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Running a business:
Business taxes

If you are self employed you will need to pay income tax on your business profits. You should fill in the self employment pages of your income tax return and the tax is collected under the self assessment system.

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The taxman is enquiring into my tax return. What does this mean?

If your business is in a company, then the company will pay corporation tax on its profits and must make its own annual self assessment return to HM Revenue & Customs. Usually the corporation tax return needs to be filed within one year of the end of the accounting period, and a fine of �100 will be charged if you are late, rising to �200 if the return is more than 3 months late. Generally, however, the corporation tax needs to be paid within 9 months and 1 day of the end of the accounting period, except for large companies, which must pay their tax by quarterly instalments.

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Corporation tax self assessment

A company or business should prepare accounts showing a profit figure, which must be adjusted to arrive at the taxable profits. Tax relief is not available for all of a business' expenses that are included in its profit and loss account. For example, relief for capital expenditure, such as the cost to the company of buying a computer or car, is given in the form of capital allowances and any depreciation included in the accounts is not allowed.

Company directors are employees of the company. The company must pay employer's Class 1 NIC and the directors must pay income tax and employee's NIC on any salary. These costs are allowable deductions in calculating the profits of a company.

Profits after tax can be distributed to shareholders as dividends. Corporate shareholders do not pay tax on dividends received but individual shareholders are taxed on dividends received.