The Real Guide to Tax and HMRC

By Matt

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Say the word ‘tax’ aloud, and it’s likely to evoke a shudder or two. At best, the UK tax system is seen as some sort of mythical entity, designed to confuse and frustrate. At worst, it inspires fear, sending business­owners racing to the nearest accountant rather than taking on the task themselves.


If you’re starting a business, you might have concerns about tax – about completing your self­assessment on time, paying the right contributions, or simply where to start with it all. Here’s a useful guide, breaking it down into simple English – no jargon, just the facts.


What You Need to Know About Tax and HMRC


1. Business type? Inorder to get started, you need to establish what sort of business you have. It’s most likely you’ll be one of the following:

Sole trader.You work for yourself (self­employed) and you’re responsible for any losses your business makes. Note – this doesn’t mean you can’t hire staff in the future!


Limited company. Your business is set up as an organisation, responsible in its own right for everything the business does. This means the business finances are totally separate from your personal finances. Profit is owned by the company, not you – and then these profits are shared out.


Business partnership. Like all good relationships, you and your business partner share the profits...and the responsibilities! You each pay taxes.


2.Get registered. Ifyou’re a sole trader, you’ll be pleased to know that registration is simple, and can be completed online.If you’re a limited company, things are slightly more complicated – but certainly nothing you can’t handle. You’ll need to register with Companies House(this costs £15) and to do so, you need details of any shareholders, plus information of all directors. You must also register to pay corporation tax, which can be completed on the HMRC website.


3.Record, record, record. Right from the start, it’s important to keep tabs on finances. You’ll need to keep a record of all payments coming in and going out. Excel spreadsheets are probably the easiest way of doing this – but use a method that works for you. Keep receipts in a folder – you never know when you might be required to provide them as proof; and make the most of accounting software for small businesses – such as Xero, FreeAgent, Kashflow and ReceiptBank.


4.Tax returns. Every year, HMRC wants to know how your business has been performing. It’s a legal requirement to provide them with this information – and you have to do it by a certain date. For a sole trader, it’s not too difficult, providing you’ve kept good records of your finances.


Sole trader tax returns. To

complete your tax return online, go to your Government Gateway account. You can submit it as a paper copy if you prefer – but it’s considerably easier to do it digitally.


Limited companies.Ifyou’re a limited company, you’ll need to hire an accountant to complete your full annual accounts. Whilst this means less responsibility for you, be aware that you’ll need to set aside money to pay your accountant for this service.

5.Deadlines. HMRC are strict about deadlines, and if you don’t complete the tax returns by the required date, you could earn yourself a rather undesirable fine. Yikes! Here are the dates to circle in red on your calendar:


31stOctober – This is the deadline for paper copies of tax returns.


31stJanuary –Online tax returns enjoy an extra three months to get organised (you lucky people!). This is the official deadline


for submissions.


For limited companies, the deadline depends upon when you registered your business with Companies House. Here’s a handy guide,detailing when you’ll need to submit.



Other Useful Information


If your business turns over less than £70,000 a year, you’ll only have to fill out the ‘short’ tax return form – welcome news for anyone who shivers at the prospect of doing it at all.


Remember that there’s help at hand if you need it. The government have created a useful guide, outlining what you’ll need to complete your self­assessed tax return, plus explanations of each of the sections. You can download your copy here.


At first, you might feel daunted about tax. But the good news is, it’s been designed to be as easy as possible. You’ll be sent reminders about when to submit your returns and pay your tax, so you don’t need to worry about forgetting and being penalised. It really is a lot easier than you might think!


Have you got any tax­related tips (or tales of woe) to share? If so, get in contact on our social media pages – we’d love to hear them.