Personal Liabilities and Personal Taxation
In the UK, everybody who earns over the Personal Allowance (£12,570 for 2022/2023, but you can check rates on HMRC) must pay income tax. You also get a tax-free allowance for income relating to savings interest and dividends (if you own shares in a company).
There are three main scenarios where individuals pay income tax;
- If you’re a sole trader or a partner in a partnership
- If you’re the director of a limited company
- If you’re an employee
If you’re self-employed:
Sole traders generally complete an income tax Self Assessment each year and will pay income tax and national insurance directly to HMRC. To do this you must keep accurate records of your income and expenditure and then fill in the online form by 31st January (for the tax year that ends the previous April). As a sole trader, you should keep track of your expenses, such as materials purchased for work, rent, bills, professional fees etc. These are then deducted from your sales and you pay tax on the remainder.
As a director of a limited company, you also have to register for a Self Assessment Tax return, but in this case, you pay income tax on the money you have drawn as a salary from the company, as well as any dividends you have received.
Employing other people:
As your business grows and you begin to take on staff, many aspects of your business will become more complex. There are more managerial details to consider relating to the well-being of your staff, such as employment law and health and safety. You’ll also need to think about certain financial aspects; from payroll and PAYE, through to Employer’s Liability Insurance and workplace pensions.
Taxing your employees:
When you start taking on staff, you’ll need to set up a payroll system, which you can do yourself or with the help of an accountant. Like with your accounts, you need to keep accurate records of your payroll and submit them to HMRC. Employees are taxed “at source” via the Pay-As-You-Earn scheme (PAYE), so their Income Tax and National Insurance Contributions are taken from their wages directly. There are other deductions that can be taken from staff wages directly, such as Student Loan Repayments and Child Maintenance.
Now that workplace pensions have come into force, employers must automatically enrol their staff into a pension scheme. As an employer, you’ll have to set up an auto-enrolment scheme and include your eligible staff. You should then write to your staff explaining how auto-enrolment applies to them and detail the contributions you will make towards their pensions. The current minimum is 8% of which at least 3% must be paid by the employer, with the other 5% normally being paid by the employee. The employee contribution is deducted from their monthly pay.
The government will also contribute to your employee’s pensions by providing tax relief on the employment contributions.
As ever, if your tax is complicated and technical (and unless your affairs are straightforward) I would always recommend talking to an accountant – even if it is just for piece of mind that you are on the right track.
If in doubt – reach out.
Taxation can be complicated and challenging to get right … find an expert (an accountant or taxation expert!) who can support your business and work with you for the future growth you aspire towards.
Thinking about tax at Yorkshire Powerhouse
Have you any questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:
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