Business owners face a range of important tax responsibilities. Indeed, many pressure groups have complained that the tax and regulatory burden facing new businesses is too heavy.
As a start-up business it is vital to be aware of, and abide by, your tax responsibilities. You have a series of legal obligations when it comes to tax, and the penalties for failing to meet those obligations can be severe.
So what are the major tax responsibilities that you need to consider when starting a new business?
Registering with HM Revenue and Customs should be one of the first things on your to-do list. The type of registration that you must complete will depend on the legal structure of your business.
If you are a sole trader entering self-employment for the first time, you must register as self-employed with HMRC. If you do not do this within three months of the end of your first month of self-employment, you may be fined.
If your business is incorporated and liable for Corporation Tax, you must inform HMRC of this. Companies House will notify HMRC when your company is formed, and you will receive an Introductory Pack. This contains form CT41G, which must be filled in and returned to HMRC to inform them of your new company details. You must return this form even if you do not think you will have to pay any Corporation Tax.
You will also have separate responsibilities if you register for VAT or become an employer. These are explained below.
If your turnover over the last 12 months is greater than the VAT registration threshold (currently set at £68,000), or if you expect that it will exceed this figure in the next 30 days, you are obliged to register for VAT.
Many businesses choose to register voluntarily, even though their turnover is below the threshold. Regardless of whether your registration is compulsory or voluntary, you can apply for registration online through the HMRC website. HMRC will then assess your application and send you a VAT number.
Once registered, you will need to keep detailed records of all VAT-liable transactions. Many business owners choose to do this within their existing accounts system. You must then submit regular returns to HMRC, normally quarterly. Your return will normally be due one month after the VAT period ends.
If you took in more VAT than you paid out, you will have to pay the difference to HMRC after having submitted each return. If you file your return on paper, your payment will be due on the same date as the return. If you file online, you must pay electronically. HMRC often give an extra seven days to firms that file online.
A number of simplified VAT accounting schemes exist, including the VAT Annual Accounting Scheme. If you are enrolled in one of these schemes your filing and payment responsibilities may be different.
Not sure whether to register for VAT? Read more here
Tax return and payment deadlines
If you are a sole trader registered as self-employed, you will have to complete an annual Self Assessment tax return. You can file this on paper by 31 October, or online by 31 January. If you file on paper by the deadline, HMRC will work out how much tax you owe; if you file after the deadline you will have to calculate it yourself.
Outstanding Self Assessment balances must be settled by 31 January. Interest will be charged on any amount owed after that date. You may also have to make a Payment on Account against your next tax bill. This will be split into two instalments; one is due on 31 January and the other on 31 July.
The Corporation Tax system operates differently. If your business is registered for Corporation Tax you must pay your bill before you file your return.
If your taxable profits are £1.5 million or less, you must pay your Corporation Tax nine months after the end of your Corporation Tax accounting period. If your turnover exceeds this figure you can choose to pay your Corporation Tax in instalments.
You must file your Corporation Tax return within 12 months of the end of your Corporation Tax accounting period. This date is referred to as your ‘statutory filing date’. Many businesses choose to file their return earlier than this, in order to ease the burden of subsequent tax payments and regulate cashflow.
You will assume a range of new tax responsibilities when you come to take on your first member of staff. Generally, you will have to register as an employer if you pay that employee more than the PAYE threshold – currently set at £125 per week or £540 per month. You can do this by calling the New Employers Helpline on 0845 60 70 143.
Having registered, you will then be required to operate a PAYE system and file various annual and in-year returns. You can find more information about this in our article on tax responsibilities for employers.
Keep on top of it
It is vital that you keep on top of your tax responsibilities, both in order to meet your legal obligations and to maintain the financial stability of your business. If you are having trouble paying your tax bill you should contact HMRC as soon as possible.