Tax – a checklist for your first year of business as a sole trader or limited company
If you’ve just set up a new business or side hustle, congratulations on taking that first, big step. Most people set up a business because they are passionate about a product or service, but without the right experience, can sometimes neglect the financial side of things or struggle with where to start.
To make it easier for all self-starters, here is a list of what you need to do as a limited company or a sole trader, broken down into 12-month, 3-month and monthly deadlines.
When you’re getting started
First things first, you need to register with HMRC. If you’re setting up as a limited company you’ll need to register with Companies House. You can usually register for corporation tax and for PAYE at the same time.
If you are a sole trader, you need to ensure you are registered with HMRC to submit a Self Assessment return. You must do this before 5 October in your second tax year. You’ll also need to register for PAYE if you have employees.
Next, get a bank account. If you’ve decided to run your business as a limited company you’re required to have a separate bank account for your finances. It’s also recommended to have a separate account as a sole trader.
It helps keep the money you earn from your business separate, makes it easier to see if you are making a profit and you’ll be able to find the expenses for your tax returns quicker.
Monthly
Payroll is usually run monthly, with the exact date stipulated in the contract of employment. You should send the pay data to HMRC before you or your staff get paid. The taxes for that payroll run (such as PAYE income tax and National Insurance) are due to HMRC between the sixth and twenty-second of the following month.
Three months
You’ll need to register for VAT if you have a taxable turnover of more than £85,000 regardless of whether you’re a limited company or a sole trader. After you’ve registered, you’ll receive a Certificate of Registration which will tell you when your first and subsequent VAT returns are due.
After your first year
The end of year returns look a bit different depending on the type of business you run. For limited companies you will need to complete:
Confirmation statement – every company must submit a confirmation statement to confirm your company’s information at least once a year to Companies House. The statement costs £13 to submit online or £40 to submit by post (as of November 2021).
Year-end accounts filing – limited companies must also file accounts for every year. The ‘Statutory Accounts’ is the financial record for the year and will usually include a profit and loss account, a balance sheet and notes. If your business was incorporated on 7 November, your end-of-year date (also known as the ‘accounting reference date’ (ARD)) would be 30 November the following year, and every 30 November after that. You have nine months after the end of your first year to complete your first accounts. Companies House has more information on this.
Corporation Tax – it currently stands at 19% of profits for most companies, and as a business owner, it’s your responsibility to submit a return to HMRC each year. Keep in mind that if your company made a loss or you have no tax to pay, you still need to submit a return. Most small companies can file their accounts with Companies House and a tax return with HMRC at the same time. You have nine months and one day after your ARD to pay the Corporation Tax you owe. HMRC’s website has more information.
For sole traders you will need to complete:
Self Assessment tax return – as a sole trader you need to submit a tax return every year. You can file your tax return from 6 April each year and you must complete the return and pay your tax by 31 January the following year. How much tax you need to pay will depend on what Income Tax band you are in.
Getting more information
You’ll be bossing this paperwork in no time, but if you need a little more guidance getting started, there’s a lot of official help online from HMRC. If you’d prefer some more personal guidance, talk to a local accountant – even a one-off meeting can really help.
Getting your tax in order doesn’t have to be a daunting task. If you are ever unsure of what steps to take, you can always ask an accountant to look over your accounts and tax return at year-end. Not only are they a safe pair of hands that can offer expert advice, but when your business gets too busy you can outsource some of the work to them, giving you time back to focus on what you love doing.
