

need to establish it within a

conventional legal business

form, such as a partnership orlimited company, for instance


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Tax and NationalInsurance for theself-employed

If you are self-employed, you

must register as such withinthree months of starting up

When you register, HM Revenue

& Customs will change your taxstatus to self-employed and make

arrangements for you to paythe correct National Insurance

contributions. However, if yourwork comes from more than one

source, it is worth remembering

that you could be classed asan employee in one job withyour employer deducting tax and

National Insurance and self-employed in another.

As someone classed as self-employed you will be responsiblefor paying your own personal tax

and National Insurance. You will

have to fill in a tax return each

year and you will be taxed on yourbusiness profits.

To work out your profit, youtake allowable expenses away

from your revenue. There arecomplex rules governing what

you can claim as expenses (seeNext steps below).

Income tax is charged on allprofit above your personal income

tax allowance. Your allowancedepends on your circumstances.

Remember that the income taxyou pay is not based on the salary

you pay yourself. For example,if you make a 30,000 profit, the

whole amount is treated as a

taxable sum, subject to personaland other tax allowances evenif you have only drawn 10,000

as salary and have retained theother 20,000 in the business.

You also have to make flat-rateNational Insurance contributionsthroughout the year (Class 2

contributions). You also pay

Sorting out your taxand National Insurance


11

Graham Walkerco-inventor

LitterBuggyYork

}I would recommend anyoneto go and see a qualified

accountant in the early

stages of setting up abusiness it will make the

paperwork much easier

to handle

~

National Insurance contributions (200607 tax year)

Class 2 contributions 2.10 a week

Class 4 contributions 8% of your annual profit between 5,035

and 33,540 and 1% on profits above 33,540

Income tax (2006-07 tax year)

Basic personal allowance 5,035

Tax rates on income above personal allowance

Starting rate 02,150 10%

Basic rate 2,15133,300 22%

Higher rate More than 33,300 40%


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National Insurance contributions

based on your profits (Class 4contributions) which are collected

with your tax.Self-employed people

pay less National Insurancethan employees but receive

significantly fewer benefits.

Next steps


& Customs. Contact the Helplinefor the Newly Self-Employed:

08459 15 45 15;www.hmrc.gov.uk/startingup/

register.htm

See Calculating Expenses Of TheBusiness, opposite

See Capital Allowances For

Equipment And Premises,opposite

HM Revenue & Customs offers aguide for people starting up:Thinking of working for

yourself? (SE/1). Contact the HMRevenue & Customs Helpline for

the Newly Self-Employed:08459 15 45 15;

www.hmrc.gov.uk/startingup

Tax for alimited company

If you set up a limited company

and work for it, the company

will pay corporation tax on its

business profits and youll betaxed as an employee of the

company

You also need business advice

This guide covers regulations. You

should also read a guide to generalbusiness advice from market

research to writing a business plan

as a business expense when

calculating the profits.You will also be taxed on any

return on your investment in thecompany or any dividends and

benefits you receive from thecompany, as well as on any loans

the company may make to you.

Next steps

If you form a limited company,you must register your payroll

with HM Revenue & Customs,even if you are the only person

on it. Contact the Helpline forNew Employers: 0845 60 70 143;

www.hmrc.gov.uk/newemployers

See Calculating Expenses Of TheBusiness, opposite

See Capital Allowances For

Equipment And Premises, oppositeSee Working Out Tax And NI For

Employees, page 17


12You will pay income tax and

employees Class 1 NationalInsurance contributions on your

employment income from thecompany. This is called PAYE

Pay As You Earn. Income taxis deducted from all earnings

above your personal incometax allowance. Your allowance

depends on your circumstances.Your business also has to

pay employers Class 1 NationalInsurance contributions for you

and any other employees.Your companys profits each

year are liable for corporationtax: the companys profit is its

sales income less its business

expenses (see CalculatingExpenses Of The Business,opposite). Companies have to

calculate their own corporationtax liability. And there are

specific rules on what can count

National Insurance contributions (200607 tax year)

Class 1 contributions 11% of weekly earnings between 97 and 645

and 1% on earnings above 645**Lower rates apply if you belong to a

contracted-out occupational pension scheme

Employers contribution 12.8% of employees weekly earnings above

97 a week

Income tax (2006-07 tax year)

Basic personal allowance 5,035

Tax rates on income above personal allowance

Starting rate 02,150 10%

Basic rate 2,15133,300 22%

Higher rate More than 33,300 40%


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Calculating expensesof the business

Your business will be taxed on

its profits: correctly working out

what your business has spent isjust as important as how much

money has come in

Strict rules govern what can andcannot be counted as a business

expense when calculating profits.Allowable expenses include:

the costs of any goods ormaterials bought as stock and

then resold; rent and running

costs for premises; marketingcosts; costs of travel to seecustomers; financing costs; and

general running expenses suchas postage and telephone. Costs

which are not allowed include:personal expenses such astravel to work; clothes or living

expenses; entertaining clients;and fines such as parking tickets.

The cost of buying equipmentor premises (and any reduction

in value following the purchase)is not allowed as a business

expense these areas arecovered by the capital allowances

system (see Next steps below).You need to keep records of all

income and expenditure in orderto fill in your tax return each year

and pay the correct tax.

Next steps

See Capital Allowances ForEquipment And Premises, below

See The Tax Return For

Individuals, page 16See The Tax Return For

Companies, page 17For more information read:

How To Calculate Your Taxable

Profits (IR222); CapitalAllowances (IR206). Contact HM

Revenue & Customs: 0845 9000404; www.hmrc.gov.uk/leaflets

Capital allowancesfor equipment andpremises

When working out your profits,

you cant count as an expensethe costs of the purchase of

premises and equipment or

their gradual reduction in value

through wear and tear. But you

can claim a capital allowance on

certain premises or equipment.

