Frequently Asked Questions

The true cost of taking on a new hire isn’t just the salary you agree to, there are additional employment costs and allowances you should consider before taking the leap for the first time, including:

• Monthly salary
• Employers National Insurance
• Employers Pension Contributions
• Employment Allowance (to cover Employer NICs)

Understanding how these factors are calculated and the timings on when each liability is paid are important considerations before hiring. Naturally, the employer is also responsible for deducting tax/NIC/Student Loan on the employee’s behalf too and will pay these balances over to HMRC with the Employer NICs.

The Annual Accounting Scheme is available for companies with an annual turnover above £1.35 million but below £2 million. Businesses registered for this scheme submit one single return per year rather than quarterly returns and make nine payments throughout the year instead of submitting quarterly payments at set intervals as required by HMRC.

The Flat Rate VAT Scheme is available to small businesses with an annual taxable turnover below £150,000. Under this scheme, instead of charging a regular rate on each sale (which can range from 0% to 20%), businesses pay a flat rate on their total turnover at the end of each quarter. This rate depends on type of business and varies from 4% to 14% with a further 1% discount in the first year of registration.

However, if you spend a small amount on tangible goods, you’ll be classed as a limited cost business. A small amount is defending as less than 2% of your turnover, or £1,000 a year (if your costs are more than 2%), which means you’ll default to a flat-rate percentage of 16.50%, regardless of the type of business.

There are several types of VAT schemes that are not standard, such as the Flat Rate VAT Scheme, and the Annual Accounting Scheme.

The process involved in registering voluntarily is more complex than compulsory registration and requires extensive knowledge of both UK and EU taxation laws.

Businesses can’t reclaim the VAT element of their start-up costs until they are registered for VAT with HMRC. So, businesses must decide on a registration threshold that suits their needs and financial situation.

Voluntary VAT registration can offer a number of advantages to small business owners, such as allowing them to reclaim any VAT incurred on purchases made by the company. It can also help with cash flow and provides an opportunity for a business to demonstrate its quality in terms of its financial management, as well as help boost credibility and customer confidence in the company’s services or products.

The current threshold for UK businesses is £85,000 and businesses that go over this must register for VAT. The introduction of Making Tax Digital has also changed the way some small businesses need to approach their tax affairs, so it may be worth considering voluntary registration even if you are below the threshold.

VAT (Value Added Tax) is a tax added to most products and services sold by VAT-registered businesses. Once registered, businesses can reclaim the VAT element of any purchases, including equipment and overhead expenses. Additionally, contractors hired by a business can also be reclaimed if they are registered for VAT.

You can contribute up to £60k per year from your company into a private pension but if you have reserves available in the company, there is scope for using any unused allowances from the past three years too.

It should also be noted that if contributions exceed £60k in any one year, additional taxes may need to be paid on any excess payments made by either yourself or your limited company which is why we have partnered with Capstone Financial who can support you with investments.

Corporation Tax is usually higher than individual tax when other payroll deductions are considered (NICs, Student Loans, etc.), so although you may be paying more into the pension overall due to Corporation Tax, it could still be beneficial.

It’s important to remember that limited companies and individuals cannot contribute to pensions in a similar way – individual contributions will come from personal funds whereas company contributions are classed as business expenses, reducing their taxable profits.

Contributing to a pension through your UK limited company can be a great decision. If your pension contributions are paid from the company’s income, this reduces the company’s taxable profits which in turn reduces the corporate tax burden.