Simon Jenner
Thursday, 11 March 2021
Nobody likes Taxes, but with a Foundational Understanding of Them, Your Startup can Soar
Posted in:
Startups
Establishing and launching your first startup is one of those moments you will remember for the rest of your life. In the midst of building an MVP for your startup and deciding the best way to monetise your Big Idea, you might overlook learning about one thing: small business taxes.A foundational understanding of small business taxes will enable you to build your expectations for your startup and ensure you avoid any consequences of tax errors in the future.Here’s your newfound glory, Taxes 101, including terminology and important UK business updates so that you can run your startup with confidence.Terms to KnowIncome Tax: As a business owner, you will pay Income Tax on the income you personally receive, including salary and dividends. In the UK, your Income Tax is due 31st January to HMRC every year. However, note that this does not include income from the sale of assets, such as a secondary property; this type of tax is filed under Capital Gains.Corporation Tax: Your profits as a small business constitute as limited company profits. Corporation Tax is paid on these limited company profits after business expenses, such as salaries, are paid, but prior to dividends being withdrawn. You are required to pay these taxes to HMRC within nine months and one day of your startup’s accounting period ending.VAT: VAT (Value Added Tax) is a tax that is added to the majority of services and products. You are only required to register for VAT if your annual turnover exceeds the VAT threshold (£85,000 for the 2020/2021 tax year), though have the option to register if you would like to reclaim any VAT that you have paid on your business expenses or purchases for the year in question. If you register as a VAT business for either of these reasons, you are required to charge this VAT to your customers. This type of tax is paid quarterly, beginning on the date that you register.Business Rates: You will be paying business rates for your startup if you operate your business out of a non-domestic property. You will receive your business rates bill from your local authority between February and March each year for the upcoming fiscal year starting 1st April, though you will have the option to pay in 12 monthly instalments.Important Business Updates for the 2021 UK Tax Year1. The UK’s Transition Period with the EU Has Ended.Your startup is likely facing some changes in the wake of the Brexit transition period ending at the start of 2021. Be wary, there are new rules you need to follow if you are:Importing goods from or exporting goods to the EUMoving goods to or from Northern IrelandTravelling, living, or working in the EUResiding in the UK as an EU citizen2. You May Be Eligible to Claim the Fourth SEISS Grant.You might have the ability to claim the fourth SEISS (Self-Employment Income Support Scheme) payment if your startup is being notably impacted by COVID-19. You will be eligible only under the circumstance that you had eligibility for the previous SEISS grants as well, whether or not you’ve claimed them. This payment covers February through April 2021. Additionally, the UK government has extended support schemes such as the CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Scheme) through the end of March.3. An Online Tax System Will Be Available Very Soon.An HMRC initiative called Making Tax Digital is being introduced in phases across the UK to bring the tax system to an entirely online platform. The innovation behind this vision is that tax players will be able to pay the correct amount of taxes in real-time. Be on the lookout for Making Tax Digital for Self Assessment by April 2023, or join a virtual consultation event by business sector.Your startup journey is an exciting time, no matter the twists and turns that get thrown at you. While you won’t be able to control all of these twists and turns, you will be able to navigate them much more easily with this foundational understanding of small business taxes.To make your journey a bit easier, sign up up for our No-Code Bootcamp. We will teach you how to use no-code to build an MVP for your startup, launch your startup into the market, and even offer the opportunity to pitch to real investors. As a result, you’ll be able to apply the time you’ll save through no-code startup MVP development towards learning all there is to know about taxes for small businesses in the UK.
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