Category: HMRC

Below is a very brief summary of taxes in the UK but gives an idea to a businessman who is planning to start a business.

Ongoing Taxes

Name	Detail	Rate
Corporation tax	Tax on profit the company makes	Current rate 19% going up to 25% from April 2023 for profits over £250k
Dividend tax	Tax on dividends received by individual shareholders	First £2k tax free then between 7.5% to 38.1%
Payroll (PAYE) tax	Taxes on becoming an employer
Income tax	Employee pays	First £12,570 is tax free then between 20% to 45%.
Employee national insurance	Employee pays	First £8,840 tax free then 12%
Employer national insurance	Employer pays	First 9,568 tax free then 13.8%. Employment allowance £4k
Value added tax	Sales tax when turnover crosses £85,000	Usually 20%
Business rates	Municipal tax	Usually, half of rent

One off taxes

Name	Detail	Rate
Capital Gains Tax	Tax on the profit when you sell something that is increased in value.	First £12,300 tax free then 10% or 20% depending on your income. Tax on sale of residential property is higher.
Inheritance Tax	Tax on the estate of someone who died.	40% over £325,000

Other matters

Name	Detail	Rate
Insurance	Minimum legal requirement	Employer’s Liability Insurance.   Certificate needs to be kept for 40 years. Requirement now removed.
Minimum Wage	Legal minimum wage	Over 23 years: £8.91 per hour. Lower for younger people

Matters specific to restaurant industry.  

Name	Detail	Rate
Premises License	Permit to sell alcohol	New license can be a long process. Transfer is usually free and annual fee less than £1k p.a.
Music License	Permit to play background music	Annual fee under £1k p.a.

Example:

Suppose you start a restaurant and after few years it starts making some profits, you will find that you have a new partner to share in your good fortune – Her Majesty’s Revenue and Customs (HMRC)

I have given below what an owner will make and what his new partner HMRC will capture.

Owner’s share:
Sales                                                   £2,000,000
Net Profits                                        £400,000             say 20%              
Corporation Tax                              £100,000             25% rate from April 2023
Distributable Profits                       £300,000
Personal/Dividend tax                   £100,000            
Net in hand                                      £200,000

I have taken net profits at 20% this is achievable in a well-run high end central London restaurant. This profit percentage is after paying payroll taxes, VAT and Business Rates.

HMRC’s share:
Business Rate                                   £100,000             Fixed not dependent on sales
VAT                                                     £400,000            
Payroll Taxes                                    £60,000              
Corporation Tax                              £100,000            
Personal/Dividend tax                   £100,000            
Total                                                   £760,000

Above figures have been estimated and rounded off to make them easier to understand but on the whole close to reality.

In case you decide sell or just drop dead, you will meet new characters from the `Book of the Taxes` called Capital Gains tax and Inheritance tax but don’t worry, not today.

Set up a business – GOV.UK (www.gov.uk)

Medical Insurance

Step 1: Ascertain whether benefit employer wishes to provide is exempt or not.

Which benefits are exempt? Click here for answer

Step2: If benefits are not exempt, we need to report them to HMRC and deduct tax and NIC but it depends on who pays for the benefit.

Who Pays	Who pays What
Employer arranges and pay directly to insurance company	Employer Class 1A NIC via P11d Employee – income tax via Self-assessment but pays no NIC.
Employee arranges but employer pays to insurance company	Employer Class 1A via P11d   Employee – income tax via Self-assessment   Employee pays NIC via payroll by adding value of benefit to employee’s earning.
Employer reimburses employee	Employer pays Class1A and employee pay Class1 NIC and Tax. All collected via payroll.

Conclusion: Best option is employer to arrange and pay provider directly. Please note cost of insurance and class 1A NIC will be tax deductible for employer as an expense.

Source:

Expenses and benefits: medical or dental treatment and insurance – GOV.UK (www.gov.uk)

Life Cover

No liability to income tax arises if the employer arranges and pays for a `retirement or death benefit`.

Retirement or death benefit – means a pension, annuity, lump sum, gratuity or other similar benefit which will be paid in the event of the employee’s retirement or death.

Smaller companies can think about Relevant life cover.

Source
Section 307 ITEPA 2003

National Minimum Wage (NMW) is increasing from £8.91 to £9.50 from 1^st April 2022.

More information on NMW as individuals younger than 23 years get lower pay.

Please review your payroll records to ensure that you are not paying any staff less than NMW.

Method to check

1. Fixed Pay – Annual Pay divided by number of hours worked in a year.

Example an employee works for £24,000 per annum for 35 hours per week.

Annual hours worked 35 x 52 = 1820 hours.

Hourly rate = 24,000 divided by 1820 = £13.19. This is more than NMW

2. Variable pay – this is simpler just ensure basic hourly rate is £9.50 or more from 1^st April 2022.

Gov.uk calculator to check if you are paying NMW

Current incentives are listed below:

1. Super deduction

Only Companies that incur qualifying expenditures between 1 April 2021 to 31 March 2023, can claim:

• a super-deduction allowance of 130% on most new plant and machinery investments that ordinarily qualify for 18% main rate writing down allowances

• a first-year allowance of 50% on most new plant and machinery investments that ordinarily qualify for 6% special rate writing down allowances

Thus, super-deduction of 130% will provide a deduction exceeding the cost of the asset and first year deduction of 50% will accelerate allowances.

Exclusions

1. Used and second hand will not qualify.
2. It should not be a car
3. Expenditures on contracts entered into prior to 3 March 2021 even if expenditures are incurred after 1 April 2021. 
4. Plant and machinery expenditure which is incurred under a Hire Purchase or similar contract must meet additional conditions to qualify

Source:

ACCA guidance

2. Research & Development

This is more difficult to qualify but has higher rewards. If a company incurs expenditure to make an advance in science or technology, it can claim R&D relief:

• deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
• claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss

Source

Gov.uk

3. Government support directory

UK Government has made a helpful directory where businesses can find funding in shape of grants, equity and debt. Access it via link

4. Local chamber of commerce

One can join local chamber of commerce to meet similar businesses and share ideas and contacts.