1.4(a) Taxes, Records and Returns - getting started

Rates, thresholds and fees, as well as rules and regulations, can alter annually with changes being announced in the Budget and usually implemented from the beginning of a tax year.

If you have a printed copy of the No-Nonsense Guide (a guide about Government rules and regulations), it's possible that some of the fees, rates or other figures have since changed. Use The set of tips described below to keep up to date.

Read a LATEST copy of the No-Nonsense Guide to Government rules and regulations for setting up your business.

Over a year, a business owner has to make certain reports (returns) and payments to various government bodies. Some of these reports are made at the end of the tax year; some are made at the end of what is called an "accounting period" while others are made quarterly or monthly. Regardless of when a return or payment is made, you will need to ensure that you use the correct rate or allowance for the relevant tax year, or you may face a penalty.

• Income tax rates and allowances
• National Insurance contributions (NICs)
• Capital Gains Tax (CGT)
• Corporation tax
• VAT
• Stamp duty
• Employees' pay and deductions
• Registering a limited company
• Other business-related facts and figures

If you've started a new business, or are thinking about starting a business, this interactive tool may be able to help.

Just answer a simple series of questions of LBDC with yes/no answers. At the end of this you will get a report which:

• Tells you about the tax you have to pay and the accounts you have to keep
• Directs you to straightforward guidance about each area.

Whatever kind of business you run, you are required by law to keep financial records relating to it.

But there are a number of business benefits to be gained from keeping records. It saves you time, and therefore money, whenever you need figures to back you up. You can be confident that you're only paying the tax you owe. It also helps you keep up to date with how much you owe and how much you are owed.

The set of activities described below shows you how to meet your legal obligations and set up a basic system that works for you.

• What should my system include?
• The cash book/spreadsheet
• The sales ledger/spreadsheet
• The purchase ledger/spreadsheet
• The wages book/spreadsheet
• Computerizing financial records
• Hints and tips

A profit and loss account is a summary of business transactions for a given period - normally 12 months. By deducting total expenditure from total income, it shows on the "bottom line" whether your business made a profit or loss at the end of that period. A profit and loss account is produced primarily for business purposes - to show owners, shareholders or potential investors how the business is performing. But most of the information is also used by HM Revenue & Customs to work out your tax bill.

The set of activities described below tells you about the basic financial records you need to keep to enable you to report your profit or loss each year. The information should help you decide whether you need the services of an accountant or bookkeeper, or whether you can do it yourself.

• Do all businesses have to produce formal profit and loss accounts?
• Profit reporting: how, when and where?
• Keeping accurate records
• Business income: sales
• Business income: other
• Recording business expenditure
• Cost of sales
• Business expenses
• Cost of equipment
• Profit and loss accounting periods and financial years

A balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what a business owns or is owed - assets - and what it owes - liabilities - at a particular date.

The balance sheet shows how the business is being funded, and how those funds are being used.

• for reporting purposes as part of a limited company's annual accounts
• to help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment
• as a tool to help you analyze and improve the management of your business

The set of bulleted highlights described below explains who needs to produce balance sheet and when, the different elements within them and how to use the information from a balance sheet to assess and manage business performance.

• Balance sheet reporting - who, when and where?
• Contents of the balance sheet
• Interpreting balance sheet figures
• Relationship between balance sheet and profit and loss account
• Compare balance sheets to assess business performance
• Use accounting ratios to assess business performance
• Accounting periods

New businesses can benefit from a variety of tax allowances and reliefs which could cut their tax bill. They include capital allowances for investment in equipment and premises, tax relief and credits for spending on research and development and stamp duty relief in disadvantaged areas.

But you won't automatically receive these tax advantages. You need to find out what you can claim and then apply for them.

Small and medium-sized companies and limited liability partnerships (LLPs) can benefit from relaxation of the general requirement to supply full, audited accounts once a year to Companies House.

In many cases they can prepare and file shortened versions of their accounts. Some very small companies and LLPs don't need to have their accounts audited at all and are not required to appoint an auditor.

The set of bulleted highlights described below sets out which companies and LLPs qualify for these arrangements and tells you what information they must provide to Companies House. It also outlines the audit exemption for dormant companies and LLPs.

• Can I file abbreviated accounts?
• Abbreviated accounts for small companies and limited liability partnerships
• Abbreviated accounts for medium-sized companies and limited liability partnerships
• Do I qualify for an audit exemption?
• What audit-exempt companies and limited liability partnerships must send to Companies House
• Audit exemptions for dormant companies and LLPs

Online communication with government can save you time and money. Over the coming years, some government departments will make online returns and reporting compulsory.

• Identifies which of the most frequently used online reporting and submission services apply to your business
• Links to the enrolment page for the services

Many services require you to be enrolled in the Government Gateway. If you register with our site, enrolling for other Government Gateway services will be easier as you will already have a user ID and password.

