Once you decide which structure you’re going to use for your business it’s time to register with all the necessary authorities. Here’s how to do it if you’ve chosen the Limited Company option.
Forming a Limited Company
The first thing you need to do is incorporate a Limited Company, many clients have already done this before they come to us, but we can do this for you if not. Our fixed price for this is £150 plus VAT. If you form your own Company then we will need a note of your Companies House Authentication Code so that we can file accounts and other forms for you.
The next thing we recommend is that you open a bank account in the name of your business, with a Limited Company you will need to have incorporated as above before you can do this. All the high street banks will help you open an account and normally you can enjoy free bank charges for an initial period. There are good reasons for opening a separate business bank account, here are a few:
- A business bank account keeps your business and private affairs separate;
- You have to keep records of all bank transactions for your business, if you don’t mix up your private accounts it means there is less to record;
- HMRC sometimes carry out enquiries into taxpayers affairs and have the right to see the business bank statements. If the private affairs are mixed up with the business transactions this generally causes there to be more queries and more chance of additional income being taxed. Any unexplained income is normally assumed by HMRC to be business income, so if they don’t see the private transactions then this avoids the issue;
- You have to retain business bank statements for 6 years;
Once a Company is incorporated HMRC are automatically notified by Companies House. They will create a record for the Company. They will send you a letter with a note of your corporation tax reference.
Once you have your URN you can register with HMRC to view your tax record online, click here to register. Hint: click on ‘create a sign in details’ Once you’ve registered they will send you an activation code in the post to allow you to complete the registration. You will then be able to view your tax account online. This is your government gateway login.
VAT [Value Added Tax]
If your sales are more than £85,000 in a year then you need to register for VAT, sometimes if your sales are less than that but your customers are all other VAT registered businesses then it makes sense to consider registering too. See our page on VAT registration to see what is best for you.
If you’ve already registered access to your tax account on HMRC’s website you can also register for VAT using this once you’ve logged on. Alternatively, your accountant can register for you
Once you’ve been checked by HMRC you will be issued with a VAT registration number which you must show on all sales invoices.
VAT returns normally need to be submitted quarterly and all VAT returns must be submitted to HMRC online now. Businesses with a turnover above £85,000 must now record their business transactions electronically and submit under the making tax digital regime. You can register for this service using your government gateway login. The returns need to be filed within one month and a few days of your VAT period end.
Most businesses use an online bookkeeping solution to record their transactions, examples being Xero, Quickbooks, Sage Business Cloud. Seagrave French are experienced and qualified in all of these solutions.
Don’t forget though that if you’re charging VAT you should put this money aside for when you prepare your VAT return and need to pay it over to HMRC.
Corporation Tax Payments
It’s really important that Companies save their tax because at some point in the future this will be payable in one large amount. So to guide you we’ve explained how your tax will be worked out.
Firstly you need to understand how you will be taxed. Companies are taxed on their taxable profits. Taxable profits are calculated by taking the number of sales and deducting all the tax allowable costs that the business incurs. See our allowable expenses guide.
Companies normally prepare their accounts for a 12 month period and the first year normally runs from the date of incorporation to the end of the month one year after incorporation. So a Company formed in February 2012 would prepare it accounts for 28 February 2013.
Most small Companies pay tax at 19% of their taxable profits. The tax is due to be paid 9 months and 1 day after the Company’s year-end.
You should be able to work out approximately what your profits are. Apply the tax rates above to work out an approximate amount of tax due.
Every year HMRC carries out reviews of taxpayers to make sure they are paying the correct amount of tax. Around 5% of the reviews are random and the rest are as a result of something odd that HMRC notices on the tax return. When Seagrave French prepares your tax return and sends it to HMRC we do all we can to reduce the chance of an enquiry by the way we present the information but there is always a chance that a check may be carried out.
We deal with enquiry’s using our most experienced and knowledgeable accountants to try and achieve the best results for our clients. These services inevitably are considerably more expensive than our standard compliance work. Most clients use our fee protection insurance which means that for a small annual fee, the cost of any enquiry fees is covered and billed directly to our insurance company. This means that at least you don’t have to worry about the costs of defending any enquiry.