If you’re just starting out as an entrepreneur, sorting out your taxes can be time-consuming and often bewildering, especially at the start of a new tax year.
“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” says Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so that you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”
Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.
For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Tony. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”
At the start of the new tax year 2022/23, here are the main taxes you’ll need to be aware of when setting up your business.
Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying it based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.
National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most firms is 19% of taxable profits (rising to 25% from April 2023 for profits over £250,000).
VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000 for the 2022/23 tax year), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.
Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.
Tax exemptions and allowances at a glance
Here are the key tax changes for entrepreneurs for the 2022/23 tax year, following some tweaks made in the Spring Statement.
Income Tax: The personal allowance remains at £12,570, while the higher-rate threshold – the point at which you will start to pay 40% Income Tax – stays at £37,701 of taxable income or £50,271 of gross income.
National Insurance: Employers’ National Insurance contributions increase by 1.25 percentage points from April. From July, the primary threshold for employee National Insurance contributions increases to £12,570, in line with the Income Tax Personal Allowance.
Dividends: The Dividend Tax rate increases by 1.25 percentage points from April. The dividend allowance is unchanged at £2,000.
Personal pensions: Most people can get relief on pension contributions worth up to £40,000 a year. The lifetime limit of £1,073,100 is in place until 2026.
Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.
Inheritance Tax: The Inheritance Tax nil-rate band for 2022/23 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.
Contact us for detailed advice on how you can make the most of your tax allowances this year.
If you’re just starting out as an entrepreneur, sorting out your taxes can be time-consuming and often bewildering, especially at the start of a new tax year.
“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” says Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so that you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”
Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.
For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Tony. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”
At the start of the new tax year 2022/23, here are the main taxes you’ll need to be aware of when setting up your business.
Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying it based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.
National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most firms is 19% of taxable profits (rising to 25% from April 2023 for profits over £250,000).
VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000 for the 2022/23 tax year), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.
Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.
Tax exemptions and allowances at a glance
Here are the key tax changes for entrepreneurs for the 2022/23 tax year, following some tweaks made in the Spring Statement.
Income Tax: The personal allowance remains at £12,570, while the higher-rate threshold – the point at which you will start to pay 40% Income Tax – stays at £37,701 of taxable income or £50,271 of gross income.
National Insurance: Employers’ National Insurance contributions increase by 1.25 percentage points from April. From July, the primary threshold for employee National Insurance contributions increases to £12,570, in line with the Income Tax Personal Allowance.
Dividends: The Dividend Tax rate increases by 1.25 percentage points from April. The dividend allowance is unchanged at £2,000.
Personal pensions: Most people can get relief on pension contributions worth up to £40,000 a year. The lifetime limit of £1,073,100 is in place until 2026.
Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.
Inheritance Tax: The Inheritance Tax nil-rate band for 2022/23 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.
Contact us for detailed advice on how you can make the most of your tax allowances this year.
If you’re just starting out as an entrepreneur, sorting out your taxes can be time-consuming and often bewildering, especially at the start of a new tax year.
“Your focus as a businessperson should be on the great idea you have to start a business, it shouldn’t be on doing all the administration as well,” says Tony Wickenden, Managing Director of Technical Connection and Technical Director at St. James’s Place. “Taking sound financial advice is absolutely essential so that you don’t become distracted by stuff that isn’t necessarily natural to you. It will cost you a bit of money to outsource it, but it usually turns out to be the right thing to do. Keeping the main thing the main thing, so to speak.”
Issues such as the most tax-efficient way to pay yourself and how to develop the best tax plan might not seem like the most important things to consider, but you can save time, hassle and – most importantly – money, by thinking about them from the start.
For first-time entrepreneurs who have left the corporate life to set up a business, it also pays to take out life insurance and income protection, says Tony. “Especially coming out of a corporate environment, where you may have had pensions, life insurance and health insurance provided for you, putting ‘replacement cover’ in place yourself brings all-important peace of mind.”
At the start of the new tax year 2022/23, here are the main taxes you’ll need to be aware of when setting up your business.
Income Tax: The individual starting the business will be subject to Income Tax more or less regardless of the business structure chosen, paying it based on profits in a sole trade or partnership model, and paying it on their salary or dividends if a company structure is used.
National Insurance: Sole traders and partnerships will pay class 2 and class 4 NI through a year-end tax return. Those using a corporate model will pay class 1 on salary payments. Dividends do not suffer NI at all. The well-advised will ensure enough earnings over the NI threshold are registered each year to build future state-pension entitlement.
Corporation Tax: This applies only to companies and is payable through a year-end Corporation Tax return. The current rate for most firms is 19% of taxable profits (rising to 25% from April 2023 for profits over £250,000).
VAT: This is mandatory for those with turnover in excess of the registration threshold (currently £85,000 for the 2022/23 tax year), but some businesses will choose to voluntarily register from the outset, especially where the customers of the business are other VAT-registered entities.
Enterprise Investment Scheme and Seed Enterprise Investment Scheme (EIS and SEIS): These are tax reliefs rather than taxes, but where businesses intend on raising capital from external investors, they will be a much more attractive prospect if those investors stand to benefit from these generous reliefs.
Tax exemptions and allowances at a glance
Here are the key tax changes for entrepreneurs for the 2022/23 tax year, following some tweaks made in the Spring Statement.
Income Tax: The personal allowance remains at £12,570, while the higher-rate threshold – the point at which you will start to pay 40% Income Tax – stays at £37,701 of taxable income or £50,271 of gross income.
National Insurance: Employers’ National Insurance contributions increase by 1.25 percentage points from April. From July, the primary threshold for employee National Insurance contributions increases to £12,570, in line with the Income Tax Personal Allowance.
Dividends: The Dividend Tax rate increases by 1.25 percentage points from April. The dividend allowance is unchanged at £2,000.
Personal pensions: Most people can get relief on pension contributions worth up to £40,000 a year. The lifetime limit of £1,073,100 is in place until 2026.
Capital Gains Tax: The Capital Gains Tax annual exempt amount for individuals will remain at £12,300 until 2026.
Inheritance Tax: The Inheritance Tax nil-rate band for 2022/23 remains at £325,000 and will be frozen until 2026. The residence nil-rate band stays at £175,000.
Contact us for detailed advice on how you can make the most of your tax allowances this year.