business tax question

[David87M3]

Hi,
Im looking at either buying an existing business or buying into a franchise and starting from scratch as it were. One thing Im not sure of is how business tax works
One business I am looking at on a website adverises the following
Business turnover £280,000
Gross Profit £168,000
Running costs must be £112,000 (I assume this by taking income away from gross)
So my question is whats the net profit or take home amount left for its owner?

Sorry if this is a silly question.

Many thanks

Dave

[kryten]

forget trying to figure it out - ask for the accounts and get them checked very carefully!

there are all sorts of ways to state accounts when they're not subject to official auditing (which at that level they aren't).

for example, they may not have included salaries for the owner (very relevant if they work for the business full time) and various other things.

[Eric Mc]

Essentially, businesses taxes are levied on the NET profit of a business (Not the Gross Profit). The Net Profit figure must be arrived at using generally accepted accounting practices - usually referred to as GAAP. In other words, the accounts must adhere to normal accounting principles and conventions. In addition to this, where HM Revenue and Customs have alternative rules for the tax treatment of items (e.g. capital assets and their depreciation/capital allowances), the tax treatment must be subsitituted for the accounting treatment.

The AMOUNT of tax due on the taxable profits of the business will vary depending on how the business has been set up. If the business is a simple sole trader, then the tax (and Class 4 National Insurance) will be assessed and calculated on the individual who owns the business and he/she will pay Income Tax and Class 4 national Insurance besed on the net profit.


If the business is a partnership, the net profit is divided up between the individual patrtners based on their agreed profit sharing ratios. Then they will be assessed for their liability to Income Tax and Class 4 national Insurance based on their share of the profits.

If the business is set up as a limited company, then the COMPANY will be assessed to CORPORATION TAX based on the COMPANY taxable profits.
The individuals who own/run the company (i.e. the shareholders and/or directors) will pay INCOME TAX based on the money they withdraw from the company, either through the form of dividends (as shareholders) or salaries (as directors).
Salaries are taxed and NI'd through the PAYE system.
Dividends are taxed through the Self Assessment system. There is no NI charged on dividends which is why they are a popular option.

[David87M3]

thanks

Dave