Some transactions are not relevant to the whole of the UK. The results of this tool will be based on the transactions that are applicable to your area. This tool should take no more than five minutes to complete.

Value Added Tax, or VAT, is a tax that applies to most business transactions that involve the transfer of goods or services. Once your business turnover reaches a certain level, you will have to register for VAT. This means that whenever you buy or sell anything in the course of your business, you will have to charge VAT on your sales, keep proper VAT records on your incoming and outgoing transactions and pay VAT to HM Revenue & Customs (HMRC).

Even if your turnover is below the registration threshold you could consider registering voluntarily for VAT.

The set of bulleted highlights described below aims to explain the basics of how VAT works, what you need to do to meet your obligations, and where you can go to get more information and advice.

• How VAT works
• Compulsory VAT registration
• Voluntary VAT registration
• Sales and purchases
• Rates of VAT
• VAT returns and payments

Do you need to register for VAT? Just answer a simple series of questions with yes/no answers. Most people will be able to find out the answer in less than five minutes.

If you do need to register, you'll be given links to the forms you need to fill in on the HM Revenue & Customs (HMRC) website. At any step along the way you can correct an earlier answer.

If you already know you need to register, answering these questions will help you to find the correct forms for your particular business circumstances.

If you already know which forms you need, you can download them from the HMRC website using the links on the right hand side of this screen.

There are different rates of VAT that you should charge, depending on the type of goods or services your business provides. It's essential to understand which rates apply to you so that you account for the correct amount of VAT on your VAT return. For the same reason it's important to know what goods or services are not taxable under VAT.

The set of bulleted highlights described below sets out the different rates of VAT and directs you to an online calculator to simplify working out VAT. It tells you which goods and services are exempt and which are outside the scope of VAT.

• Rates of VAT and how to calculate them
• Goods or services exempt from VAT
• Goods or services outside the scope of VAT

Once your business is VAT registered you will need to obtain, issue and keep various documents - including receipts and suppliers' invoices.

The set of bulleted highlights described below will help you to set up basic VAT records and lay out your VAT invoices correctly. It also tells you where you can go to get more information and advice.

• Basic VAT paperwork: what do I have to do?
• What a VAT invoice should include
• Keeping a VAT account
• Keeping records for different VAT schemes

When you register for VAT you are usually assigned a three-monthly "tax period". Towards the end of your first tax period HM Revenue & Customs (HMRC) will send you a VAT return.

You will need to use the VAT return to show the total amount of VAT charged on your sales, minus the total deductible VAT paid on your purchases. The difference between the two is payable to HMRC or - if it's a minus figure - reclaimable by you.

The set of bulleted highlights described below outlines the basics of how to complete each box on your return, offers some useful hints and tips for how to avoid common mistakes and provides details of where you can go to get more information and advice. It will also provide information about and links to HMRC's VAT online service for filing VAT returns.

• How to complete each box on your VAT return
• Avoiding errors when calculating output tax (box 1)
• Avoiding errors when calculating input tax (box 4)
• Things to check before sending your return
• How and when to submit your VAT return

Accounting for VAT in the standard way can be time-consuming and costly for some businesses. However, there are alternative VAT accounting schemes that might suit you better.

The set of bulleted highlights described below will help you decide which of these schemes may be right for your business, whether you are eligible, how to apply and where you can go to get more information and advice.

• Even out VAT payments and smooth your cashflow: the annual accounting scheme
• Don't pay your VAT until your customers pay you: the cash accounting scheme
• Apply an average rate for simpler VAT: the flat rate scheme
• Selling to the public made easier: retail schemes
• Account for VAT on the margin of second-hand goods, works of art, antiques and collectors' items

1.4(c) Income, Corporation & other business taxes

Corporation tax is paid by limited companies on their profits.

Corporation tax is not payable by the self-employed but does apply to the following organizations, even if they are not limited companies:

• Members' clubs, societies and associations
• Trade associations
• Housing associations
• Groups of individuals carrying on a business but not as a partnership, eg co-operatives

The set of bulleted highlights described below will explain more about the tax and how it is calculated.

• Corporation tax: what you need to do
• Calculating corporation tax
• Keeping records for corporation tax
• Corporation tax: deadlines and penalties

As a business you can claim tax allowances, called capital allowances, on certain purchases or investments. This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill.

Capital allowances are available on plant and machinery, buildings - including converting space above commercial premises to flats for renting - and research and development.

The amount of the allowance depends on what you're claiming for. In some cases, the rates are different in the year you make the purchase from those in subsequent years.

The set of bulleted highlights described below will tell you what purchases or investments qualify for a capital allowance, how much you can claim and the simplest way to make your claim.

