UK SMEs Unaware Of Their Tax Charges 

Tax brackets and duties might be tough for anybody within the working world to wrap their heads round. However new analysis suggests even bosses are struggling to make sense of it. 

Considerably alarmingly, digital funds supplier, takepayments has found that 31% of sole merchants don’t know what tax band their enterprise is in.

With a brand new monetary yr beginning this Sunday, being unaware of tax obligations can result in pricey penalties. We’ll undergo the important thing tax duties for the self-employed, beneath.

Understanding tax bands

The tax band you’re chargeable for in the end depends upon your enterprise construction. Right here’s a breakdown of the totally different tax obligations and what they imply for sole merchants: 

Revenue Tax

A tax that sole merchants pay on earnings. The quantity you pay depends upon your revenue and tax band. The present charges in England, Wales and Northern Eire are:

Nationwide Insurance coverage

Self-employed staff pay Nationwide Insurance coverage Contributions (NICs), relying on income. You’ll must pay Class 4 NI if you happen to earn over £12,570 a yr. The present charges for NICs are:

• 6% on income of £12,570 as much as £50,270
• 2% on income over £50,270

You may as well make Class 2 NI contributions (£2.50 per week for 2025/26) in case your income are lower than the Small Income Threshold of £6,725. Nevertheless, as of April 2024, these funds are actually handled as voluntary for the self-employed.

Worth-added tax (VAT)

Each sole merchants and restricted corporations have 30 days to register for value-added tax (VAT) if their turnover reaches greater than £90,000 yearly. As soon as registered, you’ll must cost VAT in your items and providers and submit VAT returns to HMRC. 

Enterprise charges

Any small enterprise with a bodily institution will likely be chargeable for enterprise charges, which is a tax on business properties, corresponding to workplaces, outlets and warehouses. 

Enterprise charges are calculated based mostly on the rateable worth of a property and are sometimes paid to the native council. Nevertheless, some merchants could also be eligible for Small Enterprise Charges Reduction (SBRR) to scale back their prices.

How one can make 2025 much less taxing

Whereas the rise in Class 1A employer NICs is unlikely to have an effect on the self-employed, small companies and sole merchants who’re planning to tackle staff this yr want to concentrate on the modifications to keep away from any surprising liabilities. Right here’s what it’s essential to know: 

1. Tax deductions

HMRC gives a number of tax deductions that employers qualify for to offset a few of these prices. For instance, the Employment Allowance scheme permits companies to cut back their NICs by as much as £5,000 per yr, serving to to decrease their total tax burden if they’ve staff.

Different frequent tax deductions embrace:

• Enterprise charges aid
• Cost, reclaim and file VAT
• Declare capital allowances
• Self-employed bills

2. Correct record-keeping and well timed tax submissions

Correct record-keeping is important to avoiding any tax-related complications. Utilizing good accounting software program, corresponding to HMRC-approved instruments like QuickBooks, Xero, and Zoho Books, might help make the method simpler by robotically monitoring bills, producing experiences and serving to you meet deadlines, corresponding to for Self-Evaluation, on time.

3. Searching for skilled recommendation

Typically, one of the best ways to remain on high of your taxes is to seek the advice of with a tax advisor or accountant. That manner, you may get knowledgeable steering tailor-made to your corporation, serving to you reap the benefits of accessible deductions and guaranteeing you’re assembly all of your obligations.

Whether or not it’s understanding advanced tax legal guidelines, planning for the long run or getting assist with submitting, skilled recommendation can prevent time, stress and probably cash in the long term.

takepayments has developed a Enterprise Tax and Nationwide Insurance coverage Calculator on their website, which helps sole merchants estimate what their month-to-month and annual tax funds will likely be, based mostly on their revenue and expenditure. 

Tax blindness and its affect on SMEs

takepayments’ research, which surveyed over 400 sole merchants and freelancers, additionally discovered that just about half (43%) aren’t conscious of the tax fee for his or her band. Furthermore, 34% don’t know the deadline for making any superior funds in direction of their invoice.

“It’s not shocking that many small enterprise house owners are not sure of the authorized obligations they’ve relating to issues like tax and VAT,” feedback Jodie Wilkinson, Head of Strategic Partnerships at takepayments. “The principles might be fairly obscure, particularly if you happen to simply wish to deal with rising your corporation.”

Whereas sorting taxes is usually a tedious process, correct tax data is important for SME monetary administration, money circulate administration and funding choices.

Failing to satisfy tax obligations may also result in severe penalties, together with penalties for missed funds and much more extreme authorized actions or fines. HMRC may also impose fines for late submitting or fee, with penalties starting from £100 to larger percentages of the tax owed, relying on the size of the delay.

As the brand new monetary yr begins, now could be the time for SMEs to take management of their tax obligations. Begin by familiarising your self together with your tax band, being attentive to key deadlines and guaranteeing your record-keeping is so as. 

Think about using good accounting software program to streamline the method and cut back the danger of errors, and don’t hesitate to hunt skilled recommendation if you happen to’re not sure.