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Who to Tell: Taxes and your Online Business

By: Dave Howell - Updated: 6 Aug 2013 | comments*Discuss
Who To Tell: Taxes And Your Online Business

Running your own online business will mean you have to take control of your tax affairs. Even if you intend to run your online business part-time, you still need to handle your tax affairs professionally. The Inland Revenue (HMRC) will want to see properly prepared self-assessment tax forms from you.

Your Tax Return

When you begin your new business you must inform HMRC about your new business or you could face a fine. Contact the HMRC on: 08459 15 4655 for more details about your responsibilities as a new business owner. You can also download a useful guide that covers all of the issues relating to working for yourself from the HMRC website: www.hmrc.gov.uk/startingup/working-for-yourself.pdf.

You can complete paper tax returns if you prefer, but filing your tax return online gives you more time and also makes the whole process more efficient. The paper self-employed tax return (form SA100) can be downloaded from the HMRC website at: www.hmrc.gov.uk/forms/sa100.pdf. You also get the forms you need via post by calling the HMRC Self Assessment Orderline on: 0845 9000 404.

If you want to file your return online, you first need to register with the HMRC site via the main Government services gateway. You can start your registration on the HMRC website: http://online.hmrc.gov.uk.

National Insurance

As an employee your National Insurance (NI) contributions were paid for you by your employer. As you now have your online business you have to pay these contributions yourself. When you inform the HMRC of your self-employment they will also send you the relevant details about how you can pay your NI contributions. As a self employed person you have to pay two general classes of NI:

  • Class 2
    This NI contribution is a flat rate that you must pay weekly. Most business owners pay this on a monthly basis via direct debit. Note that if you expect your online business to earn less than £4,825 in the 2008/09 tax year, you can apply for an exemption from this class of NI.
  • Class 4
    This type of NI is linked to how much your business earns. The money your business declares as income on your self-assessment form is used to calculate this class of NI.

Working From Home

If you intend to operate your online business from home, you may have to pay business rates to your local authority. This depends on how you organise your work space. If you have a separate office within your house, or in your garden, this may attract business rates. Your local tax office or local authority can give you more details.

VAT and Corporation Tax

These two taxes only come into play if your online business firstly sells goods that attract VAT, and secondly if your business earns more than the current VAT threshold of £67,000. Corporation Tax is only paid by limited companies. If your online business will be a limited company, you must inform the HMRC. If you fail to do so, you could face a fine. You can get more information on the HMRC website: www.hmrc.gov.uk/ctsa/index.htm.

Taking on employees

Your new online business may have to take on employees from day one, or because of rapid growth finds that more people are needed to operate the business efficiently. If your online business needs employees, you must again inform HMRC about this. You can read detailed guidance on their website: www.hmrc.gov.uk/employers that includes details of the tax forms you have to complete.

Once you have informed the HMRC that you will becoming an employer you can now set-up the PAYE systems you’ll need to pay your new employees. You can find detailed instructions about how to do this on the HMRC website: www.hmrc.gov.uk/paye/intro-register.htm.

Taxes are an area of your new online business you must take seriously. Whether you are dealing with your own tax affairs or the tax affairs of your employees, it is vitally important that you have accurate and efficient systems in place to handle this aspect of your online business professionally. HMRC expects that every business it deals with to have complete and up-to-date tax records. If you ever need help and advice you can contact the Business advice teams HMRC via their website: www.hmrc.gov.uk/bst.

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