Deducting a proportion of these

costs from your business

taxable profits over several

years will reduce your tax bill

Rates of capital allowances vary,and sometimes work in slightly

different ways.The main rate for equipment is

25 per cent. However, small andmedium-sized businesses can

claim a higher rate in the yearof purchase. This is usually 40

per cent, but for one year fromApril 2006 the rate for small

businesses is 50 per cent.

So for an item costing 2,400,a small business can deduct1,200 50 per cent of the

cost from its taxable profits



13

James MarshRookbeare Farmice-cream manufacturerDevon

}We do our own payrollusing the tax and National

Insurance information

supplied by HM Revenue& Customs. The tables are

straightforward it's just a

question of being organised.

We do it on a Thursday

afternoon for Friday wages

~


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Advice in Scotland




in the first year. The next year

the allowance reverts to 25 percent. This means 300 can be

deducted from profits beforetax: 25 per cent of 1,200, which

is the remaining value of theitem. The year after that, 225

can be deducted 25 per centof the remaining value of 900.

In this way the allowance slowlydeclines year by year.

The allowance for the purchaseof industrial buildings is 4 per

cent. You take this proportion ofthe original cost of the buildings

from your profit before tax in boththe first year and in subsequent

years.

There are other specialschemes that increase the rateof capital allowances in the year

in which equipment is purchased.For example, there are capital

allowances of 100 per cent inthe year of purchase for a rangeof environmentally-friendly

equipment.

Next steps

For more information read:How To Calculate Your Taxable

Profits (IR222); CapitalAllowances (IR206). Contact

HM Revenue & Customs:0845 9000 404; www.hmrc.gov.uk/

sa/forms/content.htmFor further information about

enhanced capital allowancesfor environmentally-friendly

equipment, contact

www.eca.gov.uk

How capital gains taxworks

If youre looking to create

and sell a business or use

the proceeds from the saleof your business to fund your

retirement, you need to be

aware of capital gains tax (CGT).

And if you sell any assets you

may be required to pay CGT

You may have to pay capital

gains tax (CGT) if you sell orsometimes if you give away

what HM Revenue & Customs

calls assets. An asset issomething you own, such asshares, property or the goodwill

of a business.If an item is worth more than

you paid for it when you come tosell or dispose of it, you may beliable to pay CGT. The difference

between the items value whenyou dispose of it and when you

acquired it (less certain kinds ofexpenses allowed by HM Revenue

& Customs) is the capital gain.This is what you may be taxed on.

You will be taxed personallyon any gains you make when you

sell your business. However, youmay qualify for reduced amounts

of CGT.For example, if you have

held an asset used for businesspurposes for at least a year,

the proportion of any gain you

are taxed on when you sell theasset may be halved. It may fallto a quarter after two years or

more meaning a 40 per cent



15taxpayer in effect pays a 10 per

cent rate of CGT. This is calledtaper relief.

Individuals who make capitalgains can take account of any

allowable losses they make aswell as taper relief (see above)

and an annual amount that isexempt from CGT (8,800 in the

tax year 2006-07). If there arestill taxable gains after these

deductions, they will be taxed at10 per cent until the gain added

to other taxable income reachesthe top of the persons starting-

rate income tax band, then 20per cent until the total of taxable

income and taxable gains reaches

the top of the basic income taxband and 40 per cent on anybalance above that.

Remember you dont normallyhave to pay CGT on the sale of

your own home. And there is arange of other exemptions andreliefs.

Limited companies paycorporation tax on any capital

gains, as they are treated as partof the companys taxable profit.

CGT can be complex. Youshould take advice from an

accountant, particularly if yourcompany sells its business,

goodwill, property or shares inother companies.

Next steps

For more information read:

Capital Gains Tax An

Introduction (CGT1). Contact0845 9000 404;www.hmrc.gov.uk/leaflets/

cgt1.htm


18/102

The tax return forindividuals

Both self-employed people and

directors of limited companies

must fill in a self assessment taxreturn each year

HM Revenue & Customs should

send you a tax return in April thatis tailored to your own particular

circumstances.You will need to complete all

the details of taxable income,gains and tax allowances.

HM Revenue & Customs will

work out how much tax you haveto pay if you return the form bySeptember 30. Otherwise, you

must return the form by January31, having worked out yourself

how much tax you owe.HM Revenue & Customs will

also work out how much tax you

owe if you complete your returnonline by January 31.

If youre self-employed, youllneed to use the records you keep

while running your business to fillin your tax return.

After your first year inbusiness, your tax will be due in

two equal instalments on January31 (during the current year) and

July 31 (in the following tax year).These initial amounts are based

on the previous years tax bill.A balancing payment is due on

the following January 31, to adjust

for the difference between theamounts paid and the tax due asa result of the actual profits and

gains.

If youre a director of a

limited company, you need tokeep information on your pay,

tax, expenses and benefits inkind (P60 and P11D forms, for

example) and records of anydividends you have received (see

Next steps below).As a company director, your

tax is due on January 31 followingthe tax year. You will have to pay

any tax you owe after taking intoaccount the tax already deducted

under the PAYE system. If youowe less than 2,000 and submit

your return by September 30,this tax can probably be collected

under PAYE as well.

Next steps

If youre running a limitedcompany, you will be taxed as

an employee and need to set upyour own payroll, even if you arethe only employee.

See Working Out Tax And NI ForEmployees, page 17;

See Statement of EmployeesPay, Tax And National Insurance,

page 19;See Employees Pay Records At

End Of Tax Year, page 20For more information read:

Self Assessment Your Guide(SA/BK8); Self Assessment

A General Guide To KeepingRecords (SA/BK4). Contact

0845 9000 404;www.hmrc.gov.uk/leaflets/sa.htm

To file your self-assessment

income tax return online,contact www.hmrc.gov.uk/online


16

Debbie JonesProtek-dor Limited

lorry-cab securityequipmentOxfordshire

}Protek-dor employs fivemembers of staff and findsit easier to pay tax and NI

by bank transfer on a

monthly basis

~


19/102

Corporation tax (200607 financial year)

Taxable profits Tax rate

0300,000 19%

300,0011.5m Rate rises gradually from 19%30% (marginal relief)

More than 1.5m 30%





Shortly after the end of thecompanys accounting period,

you should receive a CT600 form,which is the corporation tax

return, along with a Notice to Payfrom HM Revenue & Customs.

