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Self-employed, partnership or a limited company

This article is part of a whitepaper 'Giving your business the best start with tax' provided by HM Revenue & Customs (HMRC) and talks around the tax implications for the Self-employed, partnership's or limited companies.

Self-employed – Individual:

This means that you’re working for yourself, although you can also have people working for you. Your income tax, and part of your National Insurance liability, is calculated by reference to your business profi ts. The calculation and payment of the Tax/National Insurance due on profi ts is done through self assessment. If you have employees you will have to operate Pay As You Earn on their earnings. You will also need to register the business to pay VAT, once sales reach the VAT registration threshold.

Partnership:

A partnership is where two or more people set up a business. Each partner is personally responsible for all the business debts, even if the debt was caused by another partner. Each partner pays income tax on their share of the business profi ts through Self Assessment, as well as National Insurance. A nominated partner is responsible for sending the Partnership tax return to HMRC. You will also need to register the business to pay VAT, once sales reach the VAT registration threshold.

Limited company:

A limited company is legally separate from its owners. This means the company is liable for any debts, not the individual owners. You can create your own company and register it at Companies House or you can also use a company registration agent to buy a company ’off the shelf’. There is more information in this booklet under Corporation Tax.

If you form a limited company, then, as a Director, you will also be an employee – so you need to set up and register a PAYE scheme. To do this go to www.hmrc.gov.uk/newemployers or call the New Employer’s Helpline on 0845 60 70 143.

You will also need to register the business for VAT, once its sales reach the VAT registration threshold.

Managing tax and accounts for limited companies can be complicated. A solicitor or accountant will be able to offer advice on setting up a limited company and HMRC publish a number of useful guides about Corporation Tax, visit www.hmrc.gov.uk/ct.

To watch a short online video on ‘Setting up in business’ or ‘Corporation Tax’ visit www.businesslink.gov.uk/taxhelp.

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