Small Business Tax – Comprehensive Guide, a Must Read for Small Business Owners

SME’s and Small Business Tax, making it simple.

A recent survey of 400 small to medium sized businesses carried out by ‘Inspirem’ highlighted that 40 per cent are not confident’ that their expenses allow them to claim for the valuable tax reductions that they are entitled to. It’s no surprise really as small business tax can be so confusing. So where do you start? Small Business Tax can be split in Limited company Tax – the tax your company pays and Personal Tax as you’re taking money from your business.

What Limited Company Tax must I pay?

Corporation Tax

  • If your trading as a limited company, firstly you need to pay Corporation Tax. Currently in April 2011 this is 20% for all companies with profits under £300,000. So say for example your business sends an invoice to your client for £100,000 excluding VAT over the year and £20,000 of that was your expenses and salary than you’ll need to pay 20% on your remaining profit of £80,000. This will be due nine months and one day after the year end of your small business. Employer’s National Insurance Contributions Your small business will be liable to pay 13.8% on any salary you’re paid over £136.01. It’s that simple there are no changes of rates at different level of salaries, so this is very black and white for your small business.

VAT (Value Added Tax)

  • Most businesses are likely to register for VAT, which is currently at 20% in 2011. This will be added to the end of all of your invoices, and this money is given straight to HM Revenue and Customs. If your taxable income is less than £150,000 in your financial year, you’ll have the option of registering for the Flat Rate VAT scheme, where you have to repay less VAT. Most small businesses are registered on the Flat Rate VAT scheme, your accountant will be able to discuss this is more detail for you. What Personal Tax do I have to pay?

Income Tax

  • This isn’t that simple unfortunately and the majority of business owners end up very confused as you are both the owner taking dividends and an employee taking a salary. It’s important to remember income tax is based on the ‘Fiscal tax year’ so 6th April to 5th April not your small business financial year. It purely relates to personal worldwide tax income. Your personal allowance in 2011 is £7,475 anything you earn up to £35,000 is taxed at 20% and then £35,000 to £150,000 is taxed at 40% and 50% after £150,000. In addition when you reach £100,000 your personal allowance is reduced by £1 for every £2 of your income till it is reduced to zero at £114,950 so after this point you will be taxed 60%. This is why it is important to draw dividends from your small business to ensure you’re operating as tax efficient has possible, you will not have to pay any income tax on dividends up to the value of £35,000 and anything above this you will need to pay 25% which is significantly lower than Income Tax.

National Insurance

  • Lastly you need to pay your National Insurance (NI) contributions. You’re liable for this tax on anything you earn above £139.01 a week at 12% until you reach £817 per week and then this drops to 2%. All in all tax really doesn’t have to be complicated and with a specialist accountant in small business tax it will be come much easier and will make sure you make advantage of every benefit you may be entitled to.

SEO ROI – The Return On Investment For A Small Business SEO Effort

What is Search Engine Optimization (SEO)?

In order to understand the value of SEO, we first need to have an understanding of what SEO is. Without going into the technical details of the SEO process, I offer the following definition:

SEO, Search Engine Optimization, is the process of getting a website to show up in the top results of a search engine such as Google, Bing, and Yahoo for a meaningful search phrase that will increase traffic to the website. If a website ranks well for a meaningful search phrase, it is considered to be optimized for that search term.

I stress “meaningful search phrase”, because if you optimize for a phrase that nobody will be using in their searches, there is nobody to find you and the SEO process will not deliver any real results. In other words, nothing in equals nothing out. A meaningful phrase is one that has a high potential for being used by the population of searchers when searching the web for a product or service.

Armed with a search phrase, known as a keyword in the business of SEO, which is meaningful, we can now explore the potential of a site optimized for this keyword.

SEO Works For Your Small Business

Your company website is an advertisement for your business. As such, it needs to be seen just like any other form of advertisement in order to be effective. Not only do we want quantity of viewership but also we want quality viewers, ones who are likely to respond to the advertisement once it has been seen.

Unlike many forms of advertising both on and off the web, a website that is optimized will be viewed often and by a highly targeted audience. Because a search user is actively looking for your product or service, they are already in the mindset to buy as long as they can find what they are looking for. The odds of making the sale to this type of ad viewer is already far increased over a viewer of more passive advertising media such as print ads, radio, and television. In passive advertising, the viewer is not looking for the product in the moment and success is only achieved in a small percentage of cases.

The user of a search tool is primed and ready to buy, but this potential buyer has to find your website in order to learn about your business offerings and then ultimately contact you to make a purchase.

