A Comprehensive Guide to Setting Up Limited Corporate Taxation After Incorporation: featuring UTR, VAT, Payroll, etc

It is no news that the first step in setting up a business is incorporation. Incorporation, which may include registration, obtaining the required licenses, and building a brand. However, when incorporation is done, setting up limited corporate taxation is next.

As a business owner in the United Kingdom, you have to set up corporate taxation for your business, some of which include Unique Transaction Reference (UTR), Value Added Tax (VAT), Payroll etc.

Some business owners incorporate their businesses without setting limited corporate taxation. This is possible, although there are numerous benefits to setting up limited corporate taxation after incorporating your business. In this article, we will explore corporate taxation and its importance, including ways to set up limited corporate taxation for your business.

What is Corporate Taxation?

The mechanism through which corporations, in particular, are subject to taxes on their earnings, profits, and other activities is known as corporate taxation. It is the process by which the government imposes a levy on corporations on their earnings, which are distinct legal entities from their owners. Corporate taxation includes the following tax filing, tax rate, tax credit or deduction, and tax compliance.

Corporate entities pay 25% of their yearly profits in corporate taxes, although the rate varies by nation and jurisdiction. Limited corporate taxes are paid to HMRC in the United Kingdom.

Why Should I Register for Corporate Taxation?

There are many advantages to setting up limited corporate taxation after incorporation. Some include limited liability protection, Here is a list of the benefits of setting up corporate tax for your business.

1. Limited Liability Protection

Corporations enjoy limited liability protection that helps protect your assets. The assets you own are safeguarded if something goes wrong with your business, such as financial difficulties or legal issues. This gives you peace of mind and guarantees the security of your possessions.

2. Tax Efficiency

Corporate taxes may provide tax benefits, depending on your company's setup and conditions. Certain tax-saving options, such as credits and deductions, might be available to corporations that aren't to individuals or other business organizations.

3. Good Credibility

People are more likely to trust you when your business adheres to corporation taxation. Your company is perceived to have good credibility when it is registered as a corporation. Prospective business associates, financiers, and clients observe your professionalism, stability, and adherence to regulations. This gives you an edge and makes your firm stand out from competitors.

4. Legal Compliance

Ensuring that your business works legally is possible by registering for corporation taxation. Tax law violations can result in fines, audits, and damage to one's reputation.

Maintaining legal compliance is the best decision you must make for your business. Once you fail in tax compliance, it gives your business a bad reputation, and potential investors may refuse to partner with or associate with your business.

5. Access to Capital

Setting up limited corporate taxation makes you eligible for loans. Financial institutions and investors would rather do business with companies subject to corporate taxation. If corporation taxation is used, your chances of securing capital to grow the business and try new things are increased. They can issue stocks, bonds, or other securities, which can attract investors and provide funds for expansion or investment.

Types of Limited Corporate Taxation Structures

Types of limited corporate taxation structure you need to consider before setting limited corporate taxation. These structures include C Corp, S Corp, Sole Proprietorship, and Limited Liability Company.

1. C Corp

C Corps are liable to double taxation, it is a legal entity that's separate from its owner. Although forming a C Corp is more expensive than forming other types of entities, corporations provide the best protection against personal responsibility for their owners. Additionally, corporations need more thorough reporting, operational procedures, and record-keeping.

Corporations are subject to income tax on their profits, in contrast to partnerships, LLCs, and sole proprietors. Corporate profits are sometimes subject to two taxes: the business profits and the dividends paid to shareholders and reported on their tax returns.

The most common form of corporation is a C-corporation. The corporate income tax applies to them. If gains are paid out as dividends to shareholders, then the shareholders' dividends are subject to an extra tax. One disadvantage of having a corporation is this double-taxation structure.

2. S Corp

S corporation is intended to circumvent the disadvantage of double taxation that ordinary C corps have. S corporations do not impose corporate tax rates on owners' income when earnings and certain losses are passed down to them directly.

While not all states tax S corporations in the same way as the federal government, the majority tax their shareholders with this recognition. Certain jurisdictions impose taxes on S companies on profits that exceed a designated threshold, while other states do not acknowledge the S corp election and instead handle the company like a C corp.

