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Her Majesty's Revenue & Customs (HMRC) are responsible for applying the law in the case of Taxation and there is a great deal of information available on their web site. What we provide here is an outline of the important issues regarding Income Tax applicable to the owners of SMEs as individuals
Because of the complexity and at least yearly changes to taxation in Great Britain, it is not intended to deal with Income Tax in any detail. Suffice to say that so long as you know the general features of Income Tax it will be adequate to ensure that you conform to the law
We at Do Your Own Accounts feel that it is an important part of your business knowledge to know enough about Income Tax to avoid the pressure that you would be under if you knew nothing. Nobody else will know your business better than you and so you are able to look for those allowances to which you are entitled if you know what to look for
Although Her Majesty's Revenue and Customs (HMRC) organisation is very user friendly these days, it is your responsibility to ensure that your return is accurate and that you claim all that you are entitled to claim. There are a number of free publications that HMRC provide to help you to determine for what you can and cannot claim. Links to the sources of these documents are here
The most common problems that occur in tax returns are
Understating the income which must include all of the sales invoiced in the year (irrespective of wheter they have been paid), fees, commissions received, tips, the value of any payments in kind and proceeds from insurance claims made in the year. What is not necessary to include is money received from the sale of Company assets such as premises, equipment and vehicles (unless it is your business to sell such items !!). Neither are you required to treat your own investment in the Company as income nor any Grants that are received
Knowing what is not allowable as 'business expenses' such as 'business trip' expenses that are not solely for the purpose of business, incorrect apportioning of the use of personally owned vehicles for business purposes and including parking and other fines for motoring offences
You will receive formal letters from HMRC when you are starting your enterprise as well as reminders of your tax liabilities. This correspondence will include a telephone contact for you to use if you have any queries concerning your return. Don't be shy - use the service they provide to make sure your returns are correct
See also
Tax Allowances
Tax and the SME
Tax Penalties
Tax Records
Tax Returns
Comments and suggestions for improving this site are appreciated and should be addressed to administration
Last Update 01-Mar-2010
Date first published 07-Nov-2005