Blog.

Tax - who has to pay and how much...

All UK Limited Companies have a tax responsibilities.

This is commonly Corporation Tax and VAT.

Corporation Tax

Corporation Tax as of today stands as 25% of profit. Check with your accountant if this is still applicable.

My top tip for preparing for this firstly take a look at last years profit. Now check your year-to-date figures compared to last year - most software will have this report.

Is it the same? Is it more? Is it less? 

Most companies plan on growth, so if your profit is less or the same - this will need investigating. (Another blog to come later on investigations)

Use the difference to prepare your tax.

Example -

Last year in April profit was £5000

This year is £7000

Last years corporation tax for April would have been £1250

This years will be £1750

Please note - All your transactions have to be fully reconciled each month for you to check your profit and set aside what is needed for your Tax Bill.

Or a simpler way could be to set aside what has been paid previously with your expected growth percentage added on.

Value Added Tax (VAT)

Is a little easier - add the last 4 quarter bills together and divide by your invoiced amount multiplied by 100. This will give you a rough percentage of your VAT liability.

Example -

VAT Liability

Q1 £12,500

Q2 £13,500

Q3 £12,500

Q4 £11,500

TOTAL £50,000

Turnover £350,000

50,000/350,000x100=14%

Personally I'd advise to round this to 15% to put aside.

Note - This is by all means is no way to 100% cover your liabilities and there will be differences, however this will mean you have covered the majority of your liability. If you have surplus you could leave it to roll over for the next bill or take it out and reinvest into your business. If you find you don't have enough, recalculate.