• Capital allowance on plant and machinery
• Capital allowance on buildings
• Research and development capital allowances
• Work out your capital allowance claim
• Claiming capital allowances
• Special cases - capital allowance

Self assessment is a system for working out and paying tax. You must complete a tax return every year if you:

• Are self-employed, either as a sole trader or in a partnership
• Are a company director
• Are a minister of religion (of any faith or denomination)
• Are a member of Lloyd's
• Have income from letting any property or land you own (but if you are an employee and this income is less than £2,500 a year, a tax return may not be necessary)
• Receive other untaxed income and the tax due on it cannot be collected through a PAYE tax code
• Receive annually (or can be treated as receiving) income from a trust or settlement, or any income from the estate of a deceased person, and further tax is due on that income
• Have taxable foreign income, even if you are claiming that you are not normally resident in the UK (and including non-resident landlords)
• Are asked to by HM Revenue & Customs (HMRC)

Self assessment tax returns are issued in April each year and cover the year from the previous 6 April to 5 April. For example, the 2006-07 tax year covers the period from 6 April 2006 to 5 April 2007.

The set of bulleted highlights described below explains the basics of the self assessment system for people who are self-employed, company directors or partners in a partnership.

• The forms you need
• When to send the forms back
• Keeping the right records
• When you have to pay

Every self-employed person must complete a self assessment tax return. It's used to work out how much tax and Class 4 National Insurance contributions you must pay. Instead of paying tax on your income, you pay tax on your business profits. Like a company, you can deduct business expenses from your business income to work out how much taxable profit you have made.

It's your responsibility to return the correct details of income and expenditure. It's easier to do this if you have kept good, up-to-date records. And you are responsible for completing an accurate self assessment return on time and for paying any tax and National Insurance contributions you owe.

The set of bulleted highlights described below helps you to work out whether you're self-employed, what income tax and National Insurance you should be paying and how to pay it.

• Are you self-employed?
• What you have to pay tax on
• Keeping the right records
• The forms you need
• How to fill in the forms
• Essential deadlines for self assessment

The set of tips described below will help you complete your Company Tax Return form (form CT600) which together with accounts and tax computations makes up a Company Tax Return.

If the company is active, HM Revenue & Customs (HMRC) should automatically send you a Notice to deliver a company tax return each year. If it doesn't, you must still pay the corporation tax owed and send in a return.

You can use the HMRC Corporation Tax Online service (CT Online) to complete and submit form CT600 and it does the calculations for you. You can also check payments and liabilities online 24 hours a day, 7 days a week.

Many companies use an accountant or agent to help complete their company tax return. Many agents use approved software packages that help with the calculations. You can also authorize your accountant or agent to register for and use CT Online services.

IR35 legislation took effect from 6 April 2000 and is designed to bring the tax and National Insurance contributions (NICs) paid on certain engagements in line with the tax and NICs paid by employed staff.

IR35 may apply when you, as an individual, provide your services to a client through an intermediary. For example, if you set up a partnership or a limited company, your client contracts with the partnership or company rather than with you. This includes where your business contracts with an agency to supply your services to a client.

HM Revenue & Customs (HMRC) asks: "If the partnership or limited company did not exist in this arrangement, would your work for the client business appear to be one of direct employment?" If the answer to this question is yes, then IR35 rules may apply.

The set of bulleted highlights described below explains the rules surrounding IR35 and how to work out whether the rules apply to you.

• Do the rules apply to a particular contract or engagement?
• Get an expert opinion
• My contract is within IR35 - what should I do next?

First-year allowances are a tax allowance you can claim on certain purchases or investments in the year you buy them.

Small businesses can claim first-year allowances of 50 per cent for qualifying investments. Medium-sized businesses can claim 40 per cent, and in certain circumstances both small and medium-sized businesses can claim allowances of 100 per cent, in the year they make the purchase. However, for most plant and machinery, 25 per cent is the usual capital allowance. There are also allowances for investment in research and development.

From April 2008, first year capital allowances will be replaced by an Annual Investment Allowance of £50,000 for all businesses.

The set of bulleted highlights described below explains the different types of first-year allowance and what you need to do to claim them.

• What's eligible for first-year allowances?
• Work out your allowance
• Claim first-year allowances

Whatever type of business you run, whether it is a limited company, partnership or you are self-employed, when completing your tax returns you need to consider which business expenses are allowable and need to be reported.

While most benefits and expenses are not subject to PAYE (Pay As You Earn), payments of cash from an employer to an employee should be. You are required to report benefits and expenses payments annually through a P11D and self-assessment return. Any tax owing is then collected from the taxpayer in the year following receipt.

The set of bulleted highlights described below at which types of business expense are allowable and how they should be treated for the purposes of tax.

