New businesses and registering for tax
- •
the type of entity - •
the size of the business - •
how many employees (if any) - •
in some circumstances, the type of work undertaken, eg construction - •
the type of assets in the business - •
existence of any share reward schemes
Here is an overview of the main tax compliance obligations for new businesses.
A sole trader must notify HMRC that they have started in business, as soon as the business commences, at Register for and file your self assessment tax return 
.
There are a number of types of taxpayer and organisation which cannot register using this service. Instructions for these groups to register are found as you progress through the screens.
The nominated partner must register the partnership for self assessment with HMRC using the Set up a business partnership website.
When a company registers with Companies House, it will be registered for corporation tax and PAYE as an employer at the same time. See the Government guidance at Register your company . If however this is not the case, the company will have to register for corporation tax within three months of starting to do business using the Government portal, see Register for corporation tax .
The information required consists of:
- •
the company registration number - •
the date the company started to do business, and - •
the date the annual accounts are made up to
The company’s first accounting period will start from the date the company started to trade. For guidance on when a chargeable accounting period starts or finishes, see the Charge to corporation tax guidance note.
The business must register as an employer with HMRC if any of the following apply:
- •
an employee already has another job - •
an employee is receiving a state or occupational pension - •
an employee is paid at or above the national insurance lower earnings limit - •
the business provides the employee with employee benefits
If the business is a one-person limited company then the proprietor is both an employer and an employee. So if any of the conditions above apply then the company must also register as an employer.
Registration needs to be undertaken before the first payday. The registration process can take up to two weeks and registration cannot be made more than two months before employees are first paid.
New employers may either register online at Register as an employer .
In addition to registering as an employer with HMRC, an employer should also register with HMRC for PAYE Online. Nearly all employers have to use the real time information (RTI) system for recording payments to employees, and the associated tax and NIC. New employers registering online are automatically enrolled for PAYE Online for employers. Those new employers who were not automatically enrolled should register at PAYE Online . For more details, see the Setting up a payroll guidance note.
Lastly, the automatic enrolment regime imposes a duty on employers to make arrangements for the automatic enrolment of all of their eligible jobholders into a qualifying pension scheme, which is also called the ‘workplace pension’. For more details, see the .Automatic enrolment ― overview guidance note.
There are two types of VAT registration ― compulsory and voluntary registration.
It is the ‘person’, not the business, who is required to be registered for VAT. Each registration covers all the business activities of the registered person.
A person can be either an:
- •
individual - •
legal person or entity, such as a partnership or limited company
If two people intend to work together on a business or a project as a joint venture, the joint venture may have to register for VAT if the turnover is above the relevant threshold. For example, a registered person might be:
- •
a sole proprietor - •
a partnership or LLP - •
a limited company - •
a club - •
an association - •
a charity
For compulsory registration, there are two tests which must be considered ― the historic test and the future test.
The historic test looks at taxable supplies in the previous 12 months on a rolling basis. This historic test is carried out at the end of every calendar month. If the cumulative taxable supplies exceed the VAT registration limit (currently £85,000) then HMRC must be notified within the next 30 days, and the business is registered from the start of the second month that follows the month end.
The future test looks at taxable supplies in the next 30 days alone. If the registration limit is exceeded then HMRC must be notified before that 30-day period expires. The business will then be required to register from the start of the 30-day period. There is often confusion on the way in which the historic and the future tests operate because of the misconception that the future test is cumulative, like the historic test. Remember that the future test looks at the turnover for the next 30 days alone.
See Example 1.
For more detailed guidance on issues around compulsory registration for VAT, see the Overview ― registering for VAT guidance note and the Flowchart ― when must or can a business VAT register? in the VAT module.
In addition, there may be a requirement to file VAT returns electronically under Making Tax Digital (MTD). Currently, the MTD provisions only apply to businesses with a turnover exceeding the VAT registration threshold (£85,000). Businesses that are trading below the VAT registration threshold are not required to file their returns using the MTD provisions; however, they can do so voluntarily if preferable. For more details, see the Making Tax Digital ― overview guidance note and VAT Notice 700/22: Making Tax Digital for VAT .
Voluntary registration allows a business to register for VAT even if its taxable supplies do not exceed the VAT registration threshold. Voluntary registration is also available for intending traders who have not yet commenced to trade but are intending to do so in the near future.
These traders would apply to HMRC for a VAT number well before they commence trading. This might be for a number of factors, but the most common is to enable recovery of VAT from HMRC whilst the business is being set up. For example, it might take six months to refit a shop but in those six months, if the individual is registered for VAT, they can reclaim input tax from HMRC. These would obviously be provisional reclaims and will be dependent on the fact that the individual does actually commence trading.
Traders who make zero-rated supplies may request to be exempt from registration.
HMRC has the power to direct that businesses with close financial, economic and organisational links are aggregated for the purposes of registration. This will normally be applied where businesses are separated in order to avoid charging VAT on some or all of the business turnover.
Relevant Government guidance on registering for VAT together with links to register can be found at VAT registration .
It is also possible (and in some cases compulsory) to apply for VAT registration by completing form VAT1 . Partnerships must complete form VAT2 to advise HMRC who the partners are in the partnership.
For more detailed guidance on issues around voluntary registration for VAT, see the Overview ― registering for VAT guidance note in the VAT module.
Form 64-8 must be completed in order for a client to authorise a tax agent to act on their behalf. This can either be done online or by downloading and filling in a paper form. Both options are available at Tax agents and advisers: authorising your agent (64-8) .
Form FBI-2 is used to authorise agents to use online services in relation to a client’s PAYE / CIS matters. This is accessed using the same link.
Once a business has commenced, it continues to have several tax reporting obligations including:
- •
corporation tax compliance filing and payment, if a company (see the Charge to corporation tax guidance note) - •
self assessment filing and payment, for individuals in respect of unincorporated business - •
partnership self assessment, for partnerships (see the Self assessment tax returns ― partnerships guidance note) - •
form CT61 ― quarterly reporting and payment of tax withheld at source on certain payments, eg interest on a loan from a shareholder to a company (see the Accounting for income tax guidance note) - •
PAYE monthly procedures - •
PAYE end of year procedures (see the Income and deductions guidance note) - •
VAT filing and payment - •
obligations under the CIS (see the CIS ― overview guidance note)