What are they and do they affect my company?
Corporation Tax is a tax charged on company profits. If a company is trading, or intends to start trading, they must notify HMRC of their intention to start trading.
When you notify HMRC, you will also provide information around the trading start date, your company name and number, the main activities and other important information. HMRC will use this information to calculate the accounting period that the company must report it's financial affairs - it's income and expenditure.
Accounting period end
The accounting period for a company normally spans 12 months and will usually match the accounting year end shown at Companies house. In the first year, this may be slightly shorter, or longer as it'll depend on when the company started trading. However, once the first year end has passed, the accounting period will usually revert to a 12 month period.
How to calculate
Corporation Tax is usually calculated based upon the profits the company generated during it's accounting period.
Profits are calculated based upon the taxable revenue the company generates, less any taxable expenses the company can claim. The difference, if this figure is positive, is the taxable profit and Corporation Tax is charged at the appropriate rate on this profit. If the figure is a negative, the company has made a loss and it can either roll-back a loss to prior profitable periods or roll forward to a period it might make a profit.
How to declare
HMRC requires a company tax return to be filed every year. This confirms to HMRC, what the company has earned, it's expenses and what taxable profit it has generated. Furthermore, the company must also calculate and declare on the tax return the amount of Corporation Tax that is due to be paid.
Once the Corporation Tax that is due has been calculated, the company will make a payment to HMRC of that amount. It can pay this amount in various methods, including - BACS, CHAPS, Faster Payments, Direct Debit, Online or at a bank or Post Office.
There are two deadlines that HMRC will impose on the company - the Company Tax return and the Corporation Tax payment.
Failure to do either, can result in penalties and interested being added.
VAT, or Value Added Tax is a tax that is charged on the sale of goods and services to end consumers - including business and personal. Not everything that is sold has VAT levied on it and only those goods and services that are treated as a taxable supply will have to add 20% on to the price. Goods and services that do not attract VAT, e.g. non-taxable goods and services are usually called Zero-rated or Exempt supplies.
This address is primarily used by Companies House and HMRC to communicate to you. The registered office address of your company is made public on Companies House. If you're operating from home, for example, you will need to decide whether you want this visible. If not, we have packages that offer a registered office address service.
When you must register for VAT?
You must legally register for VAT if:
Failure to register when you are legally obliged may lead to penalties and interest being charged.
Can I register for VAT voluntarily?
You can register for VAT voluntarily, even if the criteria for VAT registration isn't met. In some cases, registering for VAT can be beneficial. In fact, sometimes it's financially better to register for VAT, for example if you plan to make any large purchases within the company.
How VAT is calculated
Typically, VAT is declared (and paid) every 3 months. The amount to pay is calculated by adding up the total VAT paid on supplier invoices and expenses and offsetting this against the total VAT you have charged your customers. If you have charged more VAT than paid, then a payment is made to HMRC. However, if more VAT has been paid than has been charged by your own sales, a refund will be due from HMRC.
There are numerous VAT schemes that you may want to operate within after you register for VAT. One of the main, widely used schemes is the Flat Rate Scheme.
Under this scheme, you pay a fixed amount of VAT based upon a % that has already been agreed applicable to the sector the limited company operates in. This 'flat rate %' is then calculated on the gross revenue the limited company generates (which includes the VAT it has already charges) and this amount is paid over to HMRC. The flat rate % typically takes into account vatable expenses it thinks your company might be charged and therefore the % is usually much lower than the 20%.
The PAYE system is used to collect Tax and National Insurance from certain types of income, usually wages and pensions. When your limited company starts to pay wages, either to yourself or other staff, their wage might be subject to deductions depending on the level of income earned.
It is these deductions from wages that are classed as PAYE.
When to register
You do not need to register for PAYE until your employees are being paid more than £120 per week. Up to then, PAYE is not deducted and you should simply keep a record of wages paid.
After this amount, the employee is part of the PAYE system and therefore could be liable for Tax and National Insurance. Therefore, you will need to register for PAYE as soon as this threshold is hit.
How is PAYE calculated
Until income exceeds £12,570 accross all income in a year, PAYE will not be deducted. This is known as the Personal Allowance threshold.
Once this is exceeded, Tax and National Insurance must be calculated and deducted from wages at the appropriate rate for the tax year.
Keeping track of PAYE
Payroll software is used to keep track of wages and any deductions made due to PAYE. Payroll software is designed to ensure the limited company is compliant and deducting the right amount of Tax and National Insurance.
PAYE is typically paid each month based upon the previous month deductions. Your payroll software will keep track of all payments you have made to employees and their deductions, whether this is weekly, monthly or ad-hoc. It will then add all PAYE deductions up and provide you with a monthly amount that needs submitting to HMRC.
Get extra help by signing up to an accounting service to help ensure your company remains compliant
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