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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 the responsibility of the SME with regard to taxation
It is a legal requirement that all UK citizens with an income are obliged to disclose that income annually to Her Majesty's Revenue and Customs (HMRC). However there are a number of allowances that can be set against that income before the actual tax is calculated. Individuals are given personal allowances that reflect their age and marital status. A self employed person is taxed on the basis of the profits that are made from the business in which they are engaged and so the Costs and Expenses incurred in the course of carrying out the business are deducted from the income to arrive at the Nett Profit on which the tax will be charged. The person is still treated as an individual and personal allowances will apply. This principle also applies to sole traders and partnerships
A Company, however, is treated differently. In fact the company is itself treated in its own right and subjected to Corporation Tax which is based on the profits for the financial year of that Company. Certain items in the accounts are treated differently for tax purposes. There are also complications in dealing with dividends that are to be paid to shareholders
It is considered that SMEs and Start Up enterprises will generally trade in such a manner that these complications would be trivial, however there is guidance provided with each of the software solutions that is offered by Do Your Own Accounts to ensure that, where necessary, further assistance from tax experts will be sought before the return is submitted to HMRC
Taxation is as complex as the organisation for which the return is being made. Generally a simple sole trader requires only someinformation about the total Income and Outgoings and by using the accounts system provided by Do Your Own Accounts you will find it simple and accurate and that you can make the return yourself, online, with confidence. Don't be intimidated by what the 'accountants' tell you is a 'hard and difficult job'. When you are big enough to need their help, by doing it yourself at the beginning, you will learn enough to understand how simple it really is and to be able to get the best, practical and effective help when you are big enough to need it and afford it !!
It is quite acceptable to avoid tax and if it is necessary when your business is big enough, a review of your situation should be carried out by a suitably qualified tax expert in order that you will claim all of the allowances to which you are entitled. But make sure the 'expert' knows the business you are in before you employ them
It is a serious offence to evade taxation either by understaing your income or overstating the costs and expenses involved in running the business. Inspectors have a legal right to carry out an examination of all of the necessary documents that are associated with your accounts and the penalties are heavy. These days the HMRC is very user friendly so it is wise to seek their help whenever there is any doubt on your part. Do Your Own Accounts provides guidance for what is and what is not allowable for your tax return. The HMRC themselves run half day training sessions for small enterprises. Contact your local HMRC Office for information if you have the time to attend. You can also check the availability of HMRC Workshops in your area and book online to attend
See also
Comments and suggestions for improving this site are appreciated and should be addressed to administration
Last Update 08-Jan-2012
Date first published 18-Dec-2005