Start up legal and tax issues

Business names

• The business name can not be the same as another established business.

• The name should promote the business• It could be a family name: eg Marks and

Spencers• It could give information about the business.• It could be a combination eg Jawad

Supermarket.• If the company is a limited liability company it will

have Ltd. Or Limited after it.

Keeping records

• All businesses must keep records• A record is what has happened in the past• What records do you think a business

should keep?• Companies must keep records concerning

tax so they can calculate and pay the right amount of tax.

• Taxes are paid to Her Majesty’s Revenue and Customs (HMRC)

Keeping records

• What are entrepreneurs good at?

• Do you think they are good at keeping records?

• What can they do about this?

Keeping records

• If you do not keep track of your tax records you might not pay the right amount of tax.

• Not paying taxes can lead to businesses being forced to close and the owners being jailed.

Taxes

• A business has to pay a variety of taxes. These will depend on:– The amount of sales the business has in a

year– Whether or not the business employs any

staff– Whether or not the company is a sole trader

or a limited liability company

VAT

• Value added tax or (VAT) is a tax on the sales of a business. It is charged at 20% of the value.

• So a product on sale for 12 pounds will include 2 pounds of VAT.

• If total sales were 120,000 for the year, the business would have to pay 20,000 pounds in VAT.

• However VAT paid on supplies a business has purchased can be deducted from this

VAT

• If a business has sales of less than 73,000 pounds in a year. It does not have to pay VAT.

• This means it can charge less for its products and so may have a competitive advantage.

Income tax

• A business pays income tax in two ways:• If it employs people it must collect the tax

charged on their salary and pay it to the HRMC. This is called Pay as you earn or PAYE.

• If the business is a sole trader the business must pay income tax on their profits – the difference between their sales and their costs.

National Insurance Contributions

• This is another tax based on salary. It pays for people’s state pension and certain other benefits.

• Businesses pay different types of NICs:• Employee’s, which is deducted from the employee’s

salary and paid to HMRC by the business• Employer’s which is calculated as a portion of the

employee’s salary and paid to HMRC by the business

If the business is a sole trader they will have to pay NICs based on the owner’s earnings

Corporation tax

• This is only paid by limited liability companies.

• It is a tax on the profits of a company