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Starting a new business in the UK is an exciting and challenging endeavour. One of the steps during this journey is registering your business with His Majesty’s Revenue and Customs (HMRC). This crucial step makes your business legally compliant and ensures you meet your tax obligations. This article outlines five essential tips on registering your new business with HMRC so you can navigate this process smoothly.
1. Choose the Right Business Structure
Before you dive into the registration process, you must decide on the most appropriate business structure for your venture. Your chosen structure will determine:
- your tax liabilities;
- your legal responsibilities; and
- how you operate your business.
In the UK, there are several business structures to consider. The most common are:
- sole traderships;
- limited companies; and
- traditional partnerships.
A sole trader is the simplest form of business ownership. You run the business individually and are solely responsible for its finances and liabilities. Registering as a sole trader with HMRC is relatively straightforward. You must inform HMRC that you are self-employed and complete a self-assessment tax return.
A limited company is a separate legal entity from its owners. This structure offers limited liability, meaning your personal assets are generally protected if the company incurs debts or legal issues. However, registering a limited company with HMRC is more complex. This involves incorporating your company with Companies House and registering for Corporation Tax with HMRC.
Finally, if you are starting a UK business with one or more partners, you can register as a partnership (or a limited liability partnership). In this structure, the partners share business profits and responsibilities. You must register partnerships with HMRC, and each partner must complete a self-assessment tax return.
2. Get Your Unique Taxpayer Reference (UTR)
Once you have determined your business structure, the next step is to obtain your Unique Taxpayer Reference (UTR). A UTR is a ten-digit number HMRC assigns to identify you and your business for tax purposes. This reference is unique to you and should be used in all communications with HMRC.
If you are a sole trader, you should automatically receive your UTR when registering as self-employed. HMRC should send you a letter containing this reference within a few weeks.
If you are starting a limited company, HMRC will be notified after you incorporate your company with Companies House, and HMRC will then send you your UTR by post.
Your UTR is critical information, so keep it safe and readily accessible. You will need it to:
- file taxes;
- open a business bank account; and
- other official business matters.
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3. Register for the Right Taxes
The UK tax system can be complex, and the taxes you must register for depend on your business structure and activities. For example, sole traders must complete an annual self-assessment tax return. This form reports your income and expenses and helps calculate the tax you owe.
Limited companies are subject to Corporation Tax on their profits, and will be deducted appropriately. If your business hires employees, you must operate a Pay As You Earn (PAYE) scheme for payroll and income tax deductions. Registering for PAYE is essential to ensure your employees’ taxes are correctly withheld.
Finally, sole traders and limited company directors must pay National Insurance contributions, which fund state benefits, including the state pension.
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4. Keep Accurate Records
Proper record-keeping is fundamental to maintaining your financial and tax affairs. HMRC requires you to keep records of all your income, expenses, and other financial transactions.
Most UK businesses use accounting software to track income and expenses. Many software options are available. Accordingly, this makes it easier to manage your finances and generate accurate reports.
Keeping copies of all invoices, receipts, and bank statements is essential. This documentation serves as evidence for your financial transactions. If managing your finances seems overwhelming, consider hiring an accountant. They can help you maintain accurate records and ensure compliance with HMRC’s requirements.
5. Comply with HMRC Deadlines
HMRC imposes various deadlines for tax returns, payments, and other important submissions. Failing to meet these deadlines can result in penalties and interest charges.
For example, corporation tax payments are due nine months and one day after the end of your accounting period. You should file corporation tax returns within twelve months of the end of the account period.
You should also ensure that your business’ PAYE submissions and payments are made on time, usually monthly or quarterly.
Key Takeaways
Registering your new business with HMRC is vital in establishing a legally compliant and financially responsible enterprise. Alongside obtaining suitable legal advice, consideration of these tips can help contribute to your business’ long-term success and sustainability, allowing you to focus on the long-term success of your UK business.
If you need legal assistance registering your new UK business with HMRC, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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