FT Guide to Business Start Up 2012, 7th Edition

30

Tax

You have a choice when sorting out tax on your business: enlist a profes-

sional or do it yourself. If you operate as a company, it makes sense to

use an accountant*. If you are a sole trader or partner, it can be helpful

to use a professional to present your accounts and tax calculations but,

provided your business is fairly simple and you have the time, you should

be able to do this yourself, and the self-assessment tax system is designed

to be workable by non-experts.

The starting point for working out your tax is the prot and loss accounts for

your business. Whether you are a company, self-employed or a partnership,

your accounts must be drawn up in accordance with Generally Accepted

Accounting Practice (GAAP) for the UK. These GAAP rules are drawn up by

accountancy bodies and change from time to time. As a layperson, it may

be hard for you to keep abreast of the changes and this is one reason why

most companies are better off relying on an accountant rather than trying

to draw up their own accounts. However, small businesses (whether com-

panies or not) can opt to use a short version of the accounting standards

called Financial Reporting Standards for Smaller Entities (FRSSE). If you

do decide to draw up your accounts yourself, make sure you comply with

FRSSE and any relevant updates to it. You can download a free copy of

FRSSE and check for updates at the Accounting Standards Board* web site

(www.frc.org.uk/asb/technical/frsse.cfm).

If you do use a professional, make sure you choose someone who is suit-

ably qualied, normally an accountant and preferably also a member of

the Chartered Institute of Taxation (CIOT)* or Association of Taxation

Technicians*. Anyone can set themselves up as a tax adviser, and unfortu-

nately there are some with no qualications or just not up to the job. Even

382 The Financial Times Guide to Business Start Up 2012

if you use a professional, you are still ultimately responsible for making

the correct declarations and paying the correct tax. If your adviser gets

it wrong, you will be the one facing investigations, nes and interest –

although you might be able to sue the adviser if they had acted negligently

or fraudulently. You may also nd that, although professionals will do the

paperwork for you, they will not necessarily suggest ways you can save tax

unless you specically ask for their opinion on a particular measure.

Under the self-assessment tax system which you must use if you are self-

employed or in a partnership, you can submit your tax return and rely on

HM Revenue & Customs* (HMRC) to calculate your tax bill for you. Even

then, you are still responsible for the accuracy of your bill and expected to

make reasonable checks to see that HMRC have got the gure right. You

can be ned if you fail to spot an HMRC error.

To keep your tax bill to a minimum and guard yourself against advisers who are

no good or HMRC errors, it pays to know a bit yourself about the tax system.

What is in this chapter?

This chapter concentrates mainly on tax if you are a sole trader or partner.

It will not answer every question you may have about how your income tax

bill is calculated. But you should be able to gain a working knowledge of the

system so you know the key moves to make in dealing with your tax inspector.

For a more detailed guide, including lling in returns and ideas on saving tax,

you could get a specialist tax guide, such as the FT Guide to Personal Tax, which

is updated every year as the tax rules change. The chapter includes sections on:



when you pay income tax (p. 383).



working out your income tax bill (p. 388).



business expenses (p. 388) and tax relief for capital expenditure (p.393).



losses for the self-employed (p. 398).



National Insurance contributions (p. 400), capital gains tax (p. 400)

and business rates (p. 402).



you and your tax ofce (p. 405).



partners (p. 409).



drawing money out of your company (see p. 411).



spare-time earnings (p. 413) and property income (p. 415).



the black economy (p. 417).