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United Kingdom

Taxes

Updated 02/2011

Legal requirements

The taxes a business must pay depends on various factors, for example, whether one is self-employed or whether the business is a partnership or a public company. Business Link provides information on the different areas:

Value-added tax ( VAT) is charged on most goods and services that VAT-registered businesses provide in the UK and on some goods and services that are imported into the UK from non-EU and EU countries. There are 3 rates of VAT depending on the goods and services provided and VAT-registered businesses can generally reclaim the VAT paid by them.

Tax returns for the self-employed or those in a partnership.

Corporation Tax is paid by limited companies on their profits.

Capital Gains Tax (CGT) relates to gains made from selling or disposing of assets. Understanding CGT can be important if you are looking to grow and sell a business and then use the proceeds to fund your retirement.

Construction Industry Scheme (CIS) covers how payments to subcontractors for construction work must be handled by contractors in the construction industry.

Pay as You Earn (PAYE) is the HMRC system to collect income tax from the pay of employees, including directors, as they earn it.

Business Rates and other taxes such as taxes on specific products, services and activities (insurance, transportation, tobacco and alcohol...etc), and environmental tax obligations and breaks.

Capital allowances are a way for businesses to claim back tax allowances on certain purchases or investments.

If you are a sole trader you must send your annual self-assessment income tax returns to HMRC and keep records showing your business's income and expenses. Partners are self-employed and therefore taxed on their share of profits. Each partner also pays Class 2 and 4 National Insurance contributions.

National Insurance Contributions (NICs), collected by employers via the PAYE system, are used to fund social security benefits, e.g. state pension, jobseeker's allowance.

Indirect taxes

Value Added Tax (VAT) is payable on most business transactions involving the transfer of goods or services.

Stamp duty land tax may be payable if you buy or lease premises, while stamp duty reserve tax may be payable when buying shares and securities.

Enquiries and inspections

Tax and other government authorities, principally HMRC, have the right to randomly inspect business records and premises. The Secretary of State for Trade and Industry can also investigate cases of suspected misconduct. Complaints against limited companies and Limited Liability Partnerships (LLPs) that have a business address in England, Wales, Scotland or Northern Ireland are considered by the Companies Investigation Branch (CIB).

Administrative procedures

Tax registration

VAT registration is required once annual turnover reaches a certain level; the tax is payable to HM Revenue and Customs (HMRC).

Submitting your tax declaration

Income tax

The amount deducted from earnings depends on the relevant tax rate and tax band. Income tax is payable to HMRC through the PAYE system.

Tax-free payments from HMRC are available if an employer's end-of-year return is filed online. The full tax-free payment will be credited to the PAYE payment record, which can be offset against future payments to HMRC. HMRC's online services demonstrator shows how to register for their online services.

Corporation tax

Corporation tax is calculated on a self-assessment company tax return and paid without prior assessment by HMRC.

National Insurance Contributions

Employers are responsible for calculating, deducting and paying various categories of national insurance contribution (NIC).

Stamp Duty

HMRC's Stamp Taxes Online service allows land transaction returns to be submitted to HMRC via the internet. Users receive an electronic certificate to confirm receipt of their submission.

Resources

The Business Link website provides detailed information on paying taxes in England and Wales. For businesses in Scotland useful information is available on the Business Gateway website and for Northern Ireland on the Invest Northern Ireland and Enterprise Northern Ireland websites.

Help & advice

Help & advice

E-mail a business organisation near you

The EU runs a network (Enterprise Europe Network) of local business organisations in most European countries that may be able to help you.

Choose your country and town and enter your enquiry below.

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