How does tax affect a specific business?

'TAX' written on wooden tiles resting on stacks of different types of coins

Your business may be affected by particular sector taxes, or ways in which the tax rules are applied. You need to ensure you are complying with any sector tax obligations. At the same time, there may be opportunities to reduce your tax costs.

Key sector taxes

Environmental taxes affect all businesses, but have more substantial implications for businesses that are directly involved. These include power companies, landfill operators, airlines, quarries and aggregate importers.

Excise duties affect businesses involved with alcohol, tobacco, oils or gambling. Those involved in import and export activities may be subject to customs duty and/or excise duty. There are also additional oil and gas production sector taxes.

In the financial sector, taxes include an extra bank levy for the largest banks. Insurers and insurance intermediaries may need to register and account for insurance premium tax.

Sector tax treatments

Businesses involved as contractors or subcontractors in the construction industry are covered by the Construction Industry Scheme. This provides special rules for deducting tax and National Insurance contributions from payments to subcontractors.

Self-employed traders with volatile earnings may end up paying a higher rate of tax in a good year, even though their earnings tend to be lower. In some sectors, tax rules allow profits to be averaged over a number of years, reducing the likelihood that this will happen. Businesses that can apply averaging in their self-assessment tax returns include farmers, market gardeners and authors.

Other sector tax reliefs include relief on income earned providing foster care or other qualifying types of care, and a relief for British cinema films. Small and rural businesses may qualify for business rates relief.

More broadly, you need to understand how tax regulations apply in your particular sector. For example, driving instructors can claim capital allowances on dual control cars rather than needing to apply the rules that generally apply to company cars.

In terms of VAT, it's essential to understand what rate of tax to charge. The rules can be complex in some sectors: tax rates on alterations made by builders, for example, can depend on whether a building is listed or whether the owner is disabled. Different VAT accounting schemes are available for sectors such as retail or trading in second-hand goods. There are also special VAT rules for a few sectors, including barristers.

Understanding taxes in your sector

Your key source of tax advice is likely to be your accountant. Good accountants should be aware of any sectoral tax issues, particularly if they have experience dealing with similar businesses.

Other sources of advice may include your trade association and local business support organisations, though these are unlikely to offer the same depth of expertise as your accountant.

HM Revenue & Customs offers wide-ranging guidance on its website and a number of helplines. These can be a useful starting point for finding out what rules apply in your sector. Tax advice - for example, how best to minimise your tax liabilities - will not be provided.

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