Start-up legal and tax issues
Pg 100-103
Starter activity
• Sole trader and partnerships worksheet
• There are three sections –A, B and C
• All of you must complete section A without looking at your
textbook
• Most of you should rely on your own knowledge to answer
section 2 otherwise refer to the textbook
• Some of will be able to attempt section C with very little help
from the book
How well you did
0-6 marks try again as homework
7-15 Getting there but use your notes and textbook as a guide
16-24 Good work
25-30 Excellent
Page 101
Keeping records
• All business are legally required to keep
records. They are evidence of what has
happened in the past.
• Generally, non-financial company records
(accident book) must be kept for 5 years;
• All financial documents (bank statements,
receipts) must be kept for 7 Years.
Mapping
• Create a map to list all the records that you
keep personally and make a list of the records
that a business must have (4 of each)
• A-C Grade-List and briefly explain
• D-F Grade-List
Records that must be kept
Generally any financial records are legally required to
be kept for 7 years
Cash receipts books
Vehicle log books
Cheque butts
Cash register Z Totals
Credit card receipts
Permits or licenses
Tax invoices
Wages and salary payslips
Purchase orders
Bank records
Workplace injury register
Timesheets
Employment question time
• What are the reasons for getting a job? (MTG
D-F)
• What are the rewards for working? (MTG DF)
• What is the purpose of the minimum wage?
(MTG A*-C)
• Why is Health and Safety important? (MTG
A*-C)
2. Employment
Every employer has a number of legal responsibilities.
They must carefully consider laws relating to:
•
•
•
•
•
Health & Safety at work (mental & physical)
Minimum wage
Working Time directive
Discrimination
Pre-employment checks
The list is not-exhaustive!
Health and safety
Objectives
ALL
• To be able to identify the rights of consumers once they
purchase a product
• To be able to list the reasons why taxes are paid by businesses
MOST
• To be able to explain how consumers can react if they
purchase a product and if something goes wrong
• To be able to calculate VAT and TAX rates
SOME
• To be able to differentiate the different types of taxes that
businesses pay
• To explain what taxes go towards
Starter activity
MTG A*-B
Answer £550
Write two questions that
could have this as the
answer
MTG C-D
You have been asked to
calculate the total
revenue for the company;
Day one 55 products sold
at £10.50 each
Day two 6 products sold at
£15.60 each
Day three 17 products
sold at £3.40 each
Day four 3 products sold
at £1.30 each
3. Consumer protection
• Employers also have a responsibility towards
consumers through laws such as:
• The Sale of Goods Act – Insists that goods should
be ‘fit for purpose’. If they do not, consumers are
legally entitled to get their money back.
Key consumer protection agencies include:
• The Office of Fair Trading (OFT)
• Trading Standards (TS)
• The Consumer Protection Agency (CPA)
What does the picture show?
4. Environmental protection
Businesses also have a responsibility to the
environment.
Example of Laws include:
•Environmental Protection Act 1990
•Hazardous Waste Regulations 2005
•Noise and Statutory Nuisance Act 1993
• Waste must be suitably disposed of in landfill or
through recycling.
Fill in the blanks activity
• You have been given a sheet to help you recall
the people that have an interest in a business
• Complete the sheet using the words provided
Help guide:
Use your own subject knowledge
Ask a friend (no more than two gaps)
Refer to your text book as a last resort
What does this picture say about TAX?
- Justify your answer-
Her Majesty’s Revenue & Customs
• Taxes are paid to the government agency HMR&C.
• It expects ALL businesses to keep their own tax
records & they inspect business records.
The taxes that businesses will have to pay depend on:
1. The amount of sales over a year
2. Whether or not the businesses has employees
3. If the business is a limited company or sole trader
Tax on Small Business
• There are a variety of taxes that small businesses may
have to pay including:
1. VAT
2. Income Tax
3. National Insurance Tax
4. Corporation Tax
Lets go DIRECT.gov!
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersG
uideToTax/DG_4015895
Each EU country has its own rates of VAT
In the UK, In the UK there are 3 rates:
1. Standard rate
You pay VAT on most goods and services in the UK at the standard rate, which is
20 per cent.
2. Reduced rate
In some cases, for example children's car seats and domestic fuel or power, you
pay a reduced rate of 5 per cent.
3.
Zero rate
There are some goods on which you don't pay any VAT, like: Food,
books, newspapers and magazines , young children's clothing and footwear,
special exempt items - for example equipment for disabled people.
How VAT is worked out
• When someone charges you VAT
they multiply the original ('net')
price of the item or service by
the VAT rate to calculate the
amount of VAT to charge.
• They then add the VAT amount
to the net price to give the gross
price - the price you pay.
Paying VAT
Task
• Work out the VAT on these items BASED
ON 20%:
• Car exhaust costing £49
• Car Hire costing £175
• Carton of cigarettes at £32
• Wooden floor costing £499
• MTG A*-B calculate VAT amount and total
price
• MTG C-F Calculate the VAT amount only
Income Tax
Income Tax
Income Tax
• Businesses must pay INCOME TAX in two ways.
1. If it employs any workers, it must take the tax off
their wages and pass it onto the HMR&C. This is
called the Pay As You Earn system (PAYE).
2. Sole traders must pay income tax on their
earnings – the difference between their sales
revenue and the expenses of running a business.
Income Tax example
• Businesses must pay INCOME TAX in two ways.
1. If it employs any workers, it must take the tax off
their wages and pass it onto the HMR&C. This is
called the Pay As You Earn system (PAYE).
2. Sole traders must pay income tax on their
earnings – the difference between their sales
revenue and the expenses of running a business.
Tax rates – some examples
Country
Ireland
UK
Bulgaria
Sweden
Denmark
Qatar (Middle East)
Income Tax
(CORPORATE)
(PERSONAL)
12.5%
28%
10%
26.3%
25%
10%
20-41%
0-40%
10%
0-57%
38-59%
0%
VAT
23%
20
20%
25%
25%
0%
Salary Calculator
Would you like to
know how much you
would earn after tax
and other deductions
are made from your
salary?
http://www.thesalarycalculator.co.uk/salary.php
National Insurance Contributions
(NICs)
Businesses have to pay different types of NICs.
A company with employees is responsible for 2 types
of NICs:
1. Firstly, they deducts NICs from employee salaries
and pass them to HMR&C.
2. Secondly it must pay EMPLOYERS CONTRIBUTION
(THIS IS CALCULATED AS A PORPORTION OF THE EMPLOYEES WAGES)
Sole traders: Have to pay a FLAT RATE NIC plus a % of
NET earnings
Corporation Tax
Corporation Tax
• This is ONLY paid by LIMITED COMPANIES
(Ltd’s and PLC’s).
• It is a tax on the PROFITS of a company.
• You DO NOT pay CORPORATION TAX if you are
self-employed (Sole traders & partnership).
Sole traders only pay INCOME TAX on their
PROFITS.
Corporation Tax
To finish...
Income from taxes is used to fund various things such as:
• Healthcare
• Education
• Defence (military)
• International Aid
• Environmental protection
• Disaster relief
• Ministers expenses & bonuses
• Transport
• Crime
TASK: In your groups, prioritise the use of Tax – you
must be able to FULLY JUSTIFY your answer
How does this relate to
the legal and tax issues
faced by new businesses?