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 prot 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
If you do use a professional, make sure you choose someone who is suit-
ably qualied, 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 qualications 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 specically 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 ofce (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).