Dealing with HMRC – When, what, and how?

Various Chancellors of the Exchequer, and Business Secretaries of State, make reapeated announcements about removing the burden of red tape for small businesses. The administrative reality never seems to match the big promises however.

When you start a new business you will be regularly dealing with HMRC – Her Majesty’s Revenue and Customs – for various matters and you will no doubt find that you have to provide the same information time and again to different Government offices as they fail to communicate with each other.

These communication issues are in part due to the history of why they were set up. Customs and Excise was created to handle Value Added Tax (VAT) and import duties while the Inland Revenue dealt with Income Taxes, Corporation Taxes and Capital Gains Taxes. Then you had the Contributions Agency who had to deal with National Insurance. These 3 offices have partially been consolidated and it is for the reason of the consolidation only being ‘partial’ that you can end up having to give the same information several times. As a result it is best not to make assumptions that just because you told one part of HMRC something that another office are aware of the facts.

The good news though is that most issues can now be dealt with online. It still has to be done, but it can be done more efficiently these days.

As you set up your new business we also hope that the following list will help you know when, and who, to contact at HMRC:

Registering with HMRC when you become self employed

  • Register with HMRC for ‘self assessment’ to report your self employed profits or losses.
  • Register with HMRC for National Insurance. You will need to pay Class 2 National Insurance each month and Class 4 with your income tax.

Registering with HMRC when you form a new limited company

  • Register with HMRC to report the limited company income for corporation tax purposes.  HMRC will send a form to the company’s registered office within a few weeks of forming the company in order to set up their file.
  • Register with HMRC for self assessment to report your own income, as a director and shareholder of a limited company. HMRC will expect you to complete personal self assessment tax returns.

When you begin employing someone

  • The first thing you need to do is notify the HMRC office covering your geographical area by telephoning the New Employers’ Helpline.
  • Once registered, HMRC will send you guidelines on operating a PAYE scheme. A payroll scheme can be quite straight forward, if for example, you have one employee who gets paid the same every month and is never ill, doesn’t have a family, doesn’t want to retire, doesn’t want a pension etc. But if they want any of that then it gets more complicated though there is guidance to help. Have a look at our own introduction to PAYE.

When you start trading for real – i.e. you are incurring costs or making sales.

  • In this case you may need to register for Value Added Tax (VAT). You can register for VAT voluntarily at any time, but you must notify HMRC when your vatable turnover in the past 12 months exceeds the VAT threshold, which changes in each Budget. You must also register if you have reasonable grounds to believe that your vatable turnover for the next 30 days will exceed the VAT threshold. Find our more about what VAT is all about.

As mentioned most of your dealings with HMRC can now be carried out online so visit HMRC's website for more details and to register you and your business for the various HMRC online services.

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