However, if you do not receive

them for any reason, it is stillyour responsibility to pay thetax and complete and send a

corporation tax return. You canrequest a form CT600 from the

Corporation Tax Self AssessmentOrderline (see Next steps below).

Corporation tax bands are

set out in the table above. Thelevels may be reduced for certain

companies, especially if thereare other companies under the

same control. For example, if youown and run two companies, the

thresholds will be halved for eachcompany.

Next steps

If you dont receive a copy of

form CT600 automatically, youmust request one from your

local HM Revenue & Customs

office or the Corporation TaxSelf Assessment Orderline.Contact 0845 3006 555,

www.hmrc.gov.uk/ctsa

See Working Out Tax And NI ForEmployees, below

For more information read:A General Guide To Corporation

Tax Self Assessment (CTSA/BK4). Contact 0845 3006 555;

www.hmrc.gov.uk/ctsa/

guidance.htm

Working out tax and NIfor employees

If your business has employees,

you'll need to set up payroll

arrangements. You have to

work out the tax and National

Insurance contributions you owe

and pay them to HM Revenue

& Customs. The process can be

completed manually, or you can

file your forms and send your

payments electronically

Income tax is deducted from an

employees pay through the PayAs You Earn system, PAYE.

You must register as an

employer with HM Revenue& Customs. You will be sent aPAYE reference number and a

New Employers Starter Pack. The



17

The tax return forcompanies

Your company is responsible

for calculating and paying tax on

its profits

If your business is a limitedcompany or a limited liability

partnership registered withCompanies House, you must,

within 12 months of the end ofyour first accounting period, let

HM Revenue & Customs knowthat it is operating unless HM

Revenue & Customs has already

been in touch with you.Accounting periods are the

basis periods for corporation

tax. Your first accounting periodbegins when your company or

limited liability partnership startsoperating. Accounting periodsdont have to mirror the tax year,

but they must not be longer than12 months.

You must keep detailedrecords relating to all income and

expenses. And if you are a limitedcompany, you must ensure that

you run the correct Pay As YouEarn (PAYE) procedures for you

and any other employees.Once you have registered

your limited company, it will beresponsible for working out and

paying any corporation tax duewithin nine calendar months

and one day after the end of its

accounting period. You can be finedfor inadequate records or payinglate. You must keep company

records for at least six years.


20/102

pack comprises booklets and

a CD-ROM that contain all theforms, tables and information

you need to operate your payrollsystem and take you through

everything, step by step. It alsoexplains how to make your

returns online there arefinancial incentives for small

businesses that do this.In the Starter Pack youll find

a form P11. You use this eachpayday to record the income

tax and National Insurance duefrom each employee and the

employers National Insurancecontributions you must pay.

You use the P11 as a working

sheet to list all wage payments toemployees.

The pack also contains a

booklet Paying Someone forthe First Time which explains

how to fill in a P11 and how touse the tables to work out howmuch tax and National Insurance

is due. The CD-ROM contains aninteractive learning package to help

newcomers to running a payroll.Youll need to find out the

employees National Insurancenumber and their tax code before

you can fill in the form.If they have worked before, ask

the employee for parts two andthree of the P45 form provided

by their previous employer. Thisgives their National Insurance

number and tax code, as well asdetails of their tax and pay to date

in the current tax year.

If the employee doesnt havea P45, ask for their NationalInsurance number and get them

to fill in the top part of the P46

form from your New Employers

Starter Pack. Use the table in thePaying Someone for the First Time

booklet to work out the tax codeto use from the information the

employee has provided.Then call the HM Revenue

& Customs New EmployersHelpline, who will tell you

whether you need to send theP46 to the tax office.

Once youve completed theP11, you know how much net

pay goes to the employee andhow much is due to HM Revenue

& Customs. Other deductionssuch as pensions can also affect

the size of the pay packet.

If youre asked to do so, youhave to subtract student loandeductions from an employees

pay packet and pay them to HMRevenue & Customs. Record

the payments deducted in therelevant column of form P11. Youadd the student loan deductions

to the income tax and NationalInsurance that you are due to pay

to HM Revenue & Customs.Employers were previously

responsible for paying workingtax credit (WTC) to employees

who are entitled to it. However,this method of payment was

phased out on 31 March 2006and WTC is now paid directly into

employees' bank accounts by thegovernment.

Next steps

You must register as anemployer with the HM Revenue& Customs New Employers

Helpline. They will also send

you the New Employers Starter

Pack. Contact 0845 60 70 143;www.hmrc.gov.uk/employers

For information on howto pay employees tax and

National Insurance, see PayingEmployees Tax And NI, below

For information on electronicfiling read: Do It Online. Contact

HM Revenue & Customs:0845 60 70 143;

www.hmrc.gov.uk/onlineFor more information on your

personal tax and NationalInsurance: if you are self-

employed, see Tax And NI ForThe Self-Employed, page 11;

if your business is a limited

company, see Tax For A LimitedCompany, page 12

Employed Or Self-Employed?

A Guide For Tax And NationalInsurance (IR56) offers

important information on youremployment status. Contactwww.hmrc.gov.uk

Paying employeestax and NI

Tax and National Insurance

contributions are paid to HM

Revenue & Customs every month

unless your business collects

less than 1,500 a month, when

it can be paid quarterly

Keep records of your total

monthly or quarterly paymentsto HM Revenue & Customs onform P32 available in the New

Employers Starter Pack.


