Knowing Your Taxes
What is Value Added Tax (VAT)?
Value Added Tax is a tax that is applicable to anybody whose income is greater than 60,000 pounds, and that applies whether you're a sole trader or a company. You have to add 17.5% to all the invoices that you send out to your customers. That tax goes to the government.
What is Corporation Tax?
Corporation Tax is what you have to pay on the profit that you make as a corporation or a company, assuming you have registered a company's house. Typically, that is about 20%, but if you're clever you can get that down to about 18% or 17%.
What can I do to reduce the amount of Corporation Tax I pay?
There are things that you can do to reduce your Corporation Tax. The interesting thing here is almost a piece of psychology, because large corporations love to prove to shareholders in the City that they have large profits. Large profits therefore equal a larger tax bill. However, if you run your own small limited company, funnily enough, you'll be wanting to show that you made as little profit as possible, because the smaller profit figure will equal a smaller tax bill, and typically you might want to get your tax down from say twenty to about seventeen or eighteen percent.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a special tax on money that you might acquire during the course of your trading year, which isn't part of the normal run of business. It is a bit like inheritance tax. If you as an individual suddenly inherit a large amount of money, the revenue is going to want some of it. In the same way, if you have ten factories and you sell one, then whatever money you have received for the factory is not part of your normal working year, and that will be subject to capital gains tax.
How do I pay Capital Gains Tax?
You'll have to pay Capital Gains Tax at the end of that tax year - it makes it apparent that you've gained an asset. It will be in your report and accounts, and will immediately be made known to the Revenue, and they'll send you a bill.
What is Capital Allowance?
A Capital Allowance is an allowance made for some asset that you have got in your business which doesn't need to be subject to new tax every tax year. For example, if you own premises that are worth $100,000, technically you can sell them and realise that money. However, that does not mean you that are going to do that every year, and therefore that $100,000 is not subject to tax in the same way that your normal income that year is.
