Guide to Running a Business
T
his series of short tax guides runs through a few of the basics and will help you avoid the common mistakes newcomers to running businesses sometimes make.
If you’d like to understand more of the nuts-and-bolts we've linked the best external sites we can find.
Running your own business is pretty straigtforward. Once you know a few tricks and tips, it only takes an hour or so a month to do the admin needed. It's our job to do the difficult stuff, leaving you free to do what you do best. 
VAT is a tax that is collected on behalf of the government by businesses. You don't have to register for VAT, but you will probably want to; there are loads of benefits and it helps you look professional.
Businesses that register for Value Added Tax (VAT) will charge Output VAT on the goods and services that they supply, and reclaim Input VAT on expenses they pay out. The balancing amount of VAT is paid over to HMRC quarterly.
Sole-traders and partnerships with employees register for Pay As You Earn (PAYE); all trading limited companies will need to register too. It takes 4-6 weeks for your tax office to process the application. The UK tax year runs from 6th April to 5th April each year. Each month a PAYE slip is sent to HMRC showing all tax and national insurance due for that month ( 6th – 5th i.e. month 1 of the tax year runs 6th April to 5th May; month 12 runs 6th March to 5th April).
Corporation tax (CT) is a tax payable each year on company profits; the rate of CT changes depending on the size of profits. The small company rate changes year to year but is roughly equivalent to basic rate income tax. This is why dividends are treated as if basic rate tax has already been paid for the shareholders who receive them.
Self-employed, higher rate tax payers, landlords and company directors must all register for self-assessment. Registering will usually happen automatically for high rate employees and company directors.
The total tax and NI due on salary payments is generally deducted by employers through PAYE, so there is little or no salary tax liability payable on personal tax returns (As long as the correct tax code has been used during the year). Investment income such as dividend and bank interest will have basic rate tax deducted on the initial payment, so basic rate tax payers will have no further liability but higher rate tax payers will still owe the difference.
All businesses must keep HMRC in the loop about things like changes of address, yearend dates, trading names, etc.
Limited companies also have to tell Companies House about any changes, and each year on the anniversary of the company formation, you’ll have to file an annual return (either manually or electronically). The annual return includes information such as names and addresses of directors, registered office and shareholder details.
It’s easy to make mistakes with business expense claims.
Our advice would be to pay for day-to-day expenses on a personal credit card and then claim back personal expenses from the business once a month. This way you can get advice from your accounts team on anything exotic before it is brought into the business accounts. Avoiding the sort of messy P11d benefits and dubious expense claims HMRC hate to see. Read our expenses guides for details of individual expense items. We’d recommend mileage claims are reimbursed monthly this way too.
Best practice: No matter what the payment method, you should always get a receipt and try to have it written to your business whenever it is practical to do so.
HMRC's guide to issuing a valid VAT invoice is available here.
As part of our formation and set up process we’ll be more than happy to check the formats of your invoices - it’s important to get invoices right, so we can let you have compliant samples to copy.
Falling behind with paperwork is really easy; getting up to date again can be very difficult. To avoid slipping into bad habits we recommend you writing up the business records at least monthly.
If you’ve asked us to prepare your records then we’ll need you to post to us:
- List of sales invoices and credit notes raised (include copies of the invoices and credit notes).
- List of day-to-day expenses paid personally (with receipts).
- List of bank payments (including copies of any invoices paid through the company bank account).
- Copies of business bank statements.
- Copies of correspondence from HMRC and Companies House.
All records and papers related to business and personal tax affairs should be kept for a minimum of six years. Six years is the usual time period for tax enquiries and for any other parties to commence legal actions.
It’s often quickest and easiest to arrange an appointment with your own personal bankers to set up a business account. This avoids some of the hassles associated with money launder regulations. Any company officer not already known to the bank will need to visit the branch personally and take I.D. documents with them. For limited companies the bank will want to see the certificate of incorporation and may want copies of memorandum and articles of association.
Paye as You Earn
- 5th each month – PAYE tax month ends.
- 19th each month –PAYE payment is due with HMRC for the previous month.
- 5th April – Tax yearend.
- 19th May – Forms P35 & P14s due with HMRC for the previous tax year.
- 6th July - Forms P11d & P11d(b) due with HMRC for the previous tax year.
- 19th July – Class 1a NI payment due with HMRC for the previous tax year.
