All businesses have to pay taxes just as individuals do. The principal taxes that businesses have to pay, if the right conditions are met, are the following
- Corporation Tax
- Pay as you earn (PAYE)
- Value added Tax ( VAT )
- Business Rates
- Insurance Premium Tax
- Environmental Levy Tax
- Company Vehicle Tax
- Capital Gains Tax
This is a tax on profits from the business ie what is left after all costs, including salaries and dividends are taken from revenue. Recently their has been much publicity surrounding companies that have not paid much corporation tax. However many businesses can operate at a loss as long as cash is available (hence pay no tax). The rules that apply to large international companies are very complex and in many cases companies can log revenues in lower tax jurisdictions to minimise liabilities all perfectly legally. The rate of corporation tax is 21% but there are all sorts of reliefs available. Read more here.
Pay As You Earn (PAYE)
This is the biggest tax that many firms actually pay. However it is mostly the tax owed by the employee. I.e if you are taxed at 40% the company pays you gross and then passes the 40% across to HMRC. Handing over the tax is now done on a monthly basis as and when you are paid under the new Real Time Information (RTI) system. This ensures that companies do not understate the amounts owed and then file the P35 at the end of the year to catch up when they (hopefully have some money). However the actual tax on the business is the employers national insurance contributions which are currently at 13% for average earners. Yes, there is a complex sliding scale which can be seen here. This particular tax is unpopular as it is seen as a "tax on jobs" and in effect many large UK based firms often site this particular contribution to counter claims of avoidance as it is a significant sum when compared to other taxes.
Value Added Tax (VAT)
Whenever we buy most goods goods and services VAT is applied at a rate of 20%. The idea that the more you spend the more you pay in taxes ie an indirect tax. Business have to charge VAT and if they are VAT registered then they can reclaim any VAT that they themselves have to pay. As such, it is not a great burden on business... unless you are not VAT registered. Then you cannot reclaim any VAT that you have paid. That said you can quote prices "inclusive" of VAT so you can undercut the competition. What is more it is less of an administrative burden on businesses. However, if your turnover is in excess of £70,000 then you have to register. Again, like PAYE you can charge VAT but you must pay it over the HMRC quarterly. There is, therefore, a tendency for struggling companies to withold VAT from HMRC and get into arrears.
A very unpopular tax amongst small retailers as it can be as high as nearly 70% of the cost of renting the premises. As floor area in shops is more valuable than in say offices, then rent and business rates make up a high proportion of the outgoings. Business rates are based on percentage of the rental value of the property as valued at a fixed point in time. These values are set by the Valuation Office and they can be appealed. The rates are paid by the occupier not the owner. If the premises are empty then the landlord pays a discounted rate subject to some reliefs. Business rates are collected by the local authority by way of invoice. Failure to pay business rates can result in bailffs and distraint.
Insurance Premium Tax
A simple tax that is added to all insurance policies. Companies need to take out some quite onerous insurance policies in case things go wrong such as professional indemnity insurance for advisers and more standard policies to cover industrial risks.
Environmental Levy Tax (Landfill Tax)
This tax is levied on all businesses that need to dispose of hazardous or non recyclable waste. The cost is usually passed onto the customer however. For instance the price of tyre changes and skips have gone up since its introduction.
Company Vehicle Tax
Like your own car tax disc this is a tax on commercial vehicles. An HGV lorry would cost some £3000 pa which if you run a fleet of vehicles this can be expensive not withstanding the cost of fuel as well. This is not be confused with company car tax which is paid by the driver of the car that has been provided for company business but is also used for leisure.
Capital Gains Tax
As indicated in the title this is tax paid in the event that assets have gained significantly in capital value when they are sold. However capital gains tax is mainly an issue for individuals and there are reliefs available such as Entrepreneur's relief and Business asset roll-over relief. For more information on capital gains tax for businesses read this page
So what happens if we cant pay these taxes?
If a business is unable to pay its taxes then it is likely to be insolvent. Please read our pages on is my company insolvent? if you are unsure.
Since the financial crisis of 2008 HMRC have generally been very supportive of businesses that have struggled to pay their tax. They launched the Business Support Programme which allowed companies time to pay their tax. So arrears of VAT or PAYE could be spread out over 6 months to maybe 2 years. But their patience will run out if the business cannot pay and they may issue a winding up petition or send in the bailiffs to distrain on the company's assets
Categories: HMRC Time to Pay Arrangement for VAT and PAYE