• Treatment of business expenses
• Dispensations - what they are and how to apply for them
• Treatment of travel and entertaining
• Treatment of mileage and accommodation
• Treatment of vehicle expenses for the purposes of self assessment
• Treatment of business expenses for VAT

Car-related tax and National Insurance contributions are linked to carbon dioxide (CO2) emissions. This benefits businesses that use cleaner, fuel-efficient cars. There's even a calculator that does all the hard work for you.

The set of bulleted highlights described below explains what you need to do to meet tax requirements for company cars, vans and fuel and takes you directly to the forms you have to fill in.

• Which forms do I need to fill in?
• Calculate the taxable benefits for company cars
• Company vans: what do I have to do?
• Fuel for company cars and vans: when is it not taxable?
• Fuel for your employees' private use
• VAT on business cars and commercial vehicles

Businesses and other organizations that occupy non-domestic premises pay non-domestic rates, often called business rates, to help fund local services provided by local authorities, eg police and firefighting.

If you use a building or part of a building for business, you will probably have to pay business rates.

Since 1990, businesses have been assessed differently to domestic properties. Businesses are given a rateable value which, in conjunction with the multiplier, or Uniform Business Rate, set nationally for each country in the UK, produces the business rates liability. In England and Wales, rateable values are assessed by the Valuation Office Agency (VOA) and the multiplier is set in England by Communities and Local Government, and in Wales by the Welsh Assembly Government. In Scotland rateable values are assessed by the Scottish Assessors and the multiplier is set by the Scottish Government.

The set of bulleted highlights described below explains who pays business rates, how rates are calculated, how to pay them and how to challenge your rateable value if you have reason to believe it is incorrect.

• Business premises
• Working from home
• How business rates are calculated
• Paying business rates
• Business rates reliefs
• Challenging your rateable value
• The appeal process

Environmental taxes are designed to encourage efficient resource use and discourage business practices that damage the environment. For instance, if you invest in environmentally-friendly equipment, you could receive tax breaks. Energy-efficient machinery, for example, qualifies for a 100 per cent tax allowance in the first year that you buy it. This allows businesses to offset the costs against taxable profits.

The set of bulleted highlights described below provides information on how environmental taxes are levied, who collects them and who pays them including information on exclusions, exemptions and tax credits.

• Climate change levy and exemptions
• Landfill and waste management
• Aggregates levy
• Land remediation relief
• Enhanced first-year allowances
• Vehicle and fuel duty

Making a mistake with your Company Tax Return form (CT600) or in the payment of your corporation tax, can be both time-consuming and costly for your business. Before submitting your tax return to HM Revenue & Customs (HMRC), make sure you've double checked it and that you've attached any relevant supplementary pages.

If you spot a mistake after you've sent the return, you can amend the return up to a year after the filing date.

The set of bulleted highlights described below makes you aware of some of the more common corporation tax mistakes and the checks you can make to avoid them. It should also help you avoid penalties for late payment or incorrect payment.

• Common errors to check for
• Avoid making late payments
• Miscalculating tax liability
• Amending returns retrospectively
• Mistakes spotted by HM Revenue & Customs

1.4(d) PAYE & National Insurance

As an employer, you have a number of legal obligations with regards to paying employees. If you don't follow the proper procedures - including paying your male and female employees equally and fairly - you could have penalties to pay.

The set of bulleted highlights described below aims to help you understand your obligations including the need to supply an itemized pay statement and to comply with National Minimum Wage law. You must also make statutory payments including maternity, paternity, adoption, sick and guarantee pay. It also identifies those wage deductions that are unlawful.

• Issuing pay statements
• Statutory Maternity, Paternity and Adoption Pay
• Statutory Sick Pay
• Guarantee pay
• Complying with the National Minimum Wage
• Rates and calculation of the National Minimum Wage
• Paying workers holiday pay
• Making deductions
• Calculating final pay

When you become an employer you have certain obligations regarding your employees' tax and National Insurance contributions.

The set of tips described below outlines the initial processes you will need to go through to register as an employer. It gives you all the information you need to find the necessary forms and introduces you to the information pack for prospective employers and the New Employer Starter Pack.

The set of activities described below also explains who, for tax purposes, counts as an employee, and gives some basic guidance on operating a payroll system.

• Who counts as an "employee"?
• First steps in taking on a new employee
• The New Employer Starter Pack
• Dealing with a new employee's P45
• What if my new employee doesn't have a P45?
• When a new employee doesn't know their NI number

The National Minimum Wage (NMW) is a legal right which covers almost all workers in the UK. It became law on 1 April 1999 to prevent unduly low pay and also to help create a level playing field for employers.

The number of hours for which you have to pay your workers the minimum wage is calculated differently according to the types of work they do. These are based on time, salaried-hours, output and unmeasured work.

The set of activities described below provides the background to the minimum wage and directs you to further information and advice.