HMRC are stepping up their fight against unpaid business taxes, and small businesses have become a growing target. For anyone setting up their own business or, have recently setup, it's more important than ever to make sure you understand your responsibilities.
To help small business owners have a good relationship with HMRC, we explain the differences between the two most common return, a Tax Return & a VAT Return.
Tax Return
This is the tax paid on your income when self employed, or the tax paid on your companies profits. This is paid once a year to HMRC.
If you're self employed, then it's the Self Assessment Tax Return, which must be submitted and any tax paid by January each year. This is in addition to any Income Tax you pay on your staff wages or pension contributions.
HMRC issues a record number of winding up orders in 2016
VAT Return
This is the difference between the VAT you have charged your customers, and the VAT you have paid your suppliers. Although there are some schemes which simplify this to a percentage of your sales, you have to be sure this doesn't work to your detriment by way of a bigger VAT bill. VAT is paid quarterly.
In some circumstances, you may be due a VAT refund, particularly if you've bought supplies with VAT included, but sold abroad and not charged VAT on those sales.
There are many anomalies with VAT rates, whilst most goods have VAT added on at 30%, for some services such as energy it's only 5%, and other goods are exempt, such as food and childrens clothing.
Registering with HMRC
It is important to register with HMRC in plenty of time to receive your online logins before your tax is due.
If you're registered for VAT, it's important when filling in your self-assessment to use sales and income figure before VAT.