18


21/102





Tax and National Insurance

contributions must be paid toHM Revenue & Customs by the

19th of each month if you pay bycheque, or by the 22nd if you pay

electronically or through yourbank. If you collect less than

1,500 a month in income tax,National Insurance and student

loan repayments, you can payquarterly: by January 19, April

19, July 19 and October 19 ifyou pay by cheque, or by the

22nd of those months if you payelectronically or through your

bank.You will automatically receive

a payment booklet from your HM

Revenue & Customs AccountsOffice to send with your paymentsif you pay by post. Electronic

payment methods includeBACS direct credit, your banks

telephone or Internet banking,Girobank Billpay or CHAPS.

Next steps

HM Revenue & Customs canprovide detailed information

on how to pay tax and NationalInsurance. Contact

www.hmrc.gov.uk/howtopayThe New Employers Starter

Pack offers more guidance onthe procedures. Contact the

HM Revenue & CustomsNew Employers Helpline:

0845 60 70 143Form P32, the Employer's

Payment Record, is included

in the New Employer's StarterPack and can be orderedfrom the HM Revenue &

Customs Employer's Orderline.

Contact 0845 7 646 646;

www.hmrc.gov.uk/employers

Statement of

employees' pay,tax and NationalInsurance

Employees have to be given

a payslip or statement when

they are paid. This sets out

their gross and net pay and

the amounts of tax, National

Insurance and other deductions

The itemised payslip or statementmust show:their gross wages or salary

before you make anydeductions

details of deductions fromtheir pay which vary from oneperiod to the next (income

tax and National Insurancecontributions, for example)

details of any fixed deductionswhich stay the same every pay

period (such as trade unionsubscriptions)

their net wages or salaryafter tax

a breakdown of payments ifparts of the salary are paid in

different ways

Instead of itemising every fixeddeduction in each pay statement,

you can include them all on

an annually updated standingstatement. If there are anychanges which affect the fixed

deductions, you must inform the



19

Colleen Slater,Pyramid gift shop

Ziggurat LimitedBrighton

}As a limited company I haveto file accounts at the end of

the year and pay corporation

tax, which is a percentage ofmy shops net profits. Using

an accountant for this saves

us a lot of time

~


22/102





employee in writing or give them

a new standing statement.

Next steps

For more information read:Pay Statements: What They Must

Itemise (URN 06/538). Contactwww.dti.gov.uk/publications

Employees payrecords at the end ofthe tax year

There are other forms that

have to be sent to HM Revenue& Customs and given out to

your staff at the end of every

tax year

The tax year runs from April 6to April 5 and you can get all thenecessary year-end forms from

the HM Revenue & CustomsEmployers Orderline. You return

them to your tax office or fileonline at www.hmrc.gov.uk/online

Dont forget to keep copies foryour own records.

For each employee for whomyou have prepared a P11 form

(see Working Out Tax And NI ForEmployees, page 17), you will

need to fill in form P14. This isa three-part form: the top two

copies must reach HM Revenue& Customs by May 19 each year.

The bottom copy is a P60, which

details the employees total payand tax and National Insurancecontributions. You must give this

bottom copy to the employee by

May 31 each year.

Along with the P14 form, youhave to complete a P35, which

summarises all the P14s youhave prepared. You will be sent

a P35 towards the end of the taxyear and you must complete and

return the P35 with your P14s.Forms P11D and P11D(b) need

to be filled in for all directors andevery employee who earns 8,500

or more a year and has beenpaid expenses or benefits that

are taxable. It lists the taxableexpenses and benefits provided

to the employee during the taxyear. You must send the form to

HM Revenue & Customs and give

a copy to the employee by July 6each year.

A P9D form must be sent

to HM Revenue & Customs foreach employee earning less than

8,500 a year who has been paidtaxable expenses or benefits. Youmust submit the form and give

a copy to the employee by July 6each year.

Next steps

The HM Revenue & Customs

Employers Orderline providesall relevant forms and guides.

Contact 0845 7 646 646;www.hmrc.gov.uk/employers

For more guidance oncompleting the forms, check the

booklets and CD-ROM containedin the New Employers Starter

Pack. Contact 0845 60 70 143;

www.hmrc.gov.uk/employers


20

Avi LasarowDNA Biosciencegenetic testing company

London

}When I took on staff Idecided to outsource my

payroll to an accountant.

I find it is cost effectiveand it gives me one less

thing to worry about

~


23/102

than 30 years ago. The rates vary,

depending on the type of vehicle(for example, cars, vans or heavy-

goods vehicles). Check with theDriver and Vehicle Licensing

Agency (see Next steps below).Personal taxation on use of

cars for business works in twoways: one for the self-employed

and another for employees,including directors of limited

companies (see Next stepsbelow).

If you are self-employed,youve got two choices.

You can claim the actualexpenses of using a vehicle for

business when youre working

out your profits. If you take thisoption, you can also claim capitalallowances if you own the vehicle

(see Next steps below).Alternatively, you can use the

rates from the Approved MileageAllowance Payments (AMAP)scheme to calculate your vehicle

expenses using a fixed ratefor each business mile. Rates

depend on the level of mileage full details are on the HM

Revenue & Customs website.Under this system, you cant

claim for any interest you payon a loan to buy the vehicle or

capital allowances.In both cases you must keep

adequate records to back up thefigures on your tax return.

If you are employed, the rulesare different. If the business

makes a car available to an

employee for their private aswell as business use (a companycar), the employee will normally

be taxed on it as a benefit.

Remember: youll be treated as

an employee for tax purposesif your business is a limited

company.Employees won't be taxed

on the use of the vehicle if including the value of the vehicle

benefit they earn less than8,500 in a tax year or if they use

a pool car of the business. This isa vehicle routinely used by more

than one employee and not keptat an employee's home when not

being used for business nor usedprivately in any other way.

Otherwise, employees aretaxed on the benefit, the charge

being a percentage of the

vehicles list price. For almostall cars, the tax depends on thelevel of carbon dioxide emissions

and the fuel it uses. There isgenerally a lower tax charge on

more energy-efficient cars.If employees receive any fuel

for private use which they dont

pay for themselves, they will alsobe taxed on this benefit.

