Start-up legal and tax issuesPg 100-103

Starter activity• Sole trader and partnerships worksheet

• There are three sections –A, B and C

• All of you must complete section A without looking at your textbook

• Most of you should rely on your own knowledge to answer section 2 otherwise refer to the textbook

• Some of will be able to attempt section C with very little help from the book

How well you did0-6 marks try again as homework

7-15 Getting there but use your notes and textbook as a guide16-24 Good work25-30 Excellent

Keeping records

• All business are legally required to keep records. They are evidence of what has happened in the past.

• 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.

Page 101

Mapping

• Create a map to list all the records that you keep personally and make a list of the records that a business must have (4 of each)

• A-C Grade-List and briefly explain• D-F Grade-List

Generally any financial records are legally required to be kept for 7 years

Cash receipts books Vehicle log books

Cheque butts Cash register Z Totals

Credit card receipts Permits or licenses

Tax invoices Wages and salary payslips

Purchase orders Bank records

Workplace injury register Timesheets

Records that must be kept

Employment question time• What are the reasons for getting a job? (MTG

D-F)• What are the rewards for working? (MTG D-F)

• What is the purpose of the minimum wage? (MTG A*-C)

• Why is Health and Safety important? (MTG A*-C)

2. Employment

Every employer has a number of legal responsibilities. They must carefully consider laws relating to:

•Health & Safety at work (mental & physical)•Minimum wage•Working Time directive•Discrimination •Pre-employment checks

The list is not-exhaustive!

Health and safety

ObjectivesALL• To be able to identify the rights of consumers once they purchase a

product• To be able to list the reasons why taxes are paid by businessesMOST• To be able to explain how consumers can react if they purchase a

product and if something goes wrong• To be able to calculate VAT and TAX ratesSOME• To be able to differentiate the different types of taxes that

businesses pay• To explain what taxes go towards

Starter activityMTG A*-B MTG C-DAnswer £550

Write two questions that could have this as the answer

You have been asked to calculate the total revenue for the company;Day one 55 products sold at £10.50 eachDay two 6 products sold at £15.60 eachDay three 17 products sold at £3.40 eachDay four 3 products sold at £1.30 each

3. Consumer protection• Employers also have a responsibility towards

consumers through laws such as:• The Sale of Goods Act – Insists that goods should

be ‘fit for purpose’. If they do not, consumers are legally entitled to get their money back.

Key consumer protection agencies include: • The Office of Fair Trading (OFT)• Trading Standards (TS)• The Consumer Protection Agency (CPA)

What does the picture show?

4. Environmental protection Businesses also have a responsibility to the environment.

Example of Laws include: •Environmental Protection Act 1990 •Hazardous Waste Regulations 2005 •Noise and Statutory Nuisance Act 1993

•Waste must be suitably disposed of in landfill or through recycling.

Fill in the blanks activity• You have been given a sheet to help you recall the

people that have an interest in a business

• Complete the sheet using the words provided

Help guide:Use your own subject knowledgeAsk a friend (no more than two gaps)Refer to your text book as a last resort

What does this picture say about TAX? - Justify your answer-

Her Majesty’s Revenue & Customs

• 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 year2. Whether or not the businesses has employees3. If the business is a limited company or sole trader

Tax on Small Business• There are a variety of taxes that small businesses may

have to pay including:1. VAT2. Income Tax3. National Insurance Tax4. Corporation Tax

Lets go DIRECT.gov!

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4015895

Each EU country has its own rates of VAT

In the UK, In the UK there are 3 rates:

1.Standard rateYou pay VAT on most goods and services in the UK at the standard rate, which is 20 per cent.

2. Reduced rateIn 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.

• 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.

How VAT is worked out

Paying VAT

Task • Work out the VAT on these items BASED ON

20%:• Car exhaust costing £49• Car Hire costing £175• Carton of cigarettes at £32• Wooden floor costing £499

• MTG A*-B calculate VAT amount and total price• MTG C-F Calculate the VAT amount only

Income Tax

Income Tax

Income Tax

• Businesses 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 – the difference between their sales revenue and the expenses of running a business.

Income Tax example

• Businesses 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 – the difference between their sales revenue and the expenses of running a business.

Country Income Tax VAT(CORPORATE) (PERSONAL)

Ireland 12.5% 20-41% 23%UK 28% 0-40% 20Bulgaria 10% 10% 20%Sweden 26.3% 0-57% 25%Denmark 25% 38-59% 25%Qatar (Middle East) 10% 0% 0%

Tax rates – some examples

Salary Calculator

http://www.thesalarycalculator.co.uk/salary.php

Would you like to know how much you would earn after tax

and other deductions are made from your

salary?

National Insurance Contributions (NICs)

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.2. Secondly it must pay EMPLOYERS CONTRIBUTION (THIS IS CALCULATED AS A PORPORTION OF THE EMPLOYEES WAGES)

Sole traders: Have to pay a FLAT RATE NIC plus a % of NET earnings

Corporation Tax

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.

Corporation Tax

To finish...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

TASK: In your groups, prioritise the use of Tax – you must be able to FULLY JUSTIFY your answer

How does this relate to the legal and tax issues

faced by new businesses?