Is it a bird? Is it a plane? No, it’s Chris Huhne driving past in his car. Whoops, sorry, my mistake, I think it was his wife. Or was I right the first time?
This photo opportunity doesn't seem like such a good idea now...Image by DECCgovuk via Flickr
The path of a political figurehead never runs smooth, especially when one is charged with perverting the course of justice. Yes, I’m referring to the news that Chris Huhne the Liberal Democrat MP and (ex) Energy Secretary has resigned his cabinet post. The well-publicised reason for his resignation is the allegation that in 2003 he persuaded his then wife to take three points on her driving license for a speeding offence.
Now as interesting as the charges against Mr Huhne are, that is not the main purpose of this blog post. We are, after all, an energy broker, so the real issue is the credentials and background of the new Energy Secretary, Ed Davey.
So who is Ed Davey?
Edward Jonathan Davey has a degree in Philosophy, Politics and Economics from Oxford and has been in parliament since 1997, when he defeated the Tory MP Richard Tracey in the constituency of Surbiton. Under the coalition, Davey was appointed Parliamentary Under Secretary of State in the Department for Business, Innovation and Skills (BIS) with responsibility for Employment Relations, Consumer and Postal Affairs.
Davey has a reputation for falling on the green side of the spectrum; he campaigned on environmental issue at university and his voting record shows support for new laws to tackle climate change.
We will watch developments over the next few months with interest to see if there is a particular change in energy policy as result of the change in personnel, but the reality is that both Huhne and Davey are Lib Dems through and through and very little is likely change.
As a small business owner, you need to be aware of tax rules or face potentially expensive consequences. Here I'll take you through some basics to help you stay on the right side of HMRC...
Starting up? Inform HMRC
When you become self-employed or start a new business, you must inform HMRC within three months or risk a fine.
If you have an accountant you should tell HMRC this too; you may have to fill in a form authorising him or her to act on your behalf on tax matters.
Deciding your accounting period
One of the first decisions you need to make is your accounting period. Unlike personal tax, as a small business you can choose the date your accounting year ends.
Unless you have a good reason to do otherwise, however, the simplest option is to make your accounting period coincide with the tax year.
In the year in which you start, you will be taxed on the period between your start date and the next 5th April. (The end of the tax year.) This period is known as your basis period.
Your main tax liabilities
There are three main taxes that you need to be aware of: personal tax, corporation tax and VAT.
1. Personal tax
Your personal tax liability depends on how much salary you choose to pay yourself from the business. You will have the normal personal allowance that you don't have to pay tax on . ( For 2011-2 this is £7,475, for 2012-3 it will be £8,105.)
What you'll pay: you pay 20% tax on earnings up to and including £35,000 (£34,370 for 2012-3); 40% on earnings of £35,001-£150,000 (£34,371-£150,000 for 2012-3) and 50% on earnings over £150,000.
2. Corporation tax
Limited companies and organisations including clubs, societies, associations, co-operatives, charities and other unincorporated bodies pay corporation tax on their taxable profit. You can deduct a variety of business expenses and capital allowances, but you have to calculate your own company's tax liabilities, which is why a good accountant is such an asset to a small business.
Corporation tax has to be paid nine months and one day after a company's normal due date - usually the last day of the annual accounting period.
What you'll pay: in 2012, you'll pay 20% on profits of up to £300,000 (the Small Profits Rate), and the Main Rate for profits of over £1,500,000 is 25%. There is also a 20% rate for unit trusts and open-ended investment companies. (See HMRC for more information.)
You must register for VAT if your annual sales are over £73,000. It's sometimes a good idea to register voluntarily if your turnover is lower than this: for example you can still claim back VAT on purchases even if you don't make any sales in an accounting period.
What you'll pay: The total VAT charged on invoices to your own customers, minus any VAT you've paid out on essential purchases. There are also several VAT accounting schemes which could save you time and money - see HMRC for more information.
Completing your company tax return
Once a year you or your accountant will have to complete a company tax return form (form CT600) and file your accounts at Companies House. Bear in mind:
- it's your responsibility, not your accountant's, to ensure the information is correct - you will have to pay penalties for mistakes;
- you should keep all your records for at least six years, including receipts and invoices;
- the deadline for sending in the return is either 12 months after the end of your accounting period or three months after you recieve notice to deliver a company tax return, whichever is later;
- if you file your tax return late, you may have to pay interest on your tax bill or even a fine.
Tax liabilities for sole traders and partnerships
For sole traders, any profit after the deduction of allowable expenses is taxed as income.
If you are in partnership with others, your tax situation is similar to that of a sole trader. However, you will need to fill in a separate return for the whole partnership, which divides up the partnership profits in-line with how each partner earned that money. After that, each partner must complete their own individual tax return declaring their share of earnings from their partnership.
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- Business week in brief: 4th May 2012
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- EDF Energy’s Business Customer Commitments: four key pledges
- Businesses buck the trend when it comes to smaller energy suppliers