Death and taxes
Dealing with the intricacies of tax, VAT and staying on the right side of the law.
By Roger Payne.
Tax doesn’t need to be taxing, as the adverts tell us, and the HM Revenue & Customs (HMRC) shouldn’t be seen as money grabbing ogres – in our experience they’ve been nothing other than extremely helpful. Naturally, you will have to pay income tax. This is done using the Self Assessment tax return, which can be completed either online or in paper form. The tax year begins and ends in April and current deadlines for the return of the previous year’s form are 30 September if you want HMRC to calculate what you owe, or 31 January if you (or your accountant) are doing the calculations. In either case it’s crucially important that you keep detailed records of all invoices and expenditure related to your business. You’ll receive some healthy tax breaks in your first year, but the second tax bill can come as a shock as you not only have to pay tax that’s owed, but a further 50 per cent ‘on account’ for the next year. In other words, make sure you put a good percentage of what you earn away to cover this – 25 to 30 per cent of each invoice value should do, and could even leave you with a bit of spare cash!
In addition to income tax, you’ll also have to pay Class 2 and Class 4 National Insurance contributions. Class 2 contributions are paid through the year – weekly, monthly or quarterly depending on what suits you. Class 4 contributions are paid at the end of the tax year and are a percentage of your annual taxable profits, once they’ve reached a certain predefined limit.
Value added tax
Registering for VAT can be a conundrum for new businesses, but the rules are simple. If your taxable turnover is more than £61,000 you have to register for VAT. If it isn’t, it’s voluntary. While you might think the extra paperwork isn’t worth the hassle (you’ll have do a separate VAT return as well as a tax return), registering voluntarily does have its upsides. These are primarily related to the fact that you can claim back VAT on any business-related purchases you make, which can be handy if you’re buying costly photographic equipment. You also have to charge VAT to clients; which can be a useful smokescreen to those less versed in the ways of VAT who may be fooled into thinking you are a big business!
Ultimately, the decision is yours and perhaps should be decided on the type of clientele you hope to attract. If you’re likely to be working on the high street or with big businesses, you should register. If you’re working on a smaller scale, adding VAT to your charges could render your prices uncompetitive.
