Published On: Fri, Jul 17th, 2015

Why British Entrepreneurs Find The UK Tax System So Confusing

Taxes are everyone’s least favourite topic. At least, not unless you happen to be the UK’s Chancellor of the Exchequer, George Osborne! Anyone that does business in Britain will all agree about one thing. The taxation system there is somewhat confusing and complicated.

pound

It’s bad enough that there are so many rules and restrictions for individuals. But, it’s even worse when you’re an entrepreneur! As a result, many people prefer to set up offshore firms and base their headquarters in another European country. Examples include Switzerland and Luxembourg.

So, what is it about the tax system in the United Kingdom that business people find so baffling and annoying? It turns out there are quite a few things. Here are some of the worst offenders:

Corporation tax

It doesn’t matter if you set up a private or public limited company in the UK. One thing’s for certain; you will have to pay corporation tax! It’s a form of taxation applied to the profits a business makes in Britain. At present, the lower rate is 20%.

 

Entrepreneurs in the UK find this confusing for one reason: the self-employed don’t pay it! Instead, there are two forms of contractor tax that must get paid: income tax and National Insurance. To complicate things further, if you run a company, you must also pay NI for any employees you hire!

It seems a bit odd that there are different forms of tax for people that run a business. Common sense would dictate that there would be just one tax for businesses, regardless of their legal structure.

Another reason corporation tax annoys entrepreneurs is how and when it must get paid. At the time of writing, you have nine months from your accounting date to file a corporation tax return. However, HMRC recommends companies to pay their bills even before they file their latest returns!

VAT

Just like some other parts of the world, VAT is a tax that gets levied on the price of most goods and services in the UK. For a while, the rate used to 17.5% but it’s currently 20%. If you start a business in Britain, you must register for VAT if you’re going to turnover above a certain threshold. At the time of writing, that amount is £82,000.

Again, things are confusing for entrepreneurs when it comes to VAT. First of all, you can register for a VAT number and start charging the tax to your customers even if you turnover £100 a year!

Second, many business owners incorrectly charge VAT for some commodities. It can often be hard to keep up with changes in VAT rules. And, third, there is more than one way to account for VAT in your accounts!

Conclusion

As you can imagine, if you’re planning to start a new business in the UK, the tax rules are confusing enough to make anyone’s head spin. What Britain needs is a more simplified tax system that makes the life of business owners easier. After all; many other European countries have a simpler system.

The sad truth is that probably won’t happen for a long time – if at all. Still, here’s hoping!