HM Revenue and Customs
Tax and insurance need consideration when starting up a business. You will need to store a lot of different operating records, as well as make payments to HM Revenue and Customs (HMRC) periodically. We have provided some key information below, but it is important you do your own thorough research using up to date resources such as www.hmrc.gov.uk.
Self-Employed Tax and National Insurance
Tell HMRC as soon as you become self-employed to avoid fines, even though you might already send off a tax return. This can be completed online by registering for business taxes. Be prepared with answers about your business and yourself to fill in.
HMRC then automatically set up tax records on your behalf with the information given, for example National Insurance and Pay As You Earn (PAYE) if you have people working for you. A Self-Assessment Online account will be set up for you automatically at the same time.
Tax Returns for Partners and Partnerships
If your business is a partnership you will need an individual Self Assessment tax return (SA100) and the partnership pages (SA104).
Your partner needs to fill out a Partnership Return (SA800) which identifies the profit/ losses split.
All partners are individually responsible for making sure they pay the tax and Class 4 National Insurance contributions on their allocation of the profits.
When setting up a new company, you will need to tell HMRC if it's liable for Corporation Tax, as well as paying any Corporation Tax due and filing a Company Tax Return. Note that HMRC Corporation Tax requirements are separate to what your company needs to do for Companies House.
VAT is charged when a VAT-registered business sells to either another business or to a non-business customer. VAT-registered businesses can usually reclaim what they have paid on VAT. Some goods and services are exempt from VAT or outside the system completely.
VAT rates vary according to what the business provides and there are three main rates:
- standard is 20 %
- reduced is 5 %
- zero is 0 %
To register, you can apply online or download a printable form from the HMRC website. Once approved, you will receive a VAT registration number and certificate.
PAYE (Pay As You Earn) refers to HM Revenue & Customs (HMRC) system of collecting Income Tax and National Insurance Contributions (NICs) from employees' pay packets.
Tax and NICs will require deducting from your employees' pay each pay period and Employer's Class 1 NICs if your employees' earn above a certain threshold. Most people pay NICs on their earnings, in addition to Income Tax. Note that NICs will need to be collected on the earnings you pay, which can include cash bonuses and benefits like company cars.
Tax and NICs are worked out at the same time through the PAYE system when you operate your regular payroll. You then need to forward the payment to HMRC quarterly or monthly, but don’t miss the payment date or you will accrue interest and have to pay more.
You will also need to send HMRC an Employer Annual Return (form P35 and forms P14) at the end of the tax year. Almost all employers are required to file this online.
The online PAYE service can be used to send and receive a wide variety of notices, forms and returns including filing your Employer Annual Return (forms P35 and P14)and some in-year PAYE forms, including employee starter and leaver information (forms P45 and P46).
You are legally required to retain some records, so it is important to research which ones. Whatever records you do keep, it’s advisable to keep them in an orderly fashion. This will help you and your accountant (if you have one) as well as HMRC, if they need to ask you anything. Evans Easystorage provide top quality secure storage which is perfect for keeping all of your records on site but out of your office, giving you more room for employees rather than filing cabinets!
Your records must be regularly updated. Unfortunately penalties have been introduced for not taking reasonable care with records and tax returns, so the more accurate your records are and the easier it is to locate them the better off you will be.
Take a look at our Tax Planning document here