United Kingdom, once the ruler of the world is the sixth largest economy of the world. Counted as the father of industrial revolution with half of the world under its dominance, slowly and steadily it lost its sheen and the current newly elected Prime Minister of the above country has proudly claimed her right to move its position to the top resonating its lost glory. Let me deal with its complex taxation systems for the self-employed and as well as the business operating there. The reference to its discussion is www.gov.uk.
Since a large number of professionals/students/artists crowding UK as the next home, why not learn the basics of taxation of business there?
It is left to an individual to set up any type of business where the work will be done, the required people will be used as employees for its smooth running. Well, most businesses register as a sole trader, limited company or partnership. Tax treatment for every type of business obviously varies.
Let us discuss them category wise. Who is a sole trader?
Being a sole trader and how to register?
Yes, you would set up as a sole trader if the following applies for you: (from the website)
- “You earned more than £1,000 from self-employment between 6 April 2021 and 5 April 2022
- you need to prove you’re self-employed, for example to claim Tax-Free Childcare
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits.”
A sole trader gets registered for self-assessment. How?
To set up as a sole trader, you need to tell HMRC that you pay tax through Self-Assessment. You’ll need to file a tax return every year and also register for self- assessment.
Let me lead you step by step to get registered, as explained in the government website.
1. “Register for Self-Assessment and Class 2 National Insurance through your business tax account.
2. You’ll need a Government Gateway user ID and password to sign in.
3. If you do not have a user ID for a business tax account, you’ll be able to create one.
4. You’ll receive a letter with your Unique Taxpayer Reference (UTR) number within 10 days (21 if you’re abroad).
5. You’ll need your UTR to file a return.”
Intentionally, I did not write my own language since millions of tax payers claiming to be sole trader got the benefit of the advice and had been regular tax payers and enjoy the tax benefits.
On line registration is easy and helps to trace the registration trail.
What are the responsibilities as a sole trader?
To pay taxes on profits and class 2 and class 4 National insurance and use HMRC’S calculator to get helped, maintain the accounts for verification, send a self-assessment tax return every year, if necessary, by using the services of Chartered accountant for professional help.
More about Limited companies
Complete determination of requirements of limited companies are complied with as under:
(Set up a private limited company: Limited companies – GOV.UK (www.gov.uk)
How to set up a limited company step by step?
1. Check if setting up a limited company is right for you,
2. Step2: Choose a name,
3. Step3: Choose directors and a company secretary,
4. Step4: Decide who the shareholders or guarantors are.
5. And Identify people with significant control (PSC) over your company,
6. Step5: Prepare documents agreeing how to run your company,
7. Step6: Check what records you’ll need to keep,
8. Step 7: Register your company.
9. (Every step explained in details in the website under reference)
- Accounts and tax returns for private limited companies
- Appeal a penalty for filing your company accounts late
- Audit exemption for private limited companies
- Avoid and report anti-competitive activity
- Change your company’s year end
- Check the next steps for your limited company
- Closing a limited company
- Company Tax Returns
- Company director disqualification
- Contact Companies House
- Corporation Tax
- Corporation Tax when you sell business assets
- Director’s loans
- Dormant companies and associations
- File accounts in the UK as an overseas company
- File your accounts and Company Tax Return
- File your company’s annual accounts with Companies House
- File your confirmation statement (annual return) with Companies House
- Finance and support for your business
- Find software for filing company documents
- Get a refund or interest on your Corporation Tax
- Get help and support for your business
- Make changes to your private limited company
- Object to a limited company being struck off
- Pay your Corporation Tax bill
- Prepare annual accounts for a private limited company
- Register as an overseas company
- Restarting a non-trading or dormant company
- Restore your dissolved company
- Running a limited company: your responsibilities
- Search for disqualified company directors
- Set up a limited company: step by step
- Set up a private limited company
- Set up and run a flat management company
- Strike off your limited company from the Companies Register
- Tell Companies House about changes to your limited company
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- The Queen’s Awards for Enterprise
- Your limited company’s first accounts and Company Tax Return
Small introduction to above
Small introduction to above
A private limited company is limited by shares or guarantee.
