Understanding Tax: What Should Small Businesses Pay?

Understanding Tax: What Should Small Businesses Pay?

It’s an expense that all businesses, big and small, must include in their accounts. To stay on the straight and narrow, paying tax is an absolute necessity, but for many small businesses around the world, knowing how much is pretty difficult. Navigating through the various codes, percentages and deductions takes time and effort, but it can be done.

First, there’s knowing when to pay tax. Ideally, it should be at the end of a financial year, or from the end of your business’s accounting year. This year starts on the date when your business was first set up. Other taxes, such as the UK’s Corporation Tax, is usually requested nine months and one day after the end of your accounting year.

Types of Tax

In some countries, there are different taxes that businesses have to pay. Using the US as an example, they include:

  • Income tax
  • Employer tax – this is for small businesses employing staff
  • Excise tax – this is paid on manufacturing and selling goods
  • Self-employment tax – this is for self-employed people

Worldwide, the taxes that SMEs can expect to pay are on income, profits and employees. In countries such as the US, there are also state levies to look out for. Make sure to contact the local authorities and see what, if anything, you have to pay. Once you know about the types of tax your small business must pay, make a note of them.

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Tax Exemptions

Small businesses, due to their lower incomes and profit margins, may be eligible for some exemptions and relief schemes. If your business has a rough projection of earnings for the next financial year, you can roughly calculate what relief you’re eligible for.

The Employment Allowance is one such scheme, giving small businesses a set amount to cover the cost of National Insurance for employees. Check whether or not your business is eligible before claiming it, though.

Legal Issues

The legal side of paying tax is one you must be aware of. Paying it on time and paying the right amount is of paramount importance. To ensure your business won’t be tripped up by tax laws, seeking legal advice is a good idea. Corporate tax advice is available from Withers Worldwide if you need it.

Take some time to read up on your country’s tax laws too. See when your tax returns should be filed, what rates you have to pay, what fines are given in the event of late payment and whether or not you’ve been charged too much. Once your tax bill comes through the post, read through it and see what anomalies arise. If any come up, contact the local tax office.

Category Finance

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