Every company in England has one common creditor: HMRC. All business owners must pay business tax, but how do you know if you’re paying the correct amount? It’s important that you calculate how much you owe accurately, or you could find yourself in deep water.
HMRC is the most prevalent petitioner of wind up petitions through the courts, usually down to unexpected tax, VAT or PAYE bills which make up a large number of insolvent companies.
How can I know I am paying the correct business tax?
It can be difficult to work out how much tax you need to pay; from business rates if you’re a retail or office-based business, VAT, corporation tax for limited companies, income tax and – even though not named a tax, National Insurance. Some business may pay a few different taxes depending on the nature of the company, and failure to become familiar with the business taxes you need to pay can have major consequences when it’s time to pay your bill.
Here’s a quick guide to which taxes may be applicable to you.
- Corporation tax – This is paid by a limited company. Corporation tax is applied AFTER salaries and business expenses have been paid, but before dividends are withdrawn. You’ll need to submit a CT600 form online to HMRC every year, with details of your company’s income, minus any tax allowances and expenses
- Income tax – You’ll pay income tax on personal income, such as a salary, dividends or rent. If you’re a director drawing a salary, you’ll pay income tax via the company’s PAYE scheme. As a sole trader, you’ll pay it through your annual Self Assessment tax return
- National Insurance – It may not be called a tax, but you’ll contribute to National Insurance through PAYE or, for sole traders, via your annual Self Assessment. This helps to build your state pension and pay for public services
- VAT – VAT is added to the price of most goods and services. You’ll only need to register to pay for VAT if your annual turnover exceeds the VAT threshold
- Business rates – If you run your business from an office or retail premises, you’ll need to pay business rates. This will be sent as a bill by your local authority, which will tell you how to pay. You can opt to pay in monthly instalments, if it’s easier
What happens if I can’t pay my tax or VAT bill?
Don’t panic! First and foremost, keep your cool, but do make sure you act quickly. HMRC is a big entity to deal with, so it may seem daunting at first, but remember, you don’t have to do it yourself! Many companies appoint a licensed practitioner on their behalf to negotiate payment terms, as they would with any other creditor.
As a trusted third-party arbitrator with experience in these matters, we’re likely to have more success at helping to deliver the best outcome than if you were to try to negotiate alone.
There are a range of insolvency procedures available to you – perhaps a CVA or Administration, but there are a number of different routes to take, depending on your situation. The best thing to note is that early action is the best option for helping to save the business, as well as protecting your own finances. If your company is struggling to pay its debts, contact McAlister & Co for free initial advice; we will be able to help.