If employees use their owncars for business purposes, they

can be reimbursed under theApproved Mileage Allowance

Payments (AMAP) scheme at aset rate per business mile. The

rate depends on the number ofbusiness miles they travel. If you

pay the employee no more thanthe maximum calculated using

the appropriate rate, you canmake the payment free of tax and

National Insurance.

Businesses that make vehiclesavailable to employees for theirprivate use must report the

taxable value of the benefit to



21Tax forms when anemployee leaves or dies

In both cases, you complete a

P45 form

When an employee leaves, fill in

a P45 with details of their grosspay, tax code and tax deducted

in the year to the date of leaving.You then send one part of the

form to HM Revenue & Customsand give the other three parts to

the employee.If an employee dies, complete

a P45 and send all four parts of it

to your HM Revenue & Customsoffice.

Next steps

For more information read:Details Of Employee LeavingWork (Form P45). Contact

0845 7 646 646;www.hmrc.gov.uk/forms/p45.pdf

Business vehiclesand tax

The tax you pay related to

vehicles used for your business

depends on a variety of

elements, including the legal

form your business takes and

your employment status

Every vehicle is subject to apayment of vehicle excise duty

unless it was manufactured more


24/102

HM Revenue & Customs on

form P11D annually. Employersmust also pay Class 1A National

Insurance on the taxable valueof cars and fuel made available

to employees for their privateuse. There are also VAT rules on

business vehicles (see Next stepsbelow).

If your business buys a car,it can claim a capital allowance

(see Next steps below). If yourbusiness leases vehicles, the cost

can be deducted from taxableprofits.

The rules are complex. Youshould check the position with

HM Revenue & Customs or

consult your accountant.

Next steps

See VAT On Business Vehicles,

page 29See Capital Allowances For

Equipment And Premises,

page 13See Employed Or

Self-Employed?, page 10You must arrange your vehicle

excise duty on any businessvehicles. Contact the Driving

and Vehicle Licensing Agency:0870 240 0010; www.dvla.gov.uk

HM Revenue & Customs cangive you further information

on business vehicles and tax.Contact the New Employers

Helpline: 0845 60 70 143.If youre self-employed,

contact the Self Assessment

Helpline: 0845 9000 444.Further information about taxon business vehicles is

available on the HM Revenue &

Customs website:

www.hmrc.gov.uk/carsFor more information read:

Using Your Own Vehicle ForWork Guidance For

Employees. Contact theHM Revenue & Customs

Employers Orderline: 0845 7646 646;

www.hmrc.gov.uk/mileage/employee-factsheet.htm

Special tax rulesfor the constructionindustry

There are different rules for

the payment of income tax and

National Insurance if you are in

the construction industry. These

rules are called the Construction

Industry Scheme

In the construction industry,businesses fall into two main

categories: contractors andsubcontractors (though it is

possible for a business to beboth).

Broadly, a contractor is anyperson, business or public body

who pays others for work carriedout within the Construction

Industry Scheme.A subcontractor is any person

or business which has agreed tocarry out construction operations

for another person, business or

public body which is a contractor.Subcontractors must hold

either a registration card

(CIS4) or a Subcontractors Tax

Certificate (CIS5 or CIS6), all of

which must be obtained from HMRevenue & Customs.

Contractors must make adeduction of 18 per cent from

the pay of subcontractors witha registration card and forward

the deductions to HM Revenue& Customs. The deductions

are then held against accountof the final amount of tax and

National Insurance owed by thesubcontractor.

Subcontractors with aSubcontractors Tax Certificate

should be paid gross, whichmeans no deductions are made.

A new Construction Industry

Scheme will be introducedin April 2007 (see Next stepsbelow).

Next steps

You can get further detailson the Construction Industry

Scheme from HM Revenue& Customs. Contact 0845 7 335

588 for contractors, 0845 3000581 for subcontractors;

www.hmrc.gov.uk/cisFor more information read:

Construction Industry Scheme(IR14/15). Contact

www.hmrc.gov.uk/leaflets/c7.htmDetails of the new Construction

Industry Scheme, effectivefrom April 2007, are available

on the HM Revenue & Customswebsite:

www.hmrc.gov.uk/cis/reform.htm


22


25/102





Your business rates

When you start your business,

you will probably have to pay

business rates for your premises

sometimes even if you workfrom home

Usually the occupier of a non-

domestic property has to paybusiness rates. This can be the

owner-occupier or a leaseholder.Non-domestic properties are

defined as properties such asshops, offices, warehouses,

factories, nursing homes,

childcare nurseries, hotels,restaurants and guesthouses, forexample. Agricultural land and

buildings, fish farms and someproperty used for disabled people

are among a small number ofproperties that are exempt.

When you start up, you should

notify the local council thatcovers the area in which you are

running your business so it cancharge you the correct rate. If

your rateable value is less than15,000 the Small Business Rate

Relief scheme may reduce yourliability by up to 50 per cent.

If you work at home, yourcouncil may charge business

rates for the part of the propertyyou use for work. You will pay

council tax in the usual way forthe remainder of the property. It

depends on the circumstances of

each case. Check with the localbranch of the Valuation OfficeAgency for advice.

Next steps

You must notify the local

council covering your intendedworkplace that you are going to

start a business and register forbusiness rates if appropriate

For details of your local branchof the Valuation Office Agency,

contact 020 7506 1700;www.voa.gov.uk

For more information onbusiness rates and the

Small Business Rate Reliefscheme visit

www.mybusinessrates.gov.uk



23

Eamonn Sweeney

4 & Twenty BakeryLondon

}I do about 5,000 miles a yearin my own car for business.

It's easier for me to charge

the mileage allowance toexpenses than keep a record

of all my motoring expenses

and work out the business-

use proportion

~


26/102

What is VAT?

Value added tax (VAT) is a tax

on sales of goods and services.

It is not a tax on profits.

