How Sage One can help you to be HMRC compliant

If you run a small or medium-sized business it is essential that you are compliant with HMRC and paying the right amount of tax. Here’s what you need to know.

What does it mean to be HMRC compliant?

All businesses and individuals in the UK have a responsibility to ensure that are paying the right amount of tax to HM Revenue & Customs (HMRC) and claiming the correct amount of benefits. It means making sure you keep up to date with the latest regulations so your business continues to stay on the right side of the law and you don’t get any penalties.

How does HMRC check that your business is compliant?

HMRC acts on the assumption that everyone is honest in their tax affairs. But to make sure that everyone meets their responsibilities they carry out routine checks – this could be to investigate specific tax returns, or to prevent tax evasion.

A visit from HMRC can take place in your home, at work or at your accountant’s office and they will write to you afterwards to tell you the results.

A tax compliance checklist

To assess if you are tax compliant, HMRC will want to check the following:

The taxes you pay
Accounts and tax calculations
Your self-assessment tax return
Your company tax return
PAYE records and returns.

So even if you are not due a visit from HMRC, if you keep on top of these factors in the everyday running of your business, you will be fully prepared should they want to run a check to see if your tax affairs are in order.

What if you are not tax compliant?

One benefit of having a compliancy check is that you may find out you are actually owed money! If you’ve paid too much tax you will get a rebate, plus interest on the amount you’re owed.

However, if you haven’t paid enough tax you’ll be given 30 days to pay the additional amount, plus interest from the date the tax was due.

You may also have to pay a penalty. HMRC will consider:

Why you underpaid or claimed too much tax back
Whether you informed them about the situation as soon as possible
If you’ve been helpful during the check.

You can also receive penalties without going through a compliancy check, for example filing your tax return late or making an error on an official form. The Which website talks through typical fees you can expect to pay.

There is a set of compliance check factsheets on the GOV.UK website.

What taxes will you pay as an SME or business owner?

Corporation tax, which is a tax on limited companies’ taxable income or profits.
It is due 9 months after the last day of your financial year end.
Check the latest rate of corporation tax

Value Added Tax (VAT), which is a tax on certain goods and services.

It is compulsory to register if your turnover is greater than the current VAT threshold. You can also register for VAT voluntarily. There are several different schemes to choose from, according to the nature of your business.

You must submit your VAT return online and pay electronically. When you make a payment depends on the scheme you are on; check the GOV.UK website’s Pay VAT pages for more information.

National Insurance is deducted from all employees’ earnings. If you’re a sole trader you will pay it on your business profits.

It is deducted from your staff salaries and you must pay HMRC by the 22nd of the following month.

There are various rates and thresholds; take a look at the latest National Insurance rates and categories or ByteStart’s Guide to National Insurance Contributions for small businesses.

Pay As You Earn (PAYE) takes income tax from your employees as they earn it.

Real-Time Information (RTI) means that you need to submit your payroll data each month when you pay your team, rather than at the end of the tax year.

Self-assessment. If you have other income outside your wages you must report it in a tax return and file it online.

Stamp duty is for transactions relating to land and property.

Stamp duty is usually due within 30 days of the transaction being made, and the rates depend on whether you are paying Stamp duty land tax or Stamp duty reserve tax.

Capital gains tax is a tax on the profit when you sell an asset that’s gone up in value.

Work out your capital gains tax rate and find out more at Tax Donut.

How do you pay your tax?

You are now required to pay your tax electronically if you are:

A large employer (an employer with 250 or more employees)
A VAT-registered business
A company or organisation liable to pay Corporation Tax.

You can do this by direct debit. Register at HMRC to pay taxes online.

Important! Always give the correct reference number when making a payment to HMRC. This could be your VAT number, the PAYE number issued to your business or the 17-character reference printed on the payslip for your Corporation Tax.

Write it exactly how it is shown in official correspondence; don’t include any extra spaces or characters. Otherwise it might not be recognised by the system and you could be fined.

When do you pay your tax?

VAT: cleared funds must reach HMRC’s bank account by the seventh calendar day after your standard due date. Plus three days if you’re paying by direct debit.

Employers PAYE and NICs: when paying electronically, payment is due either monthly or quarterly and cleared funds must reach HMRC no later than the 22nd of the month following the end of the tax month or quarter to which it relates.

Corporation tax: payment is generally due annually. It must be paid electronically. It is due nine months and one day after the end of the company’s accounting period.

Self-assessment payments are due by 31 January and 31 July each year.

Even if you have no payment to make you must let HMRC know.

How can Sage One help you stay tax compliant with HMRC?

In the HMRC guide to being self-employed, they say, “It is especially important if you are starting a new business that you get a proper record keeping system in place from the beginning.” This applies to larger, established businesses too. Using online accounting software like Sage One can help you do this.

Keeping records. By law, all businesses need to keep the records and documents upon which the figures in your tax returns are based. They should be complete, readable and accurate. By using Sage One software you will be organised from day one, with each transaction recorded. Even if a transaction is deleted for some reason, this is still recorded.

What records do you need to keep?

Sales and takings, including cash receipts. This could be till rolls, sales invoices, bank statements, paying-in slips
Purchases and expenses, including cash purchases. This could be receipts, purchase invoices, bank and credit card statements, motoring expenses and mileage records
VAT sales and purchase invoices, import and export documents, delivery notes.
Payments made to all subcontractors for work done and materials subcontractors have purchased
Details of assets, liabilities, income and expenditure plus business records like bank statements and paying-in slips, accounts books, purchases and sales information
All PAYE records, including payments made to employees, deductions for Income Tax, National Insurance contributions and student loan payments, employee benefits and expenses, and statutory payments.

Stay up to date

Legislation is always changing, whether it’s in the spring Budget or in the Chancellor’s the Autumn statement (and sometimes in between!) Sage One keeps you up to date with the latest legislation for accounts and payroll whether it’s changes to VAT, pensions auto-enrolment or RTI.

Secure data

Sage One is cloud-based software which means your data is protected by bank-level security, so you don’t have to worry about taking backups or losing any information. Essential when you are making sure you keep comprehensive records of your accounts.

Work with your accountant

Give your accountant a login so you can work together online. They can make sure your affairs are in order throughout the year without having to schedule a visit.

Pay your returns correctly – and on time

Have a happy payday with automated calculations for your pay runs, secure data and direct links to the bank and HMRC.

By connecting Sage One to your bank and HMRC, you can submit your return and the money will automatically be transferred from your account within the deadline. This helps you avoid penalties.

Juggle multiple currencies

Effortlessly record transactions in multiple currencies and comply with international VAT laws by using the correct overseas VAT rate.

Pay the right amount of tax. Sage One keeps you up to date with the latest regulations relating to tax and will calculate the right amounts accordingly. You can keep track of your expenses and overheads, which can help reduce your company’s tax burden.

Save time. By using online accountancy software like Sage One you can cut down on time manually entering information.

Start your 30-day free trial of Sage One and find out how the right online accounting software can help you stay HMRC compliant.