GCSE Business Studies Unit 1 Introduction To Small Businesses
GCSE Business Studies
1.4 Making the Start- Up Effective
• To recognise the importance of an
appropriate trading name for a business.
• To appreciate why accurate record keeping
is important to a business.
• To understand the main taxes a small
business will have to pay — VAT,
corporation tax, income tax and National
Insurance contributions.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Lesson Objectives
GCSE Business Studies Unit 1 Introduction To Small Businesses
Choosing a Name
• Business Names fall into three categories
Related to a
Person Name
Related to the
Business
Obscure!
1.2 Making the start-up effective
• Choosing a name for your business can often be tricky
Start-Up Legal Issues
• There are four main legal areas to be aware of when starting a
business:
Business Organisation
Employment
A company (Ltd or Plc) has a
separate legal entity
This means the business and
not individual owners would be
sued
There are many employment
laws covering:
Consumer Protection
Environmental Protection
The law provides protection for
consumers that businesses
must meet, including:
Sale of Goods
Trade Descriptions
Health & Safety
Discrimination
Wages & hours
There are strict laws covering
pollution
This will affect manufacturing
firms more
• If you are self-employed (Sole Trade and
Partnerships) you are responsible for
reporting ALL your income and expenditure
to H M Revenue & Customs.
• The records MUST be HONEST and ACCURATE
– 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.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Record Keeping
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
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
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Why do we pay tax?
• 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
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Her Majesty’s Revenue & Customs
• 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
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Tax on Small Business
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
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%
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.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Each EU country has its own rates of
VAT
• 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.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
How VAT is worked out
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
VAT
£32 goes to the business
that sold the product
£8 goes to the Government
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Paying VAT
• Work out the VAT on these items:
• Car exhaust costing £49 –
• Car Hire costing £175 - _____________
• A children’s car seat costing at £199 ______________
• Wooden floor costing £499 - ___________
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Task
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Income Tax
• Income tax is a tax paid your income!
• This includes employees, people who are self employed,
pensions etc.
• The amount of income tax you pay as an employee depends
on the amount you make.
• You have a personal allowance with allows you to make a
certain amount of money BEFORE you have to start paying ta
on it
Personal Allowance
2013 Rates
Under 64
£9,440
65-75
£10,500
75+
£10,660
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Income Tax
These are the rates of income tax that an employee will
pay.
These figures are after your personal allowance
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
How much income tax you pay
• Sole Traders 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 (in the same way as a employees do
on their earnings)– the difference between
their sales revenue and the expenses of running
a business.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Income Tax example
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
21%
20%
20%
25%
25%
0%
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Tax rates – some examples
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. 12%
2. Secondly it must pay EMPLOYERS CONTRIBUTION
(THIS IS CALCULATED AS A PORPORTION OF THE EMPLOYEES WAGES) 13.8%
Sole traders: Have to pay a FLAT RATE NIC of 13%
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
National Insurance Contributions
(NICs)
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
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.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Corporation Tax
Corporation tax is payable depending on the amount of profit that the
business makes.
It must also be paid by Housing Associations, Members clubs and Trade
Associations.
The current rate is;
Business Size
Profit Amount (£)
2013 Rate
Small business
300,000-1,500,000
23%
Large business
1,000,001 and above 28%
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Corporation Tax
• Answer:
• Income tax – this will tax her
salary/income. She will not pay
corporation tax as she is a sole trader.
• National Insurance – she will only need to
pay it once as she is a sole trader
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Shelly IsFit taxes
• Corporation tax – this is a tax on the profits the
business makes
• NIC – the business will need to deduct the NIC for
each of the employees before they are paid
• NIC – the business will need to pay additional NIC
based on the number of employees they have.
1.2 Making the start-up effective
GCSE Business Studies Unit 1 Introduction To Small Businesses
Monsieur LePlonk taxes