Accountancy

This is because of the flat rate ‘bonus’ that you make on every invoice. You charge VAT at 20% of the net amount but only pay HMRC a fixed percentage (based on the trade sector) of the total invoice so you are paying less VAT than was charged, thus the net profit calculation reflects this.

PAYE – or ‘pay as you earn’ – refers to income tax that is deducted from your salary before you receive it.

Introduced in 1944, it is now the way most employees pay income tax.

The money is sent by your employer to HMRC ‘at source’ – meaning directly from your pay before it reaches your account. National Insurance and student loan repayments can also be deducted in this way.

An alternative way of paying income tax is self-assessment, whereby individuals complete a self-assessment tax return and usually pay tax once or twice a year.

This is usually because you are now making a much lower salary than your previous job. Where a higher rate of tax has been deducted from previous pay some (or all) of this higher rate tax may be refunded to your current pay in the form of a PAYE rebate.

PAYE and NI are completely separate. Taking up to the NI threshold is usually the most tax efficient salary, if you’re not in the ‘standard’ tax code it may cost you some PAYE, but this will all be recalculated on your self assessment tax return and the PAYE you have . will be deducted from your overall tax liability for the given year.

If you are a business (a limited company, sole trader etc) you must register for VAT if the value of your taxable supply meets one of the following:

Your turnover for the previous 12 months exceeded the ‘VAT threshold’ which is currently £85,000
You expect your turnover to exceed this limit within the next 30 days.
You must notify HMRC of your liability to be registered for VAT within 30 days of the last day of the month in which you meet one of the above criteria. Failure to do so may result in you being liable for penalties/interest and VAT on sales on which you did not actually charge VAT.

It is a VAT scheme designed to simplify the VAT process. You still charge VAT at 20% on your invoices but depending on the trade sector you operate in you pay HMRC a lower percentage of the gross invoice in VAT. For example, in IT you will pay 14.5% of the total invoice in VAT to HMRC.

Corporation tax is paid by UK limited companies and some other organisations. It is based on the annual profit of a company. All profits are taxable but certain expenses can be deducted, and there are allowances you can get to help reduce your tax liability.

Corporation tax specifically applies to a limited company in the following cases:

• Trading Profit – Earnings generated from trading
• investment
• Selling assets such as land, property, shares and machinery for a chargeable gain

Corporation tax is due for payment 9 months and 1 day after the end of the accounting period. If the accounting period is a full year it will be 9 months and 1 day from the end of the year but earlier dates will apply if the financial year is longer than 365 days, usually in the first year.

If your previous year’s tax is more than £1,000 you will normally have to make a ‘payment on account’ for the current year’s tax – unless more than 80 per cent of the previous year’s liability is tax taken at source. Each payment is half of the tax due for the previous year.

This will depend on how much salary and dividends you have been paid for the current tax year (and any other income you may have). We can provide an estimate on request of how much more you can declare as dividends before paying higher rates of tax. If you are drawing the Personal Allowance (2014/15 – £10,000) and have no other income you can take £28,678.50 in net dividends before paying higher rates of tax.