Being found through internet searches will directly contribute to your bottom line. E-commerce sites and other online business hybrids with online as well as brick and mortar units understand this very well and invest heavily in SEO and other online marketing. It is vital for their business that they do so. To understand why, let’s look at some of the numbers.

From published academic studies measuring a search user’s behavior and even how their eye moves across the search results page and other industry data, we know that websites that show up on the first page of a search engine will get slightly less than 90% of the clicks. The listings on page 2 account for nearly 10% of the remaining total clicks, leaving less than 1% for pages 3 and beyond. In other words, most of the action is on page 1. Over 60% of the action is in the top 3 listings. 42% goes to the #1 spot alone.

While companies that earn all or a significant portion of their revenue from the web understand the benefits of SEO, most small businesses fail to utilize this tool to promote their business. You don’t have to be a big national company or be an e-commerce company to benefit from an SEO effort. For a modest cost, small businesses can conduct their own SEO campaigns which will reap a positive Return On their Investment. To understand how small business can benefit, let’s go through a real world example:

Doing The Math

Example: A small business selling pipe fittings optimized for the keyword “Steel Pipe Fittings”.

Google tells us that on average there are 22,200 searches per month for the keyword “Steel Pipe Fittings”. Using the 42% figure for the #1 spot, the top site would expect around 9,324 visits to their web site each month.

(22,220 x 0.42) = 9,324. for this search term

Out of these 9,324 visitors, some number of these visitors will make a purchase. The rate at which a visit to a web site converts to a purchase is called the conversion rate. Conversion rates vary by industry, but on the low end of most industry conversion rates a 1.5% rate is safe assumption.

9,324 visitors converting at 1.5% will yield 140 new purchases from customers who just found your company and your product mostly likely for the first time. Why first time customers? If the customer was already aware of your business and has done business with you, they most likely would not be searching for you again on the web using “Steel Pipe Fittings” term. They will already know you.

A small business SEO campaign in the year 2011 will cost about $300/month to conduct. Some firms may charge less and some firms will charge more. But for $300/month, your company can receive competent SEO services that will positively affect your rankings in search engines and your bottom line.

Profit levels vary quite a bit from product to product and company to company so I can’t come up with a one size fits all ROI number in this article. However we can calculate at what profit does the SEO result above break even. For this example, $300 per month / 140 new customers = $2.14 per customer break even. In other words, if your average profit per new customer is $2.14 or above, you have a positive ROI on this SEO effort. Most businesses are likely to have a higher profit than this example, thus the ROI will be extremely higher.

Most likely the ROI on this example will be higher than calculated. Consider that once this customer has found you, purchased from you and is satisfied with this result, they may come back to you. Your SEO effort will result in future sales from this new customer. Add in the possibility that this customer may also give you word of mouth referrals as well and the ROI pushes higher.

The ROI will be even higher if you rank high on multiple keywords. Most small business SEO programs at the $300 level offer optimization for multiple keywords. Let’s further assume in this example the website also reached #1 rank for “Brass Pipe Fittings” and “Iron Pipe Fittings”:

“Brass Pipe Fittings” with 4,400 monthly searches would yield 28 more customers each month. Similarly “Iron Pipe Fittings” with 9,900 searches will add, using the same formula as above, 62 more customers. In total we get 230 new customers with these three keywords. Break even is now at $1.30. Add more keywords in top ranks and the ROI goes even higher.

To be fair, you will have to invest in the optimization of your website for several months before you attain high rankings for your keywords. Thus in the short run you may have zero ROI at the start, but as the campaign runs over time, the results will improve and will move the ROI up. In short you have to “invest” for the future results.

In the above analysis I used conservative numbers. For example I could have used the key word “Pipe Fittings” with 246,000 searches per month which yields over 1,500 new customers per the formula above. It may be possible to rank at #1 for “Pipe Fittings”, but this would be a more difficult task taking a longer time period to achieve. The 42% rate of clicks for the #1 position may be low. Some other studies say it is as high as 59% which would yield even higher ROI. The point is that even if you use conservative assumptions, it is easy to demonstrate a positive ROI on your SEO efforts.

The Bottom Line

SEO works for small businesses by bringing more visitors to your web site. Your results will vary based on the nature of your business and your industry, but in almost all cases there is a positive return on investment when the right keywords are chosen and your website contains content that is attractive to your potential buyers. To get a more detailed analysis of your situation, you can contact a SEO professional.