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Tax is an immensely complicated subject and whenever possible professional advice should be obtained. The purpose of this section is limited to providing some basic information and links, particularly for those considering or about to start up a business and for owners and managers of SMEs.

Introduction to business tax

GOV.UK provides basic guidance to some business tax topics. HM Revenue & Customs provides more detailed information.

Because of the strict rules about filing tax returns and reports, and keeping records, and the complexities of tax, any business or organisation is well-advised to obtain at an early stage professional advice about its tax affairs and accounting and record keeping. A failure to calculate tax correctly, or delays and errors in filing returns, can be very costly in terms of tax arrears or penalties and interest.

Registering a new business with HMRC

Sole traders and partnerships - income tax
Income tax is payable by individuals trading as sole traders or in partnership. See Income tax.

Corporation tax

Corporation tax is payable by legal entities such as a limited company. Although the basic rules for computing taxable profits are the same as income tax, there are significant differences in the computation and administration of the tax.
From 1 April 2011 companies and organisations must submit returns online and pay electronically in a particular format.
See Corporation tax.

Tax deductions

Not all business expenses are deductible in computing taxable profits. Most well-known exclusions are entertainment expenses. Capital expenditure on plant, equipment and buildings is not deductible as an expense but may be deductible as a capital allowance (see below).

What's new item:
09/10/2012: McLaren Racing may deduct £32m FIA fine from profits

McLaren Racing Limited had a £32 million penalty imposed by the FIA for obtaining information belonging to a rival company in breach of the rules of the FIA’s International Sporting Code.

Capital allowances

If you or your company or partnership buy an asset such as a vehicle, machinery, tools and other equipment for use in the business, the cost is not deductible from trading profits even though for accounting purposes the cost is depreciated in calculating profits.

However, the tax system does allow in certain circumstances a " capital allowance" for the expenditure. Capital allowances are also available for certain building-related capital expenditure, for qualifying capital expenditure on qualifying research and development, for donations of used business assets to charity, and certain other capital expenditure.

Capital allowances are usually taken over a number of years (writing down allowances) but some may or must be taken in the first year (first year allowances). Capital Allowances are available to sole traders, self-employed persons or partnerships, as well as companies and organisations liable for Corporation Tax.

For further information, see the HMRC capital allowance information.

Tax comparison: Sole trader v Limited company

The relative tax cost is one important factor in deciding whether to trade as a sole trader (or partnership) or through a limited company. Depending upon certain assumptions, trading through a limited company will result in a lower overall tax charge at the point when the pre-tax profits of the business reach approximately £15,000.

Further information may be obtained by running a search engine query using terms such as “tax comparison sole trader and limited company”.

It should be emphasised that tax should not be the only determining factor in this decision. Other factors include the benefit of limited liability and the administrative costs of trading through a limited company.

See also: Business organisations: should I run my business through a limited company?

For other links, see:

Employers and PAYE

Employee share schemes

Contractors in the construction industry

Charities and tax

Import and export

Real property taxes

Business rates

Annual residential property tax

Stamp duty land tax

Record keeping

Tax law requires certain records to be kept in relation to each different tax.
MMRC has information about record-keeping for:

* self-employed people

* partnerships

* companies and entities subject to corporation tax


Legaleze comment: the importance of keeping good records cannot be over-emphasised. HMRC hold extensive business financial data from which they extrapolate what they regard as normal profit levels for many types of business. This applies especially to businesses which receive cash payment for a significant proportion of sales. In such cases, it is important for the business to keep proper records including till rolls.
Businesses and organisations are well-advised to keep integrated records which meet the requirements of tax, legal and general business needs. See Record keeping.

Stamp duty on transfer of shares and certain loan capital and partnership interests

Stamp duty reserve tax on shares and securities purchases

Tax incentives for investment in shares

Two important incentives designed to encourage equity investment in small and medium sized companies companies are EIS and SEIS. These incentives provide special income tax deductions, capital gains tax and loss relief for investors who subscribe for new sharrs issued by certain unquoted small or medium-sized companies:(EIS) and in very early stage small companies (SEIS).

For further information, see Tax incentives for investment.

See also our section on Equity funding of a company.

Tax disputes and appeals

If you disagree with a decision of HMRC, there may be up to three different ways of raising an objection: review; appeal or ADR. Read more.

Value added tax

[Page updated: 11/07/2015]



More information>
Income Tax

Corporation tax
Tax incentives for investment
Tax disputes and appeals
Value added tax