It is all about the Tax Return, notifying HM Revenue & Customs (HMRC), and paying your tax.
We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
– Winston S. Churchill
“How Does Making Tax Digital Effect You?”
This is the process of filing a Company Tax Return and Corporation Tax (CT) Return. You must pay CT on profits from doing business as a limited company, a foreign company with a UK branch or office, a club, co-operative or other unincorporated association, such as a community group or sports club.
You do not get a bill for Corporation Tax, but there are specific things you must do to work out, pay, and report your tax. You must Register for CT when you start doing business, or restart a dormant business.
You must also keep Accounting Records and submit a Company Tax Return to work out how much CT to pay. There are strict deadlines for doing this without penalties being imposed.
This is the process of filing a Self-Assessment (SA) Tax Return, the system HM Revenue & Customs (HMRC) uses to collect Income Tax from an individual, those with property rental or investment income, Sole Traders, Subcontractors, Company Directors, Partnerships, Limited Liability Partnerships (LLP) and Capital Gains.
Self-Assessment presently takes the form of an annual tax return with an annual payment and two bi-annual pre-payments towards the following year. There are strict deadlines for doing this without penalties being imposed. HMRC are currently working towards Making Tax Digital, and quarterly reporting and payments.
Making Tax Digital (MTD)
This is the process of bringing the tax return system into the 21st century: by 2020, HM Revenue & Customs (HMRC) plans to move to a fully digital tax system, in the hopes of eliminating time delays on the information currently provided by tax returns.
The ideology behind this is that there will be a new tax system in place that operates much more closely with the concept of information in ‘Real Time’ (RTI), much like the Payroll for employees and CIS scheme that subcontractors now do.
This is the process of filing your VAT Returns, which are usually made to HM Revenue & Customs (HMRC) every 3 months. This period of time is known as your ‘accounting period.’ VAT Return records things for the accounting period like: your total sales and purchases, the amount of VAT you owe, the amount of VAT you can reclaim, and what your VAT refund from HMRC is.
You must submit a VAT Return, even if you have no VAT to pay or reclaim, and a good Bookkeeping System to manage this is essential. There are strict deadlines for doing this without penalties being imposed. HMRC have moved away from the paper return and may actually impose a penalty of £400 for submission of a paper VAT Return.
Capital Gains (CGT)
This is the process of paying tax on the profit made when you sell or dispose of something that has increased in value. It is the gain you make that is taxed, not the amount of money you receive. Example: You bought a painting for £5,000, and sold it later for £25,000. This means you made a gain of £20,000 (£25,000 minus £5,000).
Some assets are tax-free, and you also do not have to pay CGT if all your gains in a year are under your tax-free allowance. Capital Gains are normally reported through Self-Assessment for Individuals, or on a Company Tax Return.
This is the process of filing an Inheritance Tax Return for a deceased individual if their estate (their property, money, and possessions) are worth more than £325,000 when they die; this is called the ‘Inheritance Tax threshold’.
IHT is 40% on anything above the threshold, and may be reduced to 36% if 10% or more of the estate has been left to charity. The IHT Return is linked closely with Probate applications, and usually the ‘executor’ of the will or the ‘administrator’ of the estate pays IHT using funds from the estate.
Trusts & Estates
This is the process of reporting and paying tax on behalf of the trust by the trustees; this is done through Self-Assessment. There are strict deadlines for doing this without penalties being imposed. Trust taxation can be complex, and the rates of tax is dictated by the type of trust, and the entitlement of any beneficiaries involved.
Fee Protection Scheme (TIFPS)
This is the process of protecting you from increased charges, should you be one of the many businesses or individuals selected by HM Revenue & Customs (HMRC) to look into your tax affairs. TIFPS allows us to work with you on the investigation, and provides peace of mind knowing that additional charges will be paid by the insurance without any excess for you to find.
This is the process of informing HMRC of your business status, and setting up records so that tax obligations can be complied with.
Which registrations need to be made will depend on the type of business you form or trade through, if you are employing people, or if you need to be VAT registered. There are strict timelines for these registrations to be completed without penalties being imposed.