Depending on certain parameters, companies and individuals in the UK are obliged to register with Her Majesty’s Revenue and Customs (HMRC) for Value Added Tax (VAT) and Pay as You Earn (PAYE). These government-imposed taxes are applicable for thriving as well as struggling businesses, and it is crucial for companies and individuals to regularly pay their VAT and PAYE taxes to avoid penalties due to non-compliance with government regulations.
VAT is levied on the sale of taxable goods and services by businesses in the UK. These goods and services may be produced in the UK or may be imported into the UK from other countries. Companies in the UK usually levy VAT over and above the selling price of goods and services. However, they are not legally entitled to charge VAT from customers until and unless they have registered with the HMRC for VAT. VAT is a mandatory registration, and businesses of all kinds, including self-employed individuals and limited companies, are obliged to register themselves for VAT once their taxable turnover, for a period of 12 months, exceeds the VAT threshold, which is set at £85,000 for 2018-2019.
Similarly, businesses that intend to hire employees should register with the HMRC as an employer via PAYE. The PAYE system is used by the HMRC to collect income tax and national insurance contributions from eligible employees. Individuals are also supposed to register for PAYE if they are employing themselves or any other directors. PAYE registration is needed only when businesses are paying £116 or more to their employees on a weekly basis. However, if employees have a second job or receive a pension, VAT registration is not required, but the payroll records for these employees must be maintained by the employer.
Businesses making more £85,000 in revenue should compulsorily register for VAT, but companies below the VAT threshold can also register willingly. Companies should remember that having their business incorporated doesn’t automatically register them for VAT. Businesses, including partnerships and group of companies, can register online to create an online VAT account, which is also called the Government Gateway Account. The VAT account can then be used to submit VAT returns to HMRC and receive VAT refunds from HMRC. Businesses can also appoint accountants and agents to complete the VAT registration on their behalf. The HMRC, thereafter, directs all correspondence, except tax bills and refunds, to the authorised individual, though the business would still be legally responsible for its own taxes.
Checkout here in Details:- How to Register VAT Number
Once the VAT number is received, businesses can start charging VAT to their customers. The HMRC dispatches the VAT registration certificate within 30 working days, and it is either sent to the online VAT account or by post (for offline registrations through self or agents).
Read also – Quarterly VAT Returns in the UK
When employing staff or subcontractors, businesses are required to operate PAYE as a part of their payroll. PAYE deductions from employees’ income may include income tax, national insurance, loan repayments or pension contribution. Businesses need to register before they make the first payment to employees. The employer PAYE reference number is usually received within 5 days of the online registration. Business may choose to operate PAYE either by themselves or through a payroll provider.
Once the PAYE reference number is received, businesses can start reporting their payroll information to HMRC via PAYE Online, usually on a weekly or a monthly basis. Once the PAYE registration is activated, businesses are obliged to share real-time information reports with the HMRC, every time a payment is made to an employee. Businesses are also supposed to pay payroll deductions, such as tax services near you and national insurance, to the HMRC within the stipulated period. Moreover, the HMRC has to be informed every time a new employee joins the business or if a current employee turns eligible for the state pension or becomes a director.