3. Sole proprietorship

This is the most common business structure for small businesses. A sole proprietor is "someone who owns an unincorporated business and manages it by himself or herself". A sole proprietorship's main benefit is its simplicity. Since there is no separation in this case between the firm and its owner, the owner is entitled to all profits.

It also implies that the single owner bears full liability for all debts, losses, and liabilities of the company. This implies that if the business accounts are insufficient to pay the obligation, creditors or lawsuit claimants may be able to seek the business owner's assets and accounts. Independent consultants, teachers, caterers, and freelance writers are a few examples of sole proprietorships.

4. Partnership

A partnership is a type of legal entity established by two or more people that can have several organizational structures.

Similar to a sole proprietor, one partner in a limited partnership assumes unlimited liability for the business as the general partner. The business owners are referred to as limited partners, who all share in the profits and losses of the company.

Ways to Set Up Limited Corporate Taxation After Incorporating Your Business

Setting up limited corporate taxation is the next best step to take after incorporating your business. These are the several steps involved:

1. The business entity of your choice:

Incorporating a business means that your business has been registered legally, including the choice of business structure. Automatically, when setting up a limited corporate taxation, your business entity determines the type of corporate tax you'd be subjected to.

As stated above, the business entities you can pick from are S Corp, C Corp, partnerships, and sole proprietorships.

If you're unsure of what business entity to pick, read more about it on Incorpuk.

2. Get your EIN

EIN is the Employer Identification Number required for filing corporate taxes. You'll need an EIN to open a business bank account, hire employees, and file tax returns.

You can apply for an EIN online through the IRS website.

3. Register for corporation tax

Within three months of opening for business, your company must register for corporation tax. This can be completed online via the HMRC website. Information regarding your company's operations, including the date it began trading, the nature of its operations, and its registered office address, must be provided.

4. Obtain UTR number

To register for corporation tax, you will need your company’s UTR number. A 10-digit number (Unique Taxpayer Reference) is usually posted to your address within a few days after incorporation.

5. Activation Code

While registering, you need to request an activation code to proceed with your registration.

How to Register For VAT

To register for VAT, you need:

• Unique Taxpayer Reference number
• Declaration of other businesses you have owned in the past
• Business bank statement
• Government getaway ID

Business owners can register for VAT on the government getaway website and sign up. Ensure your business has an annual turnover of £85,000 and above. Then wait for confirmation.

After registration, set up VAT accounting immediately. Create a system where VAT is removed from each product automatically at the point of payment. This includes charging VAT on taxable sales (where applicable), issuing VAT invoices to customers, and keeping accurate records of VAT transactions.

File for VAT returns. Many business owners leverage the tax return because it helps them gain back tax paid on goods.

How to Run a Payroll for Small Businesses

As a business owner, your employees are your major stakeholders. They keep business activities ongoing, which is why preparing your payroll should be done with rapt attention and shouldn’t catch you off guard. To run a payroll, follow these steps:

1. Obtain employee information

Obtaining employee information is vital. Information such as name, address, bank details, salary, or hourly rates. The IRS requests these documents upon employment. You cannot prepare a payroll without this information.

2. Choose a payday schedule

Decide the payday schedule that works for both you and the employee. The options include weekly, biweekly or monthly.

3. Calculate gross pay

Calculate the gross pay of an employee by multiplying the number of hours by the number of days. This can be done easily by establishing a system that automates the work hours and number of days employees work.

4. Deduct Taxes and other withholdings

Deduct taxes and any other contributions, such as pensions, insurance, or student loan repayment. Use HM Revenue & Customs (HMRC) guidelines to determine the correct tax and NIC deductions

5. Calculate net pay

Net pay is determined by subtracting deductions from gross pay.

Gross pay – Deductions = Net pay

Calculate net pay and pay your employees.

6. Prepare Payroll records

Keep your records of each payroll run, including details of gross pay, deductions, and net pay for each employee, clean and straightforward. Generate automated records, so you can have them saved to cloud storage. Maintain these records for HMRC compliance and for providing payslips to employees. Contact our professionals for guidance on setting up limited corporate taxation after incorporation.