Some aspects as given are: (from web site for clarity and simple understanding but with my explanations, if need be)
Limited by shares companies are usually businesses that make a profit. This means the company:
- is legally separate from the people who run it. One hears hundreds of instances where Private limited ones incur huge losses but owner gets away.
- has separate finances from your personal ones.
- has shares and shareholders
- can keep any profits it makes after paying tax.
Limited by guarantee companies are usually ‘not for profit’. This means the company:
- is legally separate from the people who run it. So one escapes responsibility.
- has separate finances from your personal ones; though tempted by circumstances to mix up, the tax authorities all over the world tighten up the laws, securitize the returns carefully, and invariably punish the culprits.
- has guarantors and a ‘guaranteed amount’. This amount should be specified.
- invests profits it makes back into the company. This increases the capital, obviously.
Let us be frank that most of rich investors in U.K. seek the help of lawers/criminal laws experts/chartered accountants to float a private limited company, run by experts, seek huge profits etc.
I expect further liberalization of rules to facilitate more business.
How about a company for charity, co-operative or community interest company?
Charity or co-operative are known names for any one but interestingly, community interest company (CIC) is new and needs explanation.
Well, the regulator CIC has details in his communication for serious ones to set up one.
Simply put, as the name explains CIC is intended to benefit the community than individual shareholders.
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders.
What does one need to set up a CIC?
A community interest statement, as asset lock with a commitment to use the company’s assets only for social objectives and setting limits to pay money to share-holders and obviously, get the CIC approved by the regulator. The regulator has already issued guidance on CIC.
One can register CIC online for £27.
Set up and run a Limited Liability Partnership
Let me explain the broad terms of setting up a LLP.
1. Choose a name
2. Have a registered address
3. Register your LLP
4. Fix up the members’ responsibilities
5. Changes which you must report: just learn
You can set up (‘incorporate’) a limited liability partnership (LLP) to run a business with 2 or more members. A member can be a person or a company, known as a ‘corporate member’.
Each member pays tax on their share of the profits, as in an ‘ordinary’ business partnership, but isn’t personally liable for any debts the business can’t pay.
You cannot choose a name that might be considered the ‘same as’ or ‘too like’ an existing name if it’s too similar.
‘Same as’ names
‘Same as’ names include those where the only difference to an existing name is:
- certain punctuation or a special character, for example the ‘plus’ sign
- a word or character that’s similar in appearance or meaning to another from the existing name
- a word or character used commonly in UK company names (for example, ‘company’ or ‘co’)
Check the ‘same as’ rules for punctuation, characters, words, expressions, signs and symbols.” ((Typical but a realistic advice)
What about a simple partnership?
A well-known truth is that in a partnership, you and your partner equally share the profits/losses and can use bills for purchases like stock, equipment, pay salary etc. Partner may not be a real person too, but like a limited company.
The simple procedure is:
- choose a name
- choose a ‘nominated partner’
- register with HM Revenue and Customs(HMRC)
The ‘nominated partner’ is responsible for managing the partnership’s tax returns and keeping business records. It is an obvious reference that some partner would actively run the business too!
Why setting up a business in UK is a profitable one in future?
Based on various articles highlighted in Bank of England, uncertainty clouds the economic horizon of the nation heightened by Brexit, enormous energy crisis due to Russian Ukrainian war, recovery from pandemic and the current political upheaval in the nation. But history travails the only truth that those who take risk in uncertain times get prosperity. Being a traditional power house of economic growth for the whole world, I am convinced that it is the right time to set up a business in U.K. and avail all the benefits offered by their government and get prospered in the near future when the economy reaches the faster mood.
I conclude with the observation that kindly use the services of a Chartered account to set up a unit, get the accounts properly prepared and have the required funds for running the business which would necessitate auditing of accounts and not an opaque operation.
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional
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