Taxation FAQs

Q1 When Should I register with HM Revenue & Customs if I start my own business?

A. You are legally required to register as self-employed within three months when you start to trade. But the form of legal Entity you business will take can have a significant impact on the way you are protected under the law, by taxation rules and regulations. Hence we therefore recommend that you consult Yevs & Co.

Q2 Which HM REVENUE & CUSTOMS form do I complete if I start my Business?

A. It is necessary to notify HM REVENUE & CUSTOMS of your existence by completing form CT41G (Companies) or CWF1 (Sole-traders/Partnerships).

Q3 What is the Penalty if My Business Registration is late?

A. If you fail to register within three months of commencing your business a penalty of £100 may be levied.

Q4 How do I pay my tax?

A. Companies and Sole traders (Individuals and partners) pay their tax through the self-Assessement sytem i.e. making estimates of own tax liabilites based on applicable rate; by a normal due date.

A company is required to send its tax return (form CT600), accounts and tax computations to the HM REVENUE & CUSTOMS by the filing date i.e. 12 months after the end of its accounting period.

Sole traders/Partnerships needs to file their income tax return which encompasses trading results by 31 January following tax assessment year (6th April – 5th April ). However the date is moved forward to the end of september if HM REVENUE & CUSTOMS is to calculate the tax liability. Penalties will be charged if late.

Q5 How does National Insurance Contribution work?

A. There are 2 types of NIC for self-employed people i.e. Class 2 and Class 4 NIC. A partner/sole trader will pay Class 2 NIC of £2.10 per week (2005/06) and Class 4 NI dependent on the level of profits (where annual earnings are £4896 or more for 2005/06). For companies there is both employers’ and employees’ National Insurance Contribution payable.

Q6 What is VAT?

A. VAT is a tax on consumer expenditure and is ultimately paid by the final customer. It is payable on business transactions involving the supply of goods or services, imports and acquisitions made: a) in the United Kingdom; b) by a taxable person; c) in the course or furtherance of business and are not specifically exempted or zero-rated.
VAT is collected by H M Customs & Excise and is normally payable quarterly.

Q7 When must I register and start charging VAT?

A. You need to consider if it is beneficial to be VAT registered. To register for VAT, you must complete form VAT 1, and if you are a partnership, form VAT 2 that gives details of all the partners. There are two different types of registration – compulsory and voluntary:

i. Compulsory
A person who makes taxable supplies becomes liable to be registered if:

a) At the end of any month, the value of his taxable supplies in the period of one year then ending has exceeded the registration limit, which is £61,000 from 01 April 2006.

b) At any time, there are reasonable grounds for believing that the value of his taxable supplies in the next 30 days will exceed the £61,000 limit.

c) Where a business carried on by a taxable person is transferred as a going concern, the taxable supplies for the twelve months prior to the transfer exceed £61,000.

In the most common situation, i.e. (a) above, the person must notify HM REVENUE & CUSTOMS of the liability within 30 days of the end of the month in which the value of the taxable supplies first exceeded £61,000. If, for example, the value of the taxable supplies first exceeded £61,000 in the twelve months to 31 March, then HM REVENUE & CUSTOMS must be notified by 30 April and VAT registration would commence on 1 May.

ii. Voluntary
In certain circumstances, it is possible to register on a voluntary basis for VAT even though the value of taxable supplies may never exceed £61,000. This is normally only beneficial where the majority of supplies are being made to customers who are themselves VAT registered, e.g. it would not be beneficial for a domestic painter with taxable supplies of £30,000 to be registered, whereas it would be beneficial for a commercial or industrial painter with the same level of supplies.

The other situation in which a voluntary registration might be beneficial is where the supplies are all zero-rated and no VAT is charged on the transaction. Further all VAT suffered by the trader on expenses can be reclaimed from HM REVENUE & CUSTOMS. A voluntary VAT registration would also enable input VAT suffered to be reclaimed. Finally a VAT number can give the impression that a business is larger than it actually is which sometimes can increase the possibility of obtaining work.

Q8 What happens after I’ve registered?

A. You need to charge VAT on all your taxable supplies from the date of registration and keep: a record of all standard-rated goods and services you supply or receive as part of your business; a separate record of any exempt supplies you make; a VAT account; VAT returns normally on a quarterly basis and to submit them within one month of the quarter end.

Q9 Would I Pay A Penalty If My VAT Return Is Late?

A. The two most important penalties business should be aware of are:

a) Late registration penalty for not registering for VAT at the correct time. The penalty is based on a percentage of the VAT due between the date that the person was required to have register and the date of registration; and the percentage increases dependent upon the lateness of the registration. The penalty is in addition to the VAT that is due.

b) Default surcharge for traders that are persistently late in either submitting VAT returns and/or making payment of the liability due. The penalty is based on a percentage of the VAT due and is on a sliding scale. Yevs & Co will assist you to meet your requirement to correctly prepare VAT returns on a quarterly basis and to submit them within one month of the quarter end.

Q10 Which Accounting Year Should I Choose?

A. The choice of accounting year depends on a lot of factors. As the taxation legislation is extensive and can be confusing; we therefore recommend Yevs & Co should be consulted.