For many people, working for themselves is a life-long dream. Choosing when and where to work, being able to fit in family life and freedom from workplace politics are all common reasons given for going it alone. So, if you have a big idea and the drive to take it further, what could be better than starting your own business?
At times though it can be just as scary a prospect as it is an exciting one. Unfortunately, one of the first hurdles to jump as a start-up is also one of the most daunting – registering for tax with Her Majesty’s Revenue and Customs.
Whether you’re starting out as a sole trader, partnership or limited company, you will need to let HMRC know you’ve gone into business and subsequently provide them with detailed information about your income and expenditure to ensure you pay the correct amount of tax.
If the thought of thresholds, forms, procedures and tax returns have you running for the hills, here are a few simple facts to help get you started. The process isn’t as painful as it seems, we promise!
The first step is registering your new business with HMRC. Pop along here: HMRC link.
- If you’re a new sole trader, or the ‘nominated partner’ in a new self-employed partnership, you need to register for Self Assessment – this is a system HMRC uses to collect Income Tax.
- If you’ve started a new limited company, you need to register for Corporation Tax – this is a tax on your business’ taxable profit.
- Further down the line if you take on employees, or if you are the director of a limited company, you can return to the page to register for PAYE – the Pay As You Earn system, for collecting the Income Tax and National Insurance of employees.
- You can also become VAT registered – Value Added Tax is a tax on goods and services levied by the government. It’s legally required for all companies with a turnover of £82,000 or more per year, but smaller businesses can opt in if they choose to. There are many pros and cons to consider but, generally speaking, if you sell primarily to VAT registered businesses you will benefit. Find out more here.
After you register you will be given a unique user ID and password to use whenever you use HMRC’s online services.
The second step is to record all of your income and outgoings accurately. You will need a paper or electronic system in place to keep note of all business transactions, plus a place to keep the invoices and receipts as evidence of these transactions. These records must be kept for a minimum of 6 years – it’s the law!
Whilst this might sound like a right chore, we’re lucky to live in a day and age where affordable accounting software aimed at small businesses is readily available. It can be as quick and easy as snapping a photo of a receipt on your phone and uploading it to your accounting application.
Finally, you will need to submit regular returns to HMRC. A return is a form you fill out that tells HMRC how much tax you believe you owe them. Be careful – the deadlines specified are strict and you can be subjected to charges should you submit your return late. Your returns can be completed online at www.gov.uk.
If any of this seems like too much or you need a little guidance then give us a call – we can hold your hand along the way.