Author: Amit Roy

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.
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)

Background

If you received a HMRC letter about your money or assets abroad and after having checked your tax affairs you find that you need to make a disclosure – you will  need to use this facility.

Step 1 – Where possible, contact HMRC. They may give you more information about the assets in question, which will help focus the review of tax affairs. However, there’s no guarantee they’ll share anything with you.

Step 2 – Send the certificate back to HMRC after ticking box 1.

Please note this is a important step because if the statement turns out to be false this could expose the tax payer to criminal investigation and prosecution.

Step 3 – Register for the Digital Disclosure Service (DDS).
Please note 90 day time period starts from the date you notify HMRC using DDS not from the date you sent the certificate back mentioned in Step 2.

Step 4 – We have now 90 days to:

• Gather the information to fill in the disclosure
• Calculate the final liabilities including tax, duty, interest and penalties on a year by year basis.
• Fill in the disclosure, using the unique disclosure reference number (DRN) given on notification
• Gather information on maximum value of overseas assets you have in the past 5 years

Complete and true – Disclosure should be complete and full co-operation needs to be given to HMRC

Number of years– Taxpayer will also need to self-assess their own behaviour, based on this assessment, tax payer will be presented with the number of years disclosure needs to be made.

12 years	Non-deliberate (see below bonus point 2)
up to 20	Dishonest behaviour

This will also have an effect on the quantum of penalty to be charged.

See Example of Offshore Penalty Calculation

Tax Calculation – We need to be aware of the effect of Double Taxation Agreements for this DTAA Digest and HS 263 will come handy.

Step 5 – It’s a condition of using this facility that we make an offer for the full amount of taxes, duties, interest and penalties owed.

We must make full payment in accordance with the disclosure on the same date that the disclosure is submitted.

We will get an acknowledgement from HMRC within 15 days of them getting the completed disclosure. They will aim to tell us of the intended course of action within 90 days of the acknowledgement.

Bonus:

1. Penalty calculation – India is not on the list thus falls in the residual category 2.
2. Time period for offshore assessments was changed in 2019. This override RTC Regulations. Earliest year for if reasonable care taken is 2013/14. If behavior careless earliest year is 2011/12. These time periods will change on 6th April 2021.

Source:

HMRC Guidance

Further readings:

1. Taxation of Interest Income from NRE / FCNR Deposits.
   
2. Taxation of LIC Policy in UK.

In simple terms – annual PAYE process for most employers.

Step 1 – Send final FPS: this is a check box in the PAYE software which needs to be ticked confirming that it’s the final FPS of the year.

Step 2 – Issue P60: once step 1 has been completed, we need to issue P60 to all employees employed as at 6^th April. Some software send P60s to all employees even those who left. So ensure to exclude the leavers when sending P60s. Also save a copy in your records.

Step 3 – Update Software: all PAYE software must be updated once the tax year ended. Usually the software will prompt you automatically to update it once you logging. Alternatively, visit software provider’s website for instructions.

Step 4 – Update tax code for the new year: please use HMRC guide P9X for this.

Step 5 – Update staff salary with National Minimum wage. Adjust director’s salaries where required.

Bonus points:

1 – Before every payment run employers need to download tax notices from HMRC website. HMRC has made a very good free software – HMRC Desktop Viewer.  Most software will have an inbuilt facility to download PAYE notices.

2 – We are using MoneySoft payroll for our payroll. We find it easy to use and value for money. We were recommend this software by good friends at 1 to1 accountants.