Business operator tax guide – Everything you need to know about tax in small businesses
In our tax guide, you get a bit of free tax advice; we have gathered everything you need to know when it is time to begin paying tax.
Starting a business generally entails quite a lot of investments and personal expenditures. When the income from sales exceeds all expenses including start-up costs, the company has reached break-even and begins to generate profit. Now, you as a partner are responsible for income tax and your own social security contributions are paid through preliminary corporate tax charges. At the first wage payment, responsibility for the payment of social security contributions also arises.
We work based on the rules around limited companies and then go through exceptions for other forms of companies. We do not cover value added tax in this article.
Preliminary tax guide
Preliminary tax is the foundation for how companies pay tax in Sweden. It consists of income tax (i.e. municipal tax and if applicable state tax) and social security contributions (self-employed contributions/special salary tax on pension premiums). The tax is based on the business operator’s own estimate of the expected earnings and is paid in monthly (the same year that the income arises). The sum to be paid in every month is calculated by the Swedish Tax Agency based on a preliminary income tax return. It can be sent in in paper format (SKV 4313 for legal entities and SKV 4314 for natural persons) or through the e-service.
If the company is not expected to make a profit in the starting phase, SEK 0 is stated as the profit and no preliminary tax is charged. The situation can change during the year and the company may thereby have paid too much or too little preliminary tax; in such a case, a new preliminary income tax return should be sent in. This can be done several times during the year.
How to pay the tax
Preliminary tax must have been received by the Swedish Tax Agency no later than the 12th of each month. If the 12th falls on a holiday, the money must be in on the next weekday. Note that it is not enough to make the payment on the due date; the payment will then be received too late. The tax is paid in to bankgiro 5050-1055. The payment is most easily made over the Internet with a unique OCR number that the Swedish Tax Agency uses to identify your company and credit you with the payment.
You can also let your bank handle the payment through preprinted payment slips.
Preliminary tax is reconciled against the final tax
After the income year, an income tax return is filed with the company’s earnings. Based on this tax return, the Swedish Tax Agency calculates the company’s final tax. If at the end of the year you notice that too little preliminary tax was paid, you should make a supplemental payment no later than 12 February to avoid interest expense on the tax arrears. If the tax arrears is less than SEK 30,000, no supplementary payment needs to be done; rather the payment can be made on 3 May.
If you paid too much preliminary tax, the surplus tax is paid back in December of the year following the income year; then you are lending money to the Swedish Tax Agency for more than a year. Therefore, it is good to continuously keep track of the earnings and turn in a new preliminary income tax return if the earnings are lower (or higher) than expected.
The year the company begins making a profit
When the company earns a profit and one is in the preliminary tax machinery, it is pretty simple – the Swedish Tax Agency takes care of the calculations and the preliminary tax must simply be paid in at regular intervals. But right when the company passes 0, the year this occurs for the first time and a profit is made, it can feel complicated. Now, you must yourself calculate out the company’s tax and pay it in (as long as you did not foresee this and already paid in preliminary tax for the period).
At Verksamt.se, there is a formula for how the tax is calculated and what deductions can be made. If you work in your own limited company, you are counted as an employee and the company pays employer’s contributions for the salary you take out (meaning you have employee tax, “A-skatt”). Municipal taxes vary from municipality to municipality.
All information about how you determine basic deductions and work out the job tax deduction is in the Tax calculation brochure (SKV425). However, the calculations are somewhat complicated and we who work professionally with financial reporting and tax advice have software to help us. Benefit from our expertise today, we would be happy to help!
All taxes in the formula are paid in to the limited company’s tax account (bankgiro 5050-1055 with the company’s unique OCR number). However, limited companies are not obliged to deduct tax for dividends; if this is not done, you have to pay it to your private tax account.
If you have an employment in parallel with your own company, the employer makes tax withholdings from your salary as usual, while you pay in income tax, employer’s contributions and company tax that originate from your own limited company. The employer who pays the majority of your salary withholds tax according to a tax table and the other one withholds 30%. Through statements of earnings and benefits, taxes paid in are then moved over to the calculations in your private income tax return.
Exceptions in other kinds of companies
Partnerships and limited partnerships
The principle is the same for partnerships with the difference that it is the partners who are responsible for paying in preliminary tax for their share of the company’s expected surplus. To do so, you need to be approved for special employee tax, “särskild A-skatt” (also known as “SA-skatt”). You do so by filing a preliminary income tax return as a private person. The Swedish Tax Agency then comes back with a decision on how much money you should pay in to your personal tax account every month (you can identify your personal OCR number here). You pay to the same bankgiro and at the same time intervals as above.
At Verksamt.se where you find the formula for a tax calculation in limited company’s, you can also find the corresponding formula for partnerships and limited partnerships. What can be a little confusing is the standard deduction for self-employment social security contributions. So you deduct 25% of your share of the profit before you calculate the self-employment social security contributions; this is because the social security contributions are in themselves a deductible cost for the company. Both municipal tax and self-employment social security contributions are paid in to your private tax account.
If you have an employment in parallel with your own company, the employer makes tax withholdings from your salary as usual, while you pay in municipal tax (and state tax where appropriate) and self-employment social security contributions for your surplus in the partnership. When it is time for the private income tax return, the net applies between tax payments (tax withholdings from salary from your employer) for income from employment and taxes for your part of the company’s surplus. If your employer has paid too much tax during the year, you have a tax asset. If the tax liability from your own company is lower than this asset, you do not need to pay in anything to your tax account. Any debt is paid in to your private tax account, according to the method above.
The rules are the same as for partnerships, but it is you as a private person who applies for corporate tax, “F-skatt”. If you have an employment in parallel with your sole proprietorship, you receive so-called “FA-skatt” (in contrast to the partnership where the company has “F-skatt” and the partners “SA-skatt”).