A sole trader typically runs an owner managed business and is required to submit a Self Assessment Tax Return annually to HMRC. The self assessment tax return provides HMRC with details of income from employment, self employment, partnerships, directorships held, investment income, capital gains income etc and is used to calculate the individuals’ tax liability based on income for the tax year 6th April to 5th April.
A sole trader declares profit made from his / her business on the self assessment tax return which is submitted annually to HMRC on paper by 31st October and online by 31st January.
HMRC then calculate the tax liability for the tax year ended 5th April and this is payable by 31st January. Payments on account are also made to HMRC for the current tax year and is a payment on account is due, a first payment on account is paid by 31st January & a second payment on account by 31st July.
When individuals form a partnership, the partnership is registered with HMRC. A partnership is required to submit a Partnership Return annually to HMRC and the partners of the business are required to submit a Self Assessment Tax Return.
The Partnership Return details income & expenditure of the partnership and declares the profit or loss made by the partnership in the tax year. The partnership return also details the apportionment or share of the profit or loss between the partners. As per the self assessment tax return, the partnership return must be submitted to HMRC on paper by 31st October or online by 31st January following the tax year ended 5th April.
The partnership does not have a tax liability. It is the partners within the partnership that are liable to pay tax on their share of the profits from the partnership. Partners also submit an annual Self Assessment Tax Return which details their share of the profit or loss from the partnership and any other income received during the tax year. The self assessment tax return is submitted annually to HMRC on paper by 31st October and online by 31st January following the tax year ended 5th April.
HMRC then calculate the partners tax liability for the tax year ended 5th April and this is payable by 31st January. Payments on account are also made to HMRC for the current tax year and is a payment on account is due, a first payment on account is paid by 31st January & a second payment on account by 31st July.
A limited company is a legal entity in it’s own right and has statutory reporting requirements to Companies House and HMRC – both are government departments but they work independently so reporting requirements for both must be met. The directors of a limited company must also declare income & dividends received in their annual self assessment tax return.
Setting up a Limited Company is very straightforward, but it does result in more complex reporting requirements under the Companies Act so it’s always best to seek the advice of a qualified accountant to determine the best type of business for you.
A Limited Company has the following statutory reporting requirements to Companies House:
Annual Return: Includes information about the company including directors, shareholders, registered office etc and must be filed annually with Companies House within 28 days of the anniversary of incorporation. There is a small fee for filing the annual return, currently £13 online or £40 paper.
Annual Accounts: Accounts prepared in the required statutory format are submitted to Companies House either on paper or online within 9 months of the end of the accounting period.
A Limited Company also has the following statutory reporting requirements to HMRC:
Corporation Tax Return: Submitted to HMRC along with a full set of accounts within 12 months of the end of the accounting period. The Corporation Tax Return details the corporation tax obligation of the company which must be paid to HMRC within 9 months of the end of the accounting period.
Self Assessment Tax Return: Each director of the Limited Company is required to submit a Self Assessment Tax Return which details their dividends and income received from the company plus all other income they received during the tax year. The self assessment tax return is submitted annually to HMRC on paper by 31st October and online by 31st January following the tax year ended 5th April. Directors of a Limited Company are liable to pay tax on their income.
VAT Registered Business
Businesses whose turnover exceeds the VAT threshold for the last 12 months (currently £81,000) must register for VAT with HMRC and account for VAT. A VAT Return detailing input VAT, output VAT, total sales & purchases is submitted to HMRC within 1 calendar month & 7 days of the end of the VAT period. Any VAT payable to HMRC for the VAT period is payable within the same period.
From 6 April 2013 employers have to report PAYE information to HMRC in real time. You may see this referred to as Real Time Information – or RTI. Real Time Information, or RTI, is a new system that HMRC is introducing to improve the operation of PAYE.
RTI means PAYE information must be submitted to HMRC every time you pay your employees, in “real time”, rather than just once a year at Payroll Year End.
So there we go … a summary of your financial reporting obligations by business type and deadlines for paying your tax. There are financial penalties for non compliance with financial statutory reporting requirements so it’s always best to seek professional advice.
If you would like any guidance or advice, please get in touch … I’m always happy to help.