Businesses must registerfor VAT if they exceed the

registration threshold

Registration for VAT iscompulsory for most businesses

that supply goods and servicesamounting to more than 61,000

a year in any 12-month period(this threshold is valid for the

2006-07 tax year. Check

www.businesslink.gov.uk/figures forany changes). You must registerwithin 30 days of reaching the

threshold, or immediately if youexpect to exceed the threshold in

the next 30 days.Registered businesses collect

VAT on the Governments behalf.

All businesses pay VAT on mostpurchases. This is called input tax.

Registered businesses chargeVAT on the goods and services

they sell. This is output tax.If a VAT-registered business

receives more output tax fromsales than it pays in input tax

on purchases, it must pay thedifference to HM Revenue &

Customs at fixed intervals (seeNext steps below).

If more input tax has beenpaid than output tax charged,

HM Revenue & Customs will

refund the difference to yourbusiness.

Businesses with a turnover

below the 61,000 threshold can

register voluntarily. Sometimes

there can be a businessadvantage in doing this. For

example, if your business pays ahigher-than-average amount of

input tax and charges a lower-than-average amount of output

tax, it could be worth registeringto reclaim the input tax you

have paid.

Next steps

See Keeping VAT Records,opposite

For more information read:Should I Be Registered For

VAT? (Notice 700/1). Contact

HM Revenue & CustomsNational Advice Service: 0845010 9000; www.hmrc.gov.uk

To register for VAT use Form VAT1 from HM Revenue & Customs.

Contact 0845 010 9000;www.hmrc.gov.uk

For further information on

registering voluntarily contactHM Revenue & Customs on 0845

010 9000 or seek advice fromyour accountant

What VAT rate will Ihave to charge?

The rate of VAT varies according

to the type of product or service

you offer

Goods and services (supplies) aredivided into four categories forVAT purposes. They can be:taxed at a standard rate

(currently 17.5 per cent)taxed at a reduced rate

(currently 5 per cent)taxed at a zero rateexempt from VAT

All goods and services that are

not exempt are referred to byHM Revenue & Customs as

taxable supplies.Most VAT-registered

businesses must add thestandard rate of VAT to the value

of their products and serviceswhen they are sold.

The reduced rate must becharged on: domestic fuel or

power; installation of energy-

saving materials; grant-fundedinstallation of heating equipment,security goods or connection

of gas supply; renovationand alteration of dwellings;

residential conversions; womenssanitary products; childrenscar seats.

There are also specific ruleson products and services that are

zero-rated. In these areas, VAT isapplied at 0 per cent. Businesses

that offer zero-rated productsor services can still reclaim

the input tax they have paid onpurchases. Zero-rated products

include: most food (but not mealsin restaurants or cafes and hot

takeaway food and drink); books;newspapers; young childrens

clothing and shoes; exportedgoods; most public transport

services.

Exempt products and servicesinclude: insurance; providingcredit; certain types of education

and training; certain services


24

If your business supplies goods or services exceeding 61,000 each year, you must register forvalue added tax (VAT). Youll have to charge VAT on your sales and pay it on most purchases.But dont be daunted a lot of the paperwork is the kind of thing a well-run business will bedoing in any case

What VAT will meanfor you


27/102





from doctors and dentists;

selling, leasing or letting landand buildings (but not garages,

parking spaces or hotel andholiday accommodation).

Any business which offerssome goods or services that are

subject to VAT and some that areexempt have partial exemption.

This means it can only reclaiminput tax as a proportion of output

tax charged. If your businesswill be dealing exclusively with

exempt products or services, youwill not be required to register for

VAT.

Next steps

Check if your products orservices are standard-rated,

reduced-rated, zero-rated orexempt. Contact HM Revenue

& Customs National AdviceService: 0845 010 9000;www.hmrc.gov.uk

For more information read:The VAT Guide (Notice 700);

Partial Exemption (Notice 706).Contact HM Revenue & Customs

National Advice Service: 0845010 9000; www.hmrc.gov.uk

Keeping VAT records

Being registered for VAT means

that you must keep full and

accurate records

You must start keeping recordsand charging VAT to customers

from the date you know you have

to be VAT-registered. Each invoice

or receipt must show clearly therate and amount of VAT charged

and the VAT number given toyour business by HM Revenue

& Customs when you registered.You must also ensure your

VAT-registered suppliers do thesame on their invoices to you so

you have evidence that you areentitled to reclaim the input tax

youve paid.You must keep copies of all

invoices or receipts and a noteof all the VAT you have charged

and paid.You have to fill in a VAT return

showing how much VAT you

have received and paid andforward payment of the balanceto HM Revenue & Customs. You

must complete a VAT return foreach accounting period. This is

usually every three months, but ifyou expect the input tax you pay tobe greater than the output tax you

charge, you can make monthlyreturns. You will be sent a VAT

return form to fill in before eachpayment is due. You must return

it to HM Revenue & Customs nolater than one month after the

accounting period.There is no set way to keep

records, but they must be easyfor HM Revenue & Customs to

inspect whenever it asks to do so.Full records must also be kept for

a minimum of six years.

Next steps

For more information read:Keeping Records And Accounts

(Notice 700/21). Contact HM



25

Don HaddawayArtisiam Limited

telecommunicationsconsultancyOundle, Northants

}We registered for VAT fromthe start because I knew we

would have had to within

a month anyway. VAT andtaxation scared me, but I

decided it was easier to sort

it out straight away

~


28/102


26

Id worked in different floristsover the years but before I had

my own shop Id never hadto do a VAT return. So what I

actually did when I first opened

was be VAT-registered fromthe start.

That was so I could get to

grips with the VAT systemwhen the business was in a

quiet phase. I wasnt worriedabout charging VAT on mysales because most of my

competition wereVAT-registered too.

It also helped when dealingwith companies and larger

organisations. Sometimesif youre not VAT-registered

youre not taken that seriouslyby them.

