You’ve put the hours in, spent the late nights building your product and refining your vision, and now your technology company’s off to a flying start – but do you know how to do your accounts?
It’s surprisingly common for successful technology entrepreneurs to run into this problem. In a fast-paced, high-growth industry, a startup can easily reach a turnover in the hundreds of thousands before its owners have time to stop and think about things like their tax or administrative obligations.
And understandably, a lot of CEOs don’t really want to spend their time thinking about those things. They want to focus on the business they’re passionate about, on taking it through this exciting period of growth and seeing it through to maturity.
It’s vital, however, to get the basics in hand as soon as possible. Otherwise, what might now seem like a small oversight has the potential to cause major problems for your business down the line.
If your business, like many tech startups, is incorporated, you’re required to submit company accounts and a corporation tax return once a year.
Corporation tax is generally due nine months and one day after the end of your accounting period. Your company tax return is due later, usually 12 months after the end of your accounting period.
Corporation tax is currently charged at 19% on your company’s taxable profits, although this is due to rise to 25% in April 2023, with marginal relief for profits below £250,000.
If you receive dividends or any other untaxed income as a company director, you need to file a self-assessment return each year with HMRC, too.
These are due by 31 January after the end of each tax year for online returns, or 31 October if you’re filing on paper.
Through this return, you’ll pay income tax and National Insurance contributions (NICs) on any income that hasn’t already been taxed.
Businesses with a taxable turnover above the VAT-registration threshold, which currently stands at £85,000, are required to register for VAT.
You then need to collect and pay that VAT. You’ll also be responsible for keeping records digitally and filing quarterly returns in line with HMRC’s Making Tax Digital programme.
This is something to keep a close eye on if your business is growing rapidly – unlike other tax obligations that apply to fixed periods like the tax or financial year, this requirement applies as soon as your turnover goes over the threshold in a rolling 12-month period.
Tax for employees
More tax obligations come into play if you decide to hire employees.
When you take on staff, you’ll need to set up a payroll system including pay-as-you-earn (PAYE). This is the system HMRC uses to collect income tax and NICs through employees’ pay.
Through a PAYE system, you need to pay employees their wages and other benefits like tips or bonuses, as well as statutory requirements like sick pay, maternity or paternity pay.
From these payments you need to deduct tax and NICs, as well as any student loan repayments or workplace pension contributions.
These payments and deductions must be reported to HMRC on or before each payday, and usually paid each month.
We can help you to understand and manage your tax obligations, with time-saving software and expert advice.