Getting it right with HMRC is one of the biggest worries of all new business start-ups. With fines and penalties for non-compliance, it is a justifiable worry.
Fortunately, we are here to get you set up and to help make sure you comply with all the regulations going forward.
As far as HMRC is concerned, here are the things that you need to consider when you start a business:
- Registering with HMRC
You have to let HMRC know that you are going to be trading and this applies whatever legal entity you choose.
For Sole Traders
You need to register if you earn more than £1,000 in self-employment income in any tax year.
This registration will register you as self-employed and that will trigger the issuing of a self-assessment tax return and will make you liable for Class 2 National insurance.
The good news is that you have until the 31st January, following the end of the tax year you are in, to register. Fail to meet this deadline could land you with a 30% penalty.
31st January is the self-assessment tax return deadline. Miss this deadline and you will receive an automatic £100 fine.
For Limited Companies
Limited companies have to register for Corporation Tax – Corporation Tax is the tax payable by companies on their profit. The tax is payable 9 months after the year end and is calculated by us with completion of a Corporation Tax Return (CT600)
If you are a director of a limited company, drawing a salary and dividends, then you will also have to register for a self-assessment tax return.
- PAYE
If you intend to employ anyone (including yourself if trading through a limited company) you will need to register for PAYE.
PAYE (Pay As You Earn) is the Governments way of collecting payroll taxes and as the employer you have to operate the scheme and pay over the tax deducted from employees.
As this is a complex area, we recommend you outsource your payroll. We can run your payroll for a relatively low amount and all you need to do is pay your employees and the tax.
- Pensions
You have to set up a workplace pension if your employees are over the age of 22 and earn more than £10,000. Employees contribute 5% of their pay and you contribute 3%, although employees can opt out of this. Most pension providers do not charge you for these schemes and your payroll provider can provide you with the admin.
- VAT
The next consideration is VAT. If you make sales (taxable supplies) of more than £85,00 in a 12-month period or expect to exceed this threshold in the next 30 days, you must register for VAT.
This means you will charge 20% on your sales and be able to recover 20% on your purchases.
You will normally report this to HMRC once a quarter on your VAT return and pay over any VAT you have collected.
You can voluntarily register for VAT – you might want to do this if you have spent on a large asset and paid VAT such as a van or tools. If you do register for VAT, you will have to charge VAT to your employees.
Taxes Summary
| Tax | Register | Payable By |
| VAT | Compulsory over £85,000 or Voluntary | Each quarter –
1 month and 7 days after quarter end |
| Corporation Tax | Compulsory companies | Payable 9 months and 1 day after your year end |
| PAYE | Compulsory if you employ someone paid over £520 a month | Payable by the 19th of the month after paying the employee |
| Self- assessment | Compulsory | Payable on 31st January after the end of the tax year 5th
April |
| Pensions | Compulsory for employees earning more than £10,000 | Payable by DD after the pay month |