Fulfilling your HMRC obligations in a cash flow friendly manner could make all the difference!

Running a business in the UK involves several tax responsibilities, including registering for and paying VAT (Value Added Tax), Corporation Tax, and submitting a Self-Assessment tax return if required. In this blog we discuss the financial solutions that are helping many business owners to break down these expenses, ultimately helping to protect their liquidity.

1. VAT (Value Added Tax)

Who Needs to Register for VAT?

You must register for VAT if your business’s annual taxable turnover exceeds £90,000 (current threshold). Voluntary registration is also possible if your turnover is below this limit, which can sometimes be beneficial.

When are VAT bills due?

VAT returns are submitted quarterly (in most cases), and businesses must keep accurate records of VAT-related transactions.

Why utilise a VAT Loan?

Any business registered for VAT can benefit from a VAT Loan. (Subject to credit approval) Here are some key advantages:

– You can avoid large peaks and troughs in your outgoings throughout the year, ultimately helping to retain your working capital, keeping upcoming projects & other monthly expenditure on track.

– With a VAT loan your VAT bill can conveniently be paid directly to the HMRC, helping you to avoid late payment fees.

– Furthermore, there is no need for you to use up any of your existing banking facilities that you might have. This is a designated and tailored product specifically for VAT.

Do HMRC offer loan options?

HM Revenue and Customs (HMRC) offer Time to Pay arrangements. Interest and penalties may still apply, and your business will need to demonstrate that they are experiencing financial difficulties, being unable to pay your tax bill in full by the due date. HMRC can issue liquidations and winding-up orders if your tax bill becomes significantly overdue, so it is prudent to plan ahead and pay on time. Subsequently, Time to Pay arrangements are usually considered as a last resort, in contrast to a business loan which many view as a cash flow solution.

2. Corporation Tax

Corporation tax is levied on the profits earned by companies and organizations that are registered in the United Kingdom. The tax applies to both UK-resident companies and non-UK resident companies that have a permanent establishment in the UK.

From 1st April 2023 the corporation tax main rate increased to 25%. There is also a lower rate of 19% for businesses with a smaller annual turnover. As always this is set by the government and is subject to change.

When is my Corporation Tax bill due?

Your corporation tax bill is due 9 months and 1 day after the end of your accounting period. As firms typically end their financial year at the end of March, June, September or December, corporation tax bills are due to be paid by 1st Jan, 1st April, 1st July or 1st October respectively.

For example, if your company’s accounting period ends on 31 March, your corporation tax bill for that period will be due on 1 January of the following year (i.e. 9 months and 1 day after the end of the accounting period).

It’s a good idea to plan ahead and ensure that you have the funds available to pay your corporation tax bill on time. If you feel you may have a shortfall or if would prefer to utilise the amount due within your business to protect your position in the market & fuel growth, then finance could be a viable option.

Should I finance my Corporation Tax bill?

Once again a corporation tax loan is a designated and tailored product specifically for corporation tax where the HMRC would be paid directly and in full on your behalf. Helping you avoid late payment penalties and allowing you to maintain a good relationship with the HMRC.

Subsequently, rather than you seeing a large lump sum exiting your cash reserves, you would instead repay the lender in manageable monthly instalments usually beginning one month after your bill is due, helping to give your business further respite.

Whether or not to finance your corporation tax bill is a decision that depends on your specific financial situation and business needs.

3. Self Assessment Tax Returns

Business owners who don’t have all their income taxed at source (e.g., via PAYE) need to submit a Self-Assessment tax return to HMRC.

Who Needs to File a Self-Assessment?

1. Sole Traders:
   o If your business income exceeds £1,000 in a tax year, you must report your profits.
   o Profits are subject to Income Tax and National Insurance Contributions (NICs).
   
2. Partners in a Partnership:
   o Each partner must declare their share of the partnership’s income or losses via Self-Assessment.
   
3. Directors of Limited Companies:
   o Even though the company pays Corporation Tax, directors must report dividends and other personal income.
   
4. Others:
   o This includes anyone with rental income, investments, or income over £100,000 annually.

What Taxes Are Reported Through Self-Assessment?

• Income Tax: On business profits, dividends, and untaxed earnings.
• National Insurance Contributions (NICs):
o Class 2 NICs: A fixed weekly amount for self-employed individuals earning above a threshold.
o Class 4 NICs: A percentage of trading profits above specified limits.
• Capital Gains Tax: On the sale of assets like property or shares.
• Dividend Tax: On dividends received above the annual allowance.

Self Assessment Deadlines
• 31 October: Paper tax returns due.
• 31 January: Online tax returns and balancing payments due for the previous tax year.
• 31 January and 31 July: Payments on account for the upcoming tax year (if required).

Why use a self-assessment loan?

With a Self assessment loan, you could settle your bill with the HMRC, and then repay the loan over a fixed period of time. This enables you to retain capital in your business while making manageable monthly repayments in line with your budget.

Key Takeaways