I did go on a short coursewhich went into some detail

on VAT when I started mybusiness, but my accountant

still talked me through myfirst returns. It does feel a bit

daunting at first but actually

its pretty straightforward ifyoure doing your book-keepinganyhow.

I do my books at the end ofevery quarter. I go through all

my cheque books, receipts andinvoices. All my flowers and

everything I buy has VAT included

in the price so I work out the VATon the gross amount that Ivespent and do the same for sales

in the shop. I add it all up andthen balance the two together

to work out what, in most cases,I owe.

Though actually, after my first

return, HM Revenue & Customsgave me money because Id spent

out on shelves and flooring andall those other things you need

when you start off.Now my turnover is such that

Id have to be VAT-registeredanyway, but Im pleased I started

earlier than I had to. If I hadntI wouldnt have been able to

claim my rebate on the fixturesand fittings. And I have a good

understanding of how it all worksnow anyhow.

I do my book-keeping every

quarter and it takes me eightor so hours. But thats makinga note of everything, not just

working out VAT. I find its

easier to do it together and not

have two separate sets of books.HM Revenue & Customs

sends out VAT guidelines and

theres a VAT helpdesk numberyou can ring.

The important thing is toadopt a methodical approach,double-check all the figures

and hold on to your workingsand calculations theyre

always helpful for the nextquarter. If you get too het up

about these things it couldreally get to you. Ive found that

so long as you keep a record ofeverything you do everything is

usually okay.

It worked for me

How I gotto gripswith my

VAT returnsAnita McCullough opened

her shop, Anitas Fabulous

Flowers, in central Belfast

in autumn 2000. She

registered the business for

VAT before she had turned

over a single penny

~

}

AaranMcCracken/UNP

Blossoming: Anita took the VAT

route from the start

Anitas Fabulous FlowersBelfast

Tel 02890 650500


29/102

You also need business advice

This guide covers regulations. You

should also read a guide to generalbusiness advice from market

research to writing a business plan

after your customer has paid

you and your input tax is onlyentered on your return when

you have paid your supplier. Youcan change to this system at

the beginning of any tax period.However, you must be careful

to separate any output tax orinput tax dealt with under your

previous system. You dont needpermission from HM Revenue

& Customs to use this schemebut there are certain conditions

you must meet, set out in Notice731 (see Next steps below).

The flat-rate scheme for smallbusinesses is designed to reduce

the time you spend accounting

for VAT. It allows you to calculateyour VAT payment as a fixedpercentage of your turnover.

The percentage depends onthe type of business you are in.

Businesses in the first year ofVAT registration qualify for a oneper cent reduction.

To be eligible for the flat-ratescheme, the proportion of your

annual turnover subject to VATmust not exceed 150,000 and

your total turnover must notexceed 187,500. You must apply

by filling in Form VAT 600 (FRS). Ifyou use this scheme, you will not

be able to reclaim any input taxas it is already allowed for as part

of the percentage calculation.A selection of specialist

schemes are available to retailerswho would otherwise find it

impossible or costly to comply

with standard VAT accountingrules. Specialist advice isavailable from HM Revenue

& Customs or your accountant.

The annual accounting system

requires one VAT return to befiled each year. You can register

for this scheme if your annualturnover subject to VAT is not

more than 1,350,000.Under the annual accounting

system, VAT payments based onan estimate are usually made nine

times each year, with a balancingpayment due when you submit

your return. By allowing you topay a set amount each month,

the scheme can help you manageyour cashflow with more certainty

and you have two months tosubmit your return rather than

one. Annual accounting can be

used at the same time as the flat-rate scheme.

Next steps

For more information read:Cash Accounting (Notice 731);Flat Rate Scheme For Small

Businesses (Notice 733); RetailSchemes (Notice 727); Annual

Accounting (Notice 732). ContactHM Revenue & Customs

National Advice Service: 0845010 9000; www.hmrc.gov.uk

HM Revenue & Customs willcomplete your application for

the flat-rate scheme on yourbehalf. Contact 0845 010 9000

Use an online ready reckoner tocalculate flat-rate VAT payments.

Contact www.hmrc.gov.uk



27Revenue & Customs National

Advice Service: 0845 010 9000;www.hmrc.gov.uk

Accounting methodsfor VAT

There are a number of methods

you can use to account correctly

for VAT. Choose the one that best

suits your business

Unless you arrange otherwisewith HM Revenue & Customs,

your output tax must be

accounted for in the next VATreturn period in which youcharge or invoice your customer,

regardless of whether you havereceived payment. Your input tax

may be reclaimed if you have avalid VAT invoice or receipt in theVAT return period in which you

made the purchase, even thoughyou may not have paid your

supplier.Other accounting schemes you

may be able to use are:cash accounting

the flat-rate scheme for smallbusinesses

specific retail schemesannual accounting

If the proportion of your turnover

subject to VAT does not exceed660,000 a year, your business

can use the cash accounting

scheme. This may be useful ifyour customers are slow payers.You only have to record your

output tax on your VAT return


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Advice in Scotland




VAT on imports

If your business imports goods,

there are a number of important

VAT rules youll need to consider.

And in some cases, you may alsohave to pay import duty

The regulations that govern

VAT on imports into the UK arecomplex and businesses should

seek advice from HM Revenue& Customs. In general terms, VAT

is payable on all imports at thesame rate that would apply to the

product or service if supplied in

the UK.It isnt necessary to register for

VAT to import goods but you

wont be able to claim back anyVAT you pay if you dont.

You must enter on yourVAT return details of VAT ongoods acquired from within

the European Union (EU). Thisis known as acquisition tax.

However, you are entitled toreclaim input tax on the goods as

if they were supplied in the UKsubject to the normal rules.

If you have a high level ofimport trade with the EU, you

may have to submit more detaileddeclarations, known as Intrastat

Supplementary Declarations.For goods imported from

outside the EU, import VATand duty must be paid before

the goods are released by

HM Revenue & Customs.Duty is an additional tax, based

on the value of imported goods.

