The Role of HMRC for Small Businesses

HM Revenue and Customs (HMRC) is the UK’s tax, payments, and customs authority. It’s their job to collect the money used to pay for the UK’s public services, as well as to help families and individuals in need of financial support.

As the owner of a small business, you have a number of legal obligations and responsibilities, not least to ensure that you stay on the right side of HMRC and comply fully with all their procedures.

Here’s an overview of important information.

Register Your Business with HMRC
Before you can register your business, you need to be clear about the type of business you run. Are you a sole trader ⁽¹⁾, limited company ⁽²⁾ or do you have a business partnership ⁽³⁾?

If you’re a sole trader or form part of a business partnership, you simply need to register your business with the HMRC website. ⁽⁴⁾

If you’re a limited company, you also need to register your business with Companies House ⁽⁵⁾ and pay a fee of £12.

Once registered you will receive your Unique Taxpayer Reference. ⁽⁶⁾

Keep Accurate Records
Once you’ve started your business, it’s essential that you keep accurate records of each business transaction you make, whether incoming or outgoing. Where appropriate, you also need to keep detailed receipts for every expense as HMRC could ask to see them.

It’s at this point that many business owners appoint a qualified accountant, as this can be a time-consuming and sometimes confusing task. ⁽⁷⁾

Complete Your Tax Returns
As a business owner, you have a legal requirement to complete your tax returns annually, so HMRC can see how your business is performing and calculate what you owe.

If you’re a sole trader ⁽⁸⁾ or in a business partnership ⁽⁹⁾ you must enrol for Self-Assessment ⁽¹⁰⁾, then you can sign into the online system ⁽¹¹⁾ and file your tax return. 

If you have a limited company, you need to complete your statutory annual tax return ⁽¹²⁾ and file your Company Tax Return ⁽¹³⁾.

Business Taxes
As a sole trader or partnership, you will pay Income Tax on your business profits once they exceed your personal allowance (which in the current financial year 2016­–17 is £11,000).

As a limited company, you will pay Income Tax on any salary or dividends you take out of your company.

Limited companies also need to pay Corporation Tax, which they should register for within three months of starting their company. ⁽¹⁴⁾ There is no personal allowance for Corporation Tax – you pay as soon as you start to make a profit.

Regardless of the type of business you run, if you make over a certain threshold (in 2016–17, this is £83,000) you are required to register for and pay VAT. ⁽¹⁵⁾

Finally, while it’s not a tax, you are required to pay National Insurance ⁽¹⁶⁾ once you reach a certain threshold. The amount you pay depends on how much you earn and whether there are any gaps in your National Insurance records.

^{https://www.gov.uk/business-legal-structures/sole-trader
https://www.gov.uk/business-legal-structures/limited-company
https://www.gov.uk/business-legal-structures/business-partnership
https://www.gov.uk/new-business-register-for-tax
https://www.gov.uk/limited-company-formation
https://www.tax.service.gov.uk/information/help?helpcategory=security&helpid=UniqueTaxpayReference
https://www.gov.uk/appoint-tax-agent
https://www.gov.uk/self-assessment-tax-returns
https://www.gov.uk/government/publications/self-assessment-register-a-partnership-for-self-assessment-sa400
https://www.gov.uk/government/collections/self-assessment-helpsheets-self-employment-and-partnerships
https://www.gov.uk/log-in-file-self-assessment-tax-return
https://www.gov.uk/prepare-file-annual-accounts-for-limited-company
https://www.gov.uk/company-tax-returns
https://www.gov.uk/corporation-tax
https://www.gov.uk/vat-registration
https://www.gov.uk/national-insurance}