Guide to setting up in business part 3 – PAYE & VAT
This is the third installment of a five part article. The aim of these articles is to draw to your attention to some of the main points to consider from an accounting and tax perspective if you are considering setting up in business. The first article we looked at the different type of legal status for your business and the second article discussed who you needed to notify. In this third article we shall look very briefly at PAYE and VAT
If you are planning on employing staff in your business then (depending on their level of earnings) you may need to deduct PAYE and National Insurance (NI) from their wages and pay this over to HMRC, You will also need to pay over employers NI which is in addition to gross wages. To be able to do this you will need to register as an employer with HMRC. The easiest way to do this is online.
You need to make sure you have a system in place for calculating the amount of tax which needs to be deducted from each employee’s wages and paid to HMRC as well as calculating any employers NI due. There are three main options for doing this
- HMRC provide a set of basic tools on their website for performing the calculations
- You can use third party software such as Sage Payroll
- You can pay a third party to do it for you. Many accountants, including ourselves offer payroll services where we perform the calculations on your behalf, provide you with payslips for your employees showing the amount of their net wages and telling you how much you need to pay to HMRC.
If your business is VAT registered then you will normally need to charge VAT on any sales you make. There are some exceptions where goods or services are exempt from VAT or zero rated but these are in the minority.
If your business turnover in any given 12 month period exceeds a certain threshold (currently £77,000) then you must register for VAT.
If your turnover is below this limit then you can voluntarily register. One of the main considerations when deciding whether to register is ‘who are your customers?’ If you register for VAT and your customers are predominantly other VAT registered businesses then they can reclaim any VAT on your sales and you can reclaim VAT on your purchases or expenses so VAT registration is certainly worth considering.
However if your customer base is primarily private individuals they will not be able to claim back any VAT you charge so registering for VAT will in effect make your goods or services more expensive.
If you would like to discuss these or any other accounting or taxation issues please don’t hesitate to contact us. We are an ACCA registered accountancy practice located in the Northamptonshire village of Lamport.