Knowledge of HMRC's function is crucial for businesses to ensure they comply with tax legislation. His Majesty's Revenue and Customs (HMRC) ensures enterprises pay the right amount of tax and submit their returns in due time. This article indicates how HMRC assists businesses in remaining compliant and dealing with their tax obligations.
What is HMRC?
HMRC is the British tax department. It raises taxes, implements tax legislation, and guides businesses. Companies have to fulfil their tax obligation to avoid being charged penalties. HMRC makes paying taxes easy through online services. The services assist businesses in complying with taxation and avoiding unnecessary hassle.
Filing Tax Returns
Businesses must file tax returns regularly. These include VAT returns, corporation tax returns, and self-assessment for self-employed individuals. HMRC sets clear deadlines for all types of returns, and businesses must ensure they meet these deadlines to avoid penalties.
Corporation tax is due 12 months after a company's accounting period ends. VAT returns are typically filed quarterly or annually, depending on the business's scheme. Self-employed individuals must file self-assessment returns by 31st January each year.
HMRC's online portal makes submitting tax returns easier. After setting up a secure account, businesses can submit their returns, track their progress, and access tax records.
Types of Taxes Businesses Must Pay
HMRC oversees several types of taxes that businesses must pay. These taxes include corporation, income, VAT, and National Insurance.
Income Tax
Self-employed individuals and sole traders pay income tax on their profits. They do this through self-assessment. HMRC requires businesses to submit income tax returns and pay the correct amount of tax. If a company employs people, it must also manage income tax under the PAYE (Pay As You Earn) system.
Corporation Tax
Corporation tax applies to the profits made by limited companies. HMRC requires businesses to file corporation tax returns. Businesses must ensure they pay the correct amount of tax on their earnings. Corporation tax returns must be filed by the deadline to avoid penalties.
VAT
VAT applies to most goods and services that businesses provide. Businesses with an annual turnover above the VAT registration threshold must register for VAT. HMRC requires VAT-registered businesses to file VAT returns. The company must report the VAT it collects and the VAT it pays on purchases. Businesses that do not follow VAT rules risk penalties.
National Insurance
National Insurance contributions (NICs) are another tax that businesses must pay. NICs contribute to state benefits such as pensions. Employers pay NICs for their employees, while self-employed individuals pay their NICs. HMRC ensures businesses meet their NIC obligations.
VAT Registration and Compliance
Companies must register for VAT if their turnover exceeds the VAT limit of £85,000. After registering, they have to charge VAT on taxable goods and services. HMRC keeps a close eye on companies to ensure they follow VAT regulations. Proper records are vital, and companies must submit VAT returns on time.
Using accounting software can make managing VAT easier. The software can calculate VAT and file returns automatically, integrating with HMRC's online systems.
PAYE and Employee Tax
Companies with staff must register for PAYE with HMRC. PAYE is the system by which HMRC collects income tax and National Insurance contributions from employee pay. Employers work out the appropriate tax and NI contributions to take from wages. They pay these amounts to HMRC.
HMRC gives clear advice to businesses on how to deal with PAYE. Ensuring compliance is essential to avoiding fines or penalties.
Penalties for Non-Compliance
HMRC charges steep fines for missed deadlines or improper filing. To illustrate, suppose a company makes a self-assessment return late. It may incur an initial fine of £100. Persistent lateness incurs more significant penalties. Companies need to comply with all deadlines so they do not incur these additional charges.
Late payment of tax also attracts interest. HMRC can pursue action if a company repeatedly does not meet tax requirements. Companies must keep track of their tax obligations to avoid severe repercussions.
Remaining Compliant with HMRC
To remain compliant, companies must maintain proper financial records. They must file tax returns on time and pay taxes owed. Accounting software streamlines tax management and can eliminate human error. It can also link with HMRC's online services for convenient filing.
Companies must remain updated on any amendments to tax legislation. Getting advice from a tax advisor or accountant can dispel any doubts.
Key Takeaways
HMRC also has the function of keeping companies in check where tax rules and regulations are involved. Learning tax obligations and timing helps avert penalties for businesses. Online assistance from HMRC and uncluttered guidebooks ensure smoother compliance on behalf of the companies. Businesses handling tax demands properly can continue to work and develop while realising they abide by all legislative requirements.