Duty varies according to type of

product and country of origin.

In some cases no duty may bepayable. HM Revenue & Customs

can advise you on the rate of dutywhich applies to a product.

Duty cannot generally bereclaimed by VAT-registered

businesses, except where goodshave been imported under Inward

Processing Relief (see below).There is no duty on goods which

originate from an EU countryor which have already been

imported with HM Revenue& Customs charges paid.

For example, when goods aresupplied from the US to Belgium,

duty and other taxes are paid

in Belgium. Once in the EU, thegoods are in free circulation.If they later enter the UK, no

customs charges are payable.When importing goods from

outside the EU, you can storethem in an approved HM Revenue& Customs warehouse if

you dont intend to sell themimmediately. VAT and import duty

become payable when the goodsleave the warehouse.

If you intend to re-export thegoods after processing them, you

can apply for Inward ProcessingRelief. VAT and duty only become

payable if you sell the goods inthe UK or fail to comply with the

schemes conditions.If you import regularly, you

can operate a deferment account,settling your VAT and duty on a

monthly basis. You may need a

bank guarantee for this.

Next steps

Further guidance, including

rates of duty on commonlyimported goods, are available

from HM Revenue & Customs.Contact 0845 010 9000;

www.hmrc.gov.ukFor more information read:

A Brief Guide To ImportProcedures (Notice 501);

Deferring Duty, VAT And OtherCharges (Notice 101). Contact

HM Revenue & CustomsNational Advice Service: 0845

010 9000; www.hmrc.gov.ukFor more information about

Intrastat contact

www.uktradeinfo.com

VAT on exports

The value of any exports you

make whether to countries

within or outside the EU

must be entered on your VAT

return. In many cases these

transactions will be zero-rated

for VAT

Businesses in the UK that

sell to VAT-registeredbusinesses in other parts of

the EU must submit details ofthe transactions to HM Revenue

& Customs.If you have a high level of

export trade with the EU, you

may have to submit moredetailed declarations, knownas Intrastat Supplementary

Declarations.


28


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If you export goods to a

customer outside the EU and areVAT-registered, the goods can be

zero-rated. The supply of someservices to overseas customers is

also zero-rated, but many attractstandard-rate VAT.

If you are VAT-registeredand supply goods that are sent

from the UK to a VAT-registeredcustomer in another part of the

EU, the goods can be zero-rated.Complex rules surround exports

and VAT. Check with HM Revenue& Customs for advice.

Next steps

For more information read:VAT Exports Of Goods FromThe United Kingdom (Notice

703); The Single Market (Notice725); Place of Supply of Services

(Notice 741). Contact HMRevenue & Customs NationalAdvice Service: 0845 010 9000;

www.hmrc.gov.ukFor more information about

Intrastat contactwww.uktradeinfo.com

VAT on businessvehicles

There are special rules for VAT

on business vehicles and the

fuel used in them

You cant normally reclaim theinput tax you have to pay on anew motor car. However, VAT-

registered businesses can claim

it back if they can show the car

is used 100 per cent for businesspurposes (a pool car kept on site,

for instance). You must chargeoutput tax if the car is sold later.

VAT incurred on the purchaseof a commercial vehicle (a van,

lorry or tractor, for example) canbe reclaimed in full subject to the

normal rules.If the business pays for both

private and business fuel, a fixedVAT charge is applicable based

on the size of the vehicle (this iscalled the fuel scale charge). This

allows the business to reclaimVAT on both the business and

private elements of the fuel.

If the business does not payfor private mileage, a scalecharge does not apply and VAT

may be reclaimed on fuel boughtfor business provided you keep

a detailed record of businessmileage.

If you lease a car for business

purposes, VAT may be reclaimedon 50 per cent of the lease charge.

Next steps

See Business Vehicles And Tax,

page 21For more information read:

Motoring Expenses (Notice700/64). Contact HM Revenue

& Customs National AdviceService: 0845 010 9000;

www.hmrc.gov.uk



29

Victoria TringhamPomeloflip-flop and holidayaccessory designerNewport

}The business became VAT-registered after about a

year. At first it was a bit

daunting, but now I knowwhat I am doing it is quite

straightforward. I use an

accountant for the yearly

VAT returns and do my own

quarterly ones

~


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Planning consent forbusinesses

If you want to change the

use of premises or extend a

building, you may need planningpermission from your local

authority. And any significant

building work must comply with

building regulations

Planning permission and buildingregulations are managed by

your local authority. Specialconsiderations apply for people

working from home (see below).

You may require planningpermission to change the waypremises are used from a shopto offices, for example. Check

with your local authority whetheryoull need permission for your

intended use.In general, any building

work which significantly altersthe external appearance of a

building, such as an extension,requires planning permission.

Most significant building work,such as removing internal walls

or adding extensions, mustcomply with building regulations,

regardless of whether planningpermission is needed.

If your building is listedas being of architectural or

historical interest, you may needto apply to the local authority

for listed building consent as

well, even for minor changes todcor. Unauthorised alterationsto a listed building are a criminal

offence.

It is advisable to check if any

of these requirements will affectyou before negotiating a lease or

buying a property.

Next steps

SeeUsingYourHomeAsYourWorkplace,below

SeeEnsuringEasyAccessForDisabledPeople,page32

Yourlocalauthoritycanadviseonplanningpermissionand

buildingregulationsMoreinformationisavailable

onthePlanningPortal.Contactwww.planningportal.gov.uk

Commercialleasesoften

carrylong-termcommitments.Toensurealeasethatsuitsyourbusiness,read:Code

OfPracticeForCommercialLeasesInEnglandAndWales

(recommendationsforlandlordsandtenantswhennegotiatingleasesforbusinesspremises).

ContactRoyalInstitutionofCharteredSurveyors:08703331600;

www.commercialleasecodeew.co.uk

Using your home asyour workplace

T

the no-nonsense guide to government rules and regulations for setting up your business

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