New company formations need to ensure that they are operating in-line with current regulation from the day that they become incorporated. It is important to ensure that your company is registered for VAT and PAYE if they need to be and any chartered accounting service will be able to do this for you.
VAT, or Value Added Tax, is a tax that is charged on goods and services in the UK. This includes those produced within the UK and may include those that are imported in to the UK from abroad. Most companies in the UK will add the cost of VAT on to the price that they sell to the customer. However, it is important to note that unless your company is VAT registered by an accounting service it will not be allowed to do this.
You are required to register your business for VAT when total revenue exceeds the registration threshold. If companies earn total taxable revenue of over £79,000 for a twelve month (or shorter) historical period or expect to exceed this limit in the next thirty days alone, they are required to register for VAT. This is known as compulsory registration and certain rules then apply for the timescale for completing the registration. It is important that you register for VAT on time in order to avoid the possibility of incurring a penalty charge.
Alternatively, a company may voluntarily register for VAT. There are a number of important benefits for voluntarily registering:
- When starting up a business, you may be able to claim a substantial amount of VAT on the equipment you buy to get started
- Ability to reclaim VAT on costs where you are charged VAT by your suppliers
- Ability for customers to reclaim VAT on your charges where applicable
- You may be entitled to a refund, depending on the VAT rates of products you buy and sell
- There are important image benefits to being registered
- You may actually be able to improve your overall cash position by using the Flat Rate Scheme
There are currently three rates of VAT in the UK. These are known as standard-rate, reduced-rate and zero-rate. Different items will be classed in these categories, and charged VAT accordingly. Currently, the standard-rate is 20% and the reduced-rate 5%. Items may also be classed as ‘exempt’.
PAYE, or Pay As You Earn, is the way that a business can register as an employer with HMRC. Your company will be required to do this if you decide to hire employees, or if you are paying any director or employee a salary. PAYE is the system that the government uses to collect National Insurance and Income Tax.
If you are paying your employees above the current lower threshold, which is currently £9,440 p/a (2013/2014), you are legally obliged to operate PAYE. This includes salary, overtime, tips, bonuses, and non-cash items like shares. There are certain forms and procedures that are important to record your payments, which you can read about on the HMRC website:
http://www.hmrc.gov.uk/payerti/forms-updates/forms-publications.htm
Wisteria Chartered Accountants offer VAT and PAYE registration as an accounting service. If you would like a business accountant to assist you with this please call 020 8952 0140.
Alternatively, a company may voluntarily register for VAT. There are a number of important benefits for voluntarily registering: