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A UTR (Unique Taxpayer Reference) number is a 10 digit code that's unique to either you or your company. It facilitates HMRC to process tax returns in an efficient, effective and accurate manner. It helps identifying the person (i.e. whether it’s a company, partnership etc.) so that their records can be managed accordingly. It also helps in ensuring that everyone pays what they owe or receive amounts they might be entitled to correctly.
Tax code is a alphanumeric code used to work out how much income tax needs to be collected from a person's income.These codes generally start with a number and end with an alphabet, for eg. 1250L. The number in a tax code denotes the amount of tax-free income the person gets in that particular year. The letter in the tax code refers to personal circumstances which may affect their Personal Allowance.
Various types of trial balance errors are as follows:
Error of Principle:
When a transaction is recorded in a manner that any of the generally accepted
accounting principle is violated then it is called error of principle. There
isn’t any effect on trial balance in such cases as the amount is correctly
posted on debit-credit sides but the accounts are incorrect. Such errors can
cause the financial statements to depict misleading picture of the affairs of
the business.
Omission Error:
There can be two kinds of error of omission- complete and partial. Complete
omission means that a transaction has been missed to be recorded in the journal.
There isn’t any effect on trial balance in such cases. Partial omission means
that a transaction has been recorded in the journal but omitted to be posted
into the ledger accounts. Such kinds of omissions hamper the agreement of trial
balance.
Commission error:
Such errors generally relate to arithmetic accuracy. These include recording
wrong amount in subsidiary books, wrong totaling of subsidiary books, posting
incorrect amount in ledger accounts, posting at the wrong side of ledger
accounts, incorrect totaling of ledger balances etc. These may or may not cause
trial balance to tally.
Compensating errors:
If two or more errors are committed in a manner that the effect of one error is
compensated by the effect of other error, then such errors are called
compensating errors. These errors leave agreement of trial balance unaffected.
Over reporting- Once you file your accounts to Companies House and HMRC, they come into public domain. Over reporting in the accounts can cause your competitors to know your business strategy and they could easily take undue advantage of this.
Under reporting- Under reporting to Companies House and HMRC can cause them to take action against you. You might end up paying heavy penalties.
Filing your accounts well before the due date comes with its own benefits. Some of them are:
Cash basis of accounting deals with recognising revenues- when cash is actually received and expenses- when cash is actually paid. In this method there is no requirement of keeping a track of receivables and payables. The business income isn’t taxed until it’s received in cash or in bank account. It is easier to maintain. The disadvantage of this method is that it ends up giving biased view of the business as expense and its related revenue might get reported in different periods.
Accrual basis of accounting deals with recognising revenues when they are earned and expenses when they are incurred, irrespective of the date of actual payment. irrespective of the fact that whether the money has been received/paid. This method works on matching principle which means expense is reported in the period when related revenues are earned. This method gives a true and significantly better view as compared to cash basis of accounting.
The HMRC Gateway account is an account created to use online services provided by HMRC. To sign in the HMRC gateway one needs 12 digit Government Gateway user ID and password.
UTR (Unique Taxpayer Reference) is automatically sent when you register for self-assessment or set up a limited company. It can be found on your:
Benefit in kind refer to:
It needs to be reported in form P11D. The benefits in kind are treated as cash equivalents and so are taxed as a part of employee’s salary.
A trivial benefit is a benefit that:
There isn’t any requirement to pay tax or National Insurance or report such an expense to HMRC. However, if employer provides trivial benefits as a part of salary sacrifice arrangement, then they won’t be exempt. There will then be a need to report HMRC in form P11D:
The director of a ‘close company’ cannot receive trivial benefits worth more than £300 in a tax year.
The government has prescribed minimum wage rates i.e., the minimum amount per hour that any worker should be paid. Workers above the age of 25 are entitled to National Living Wage which is highest of the National Minimum Wage. The wages amount determined using these minimum wage rates is called minimum wage.
Benchmark Scale rate payments are basically the maximum tax and NICs free amount that can be paid or reimbursed by the employers to their employees in respect of common business expenses incurred by the employee, without requiring any approval from HMRC.
As per the Pension regulators guidelines, the employer has to auto-enroll all its employees under a workplace pension scheme and also contribute prescribed percentage of the salary as an employer’s contribution. Any employers in the UK fulfilling the below conditions are bound by this legislation:
The period falling between two accounting reference dates is called a financial year. It is also known as an accounting period.
The period falling between two accounting reference dates is called a financial year. It is also known as a financial year.
Capital allowance refer to deductions allowed from the profits with respect to certain assets purchased which have a useful life of more than one tax period. Click here to read about capital allowances in detail.
When a company is formed, the first accounting reference date will be a year later, on the last day of the month in which company was incorporated. Accounting reference date will then be on this date every year. For example, if a company was incorporated on the 6th of July 2018, the first accounting reference date will be on the 31st July 2019. The period falling between two accounting reference dates is called the accounting period or a financial year.
Business mileage is basically a blanket term for the expenses reimbursed by an employer for travel expenses of the employee for purpose of business travel. For sole traders, it shall cover the cost of buying and maintaining vehicle for business purpose. Read more about business mileage allowance in our article. These can be claimed by sole tarder or reimbursed to employees, as the case may be, at actual cost or approved mileage rates.
These can be claimed by sole tarder or reimbursed to employees, as the case may be, at actual cost or approved mileage rates.
Tax code is an alphanumeric code used to work out how much income tax needs to be collected from a person's income.These codes generally start with a number and end with an alphabet, for eg. 1250L. The number in a tax code is the amount of tax-free income the person gets in that particular year. The letter in the tax code refers to personal circumstances which may affect their Personal Allowance
Personal UTR (Unique Taxpayer Reference) is a 10 digit code. It is completely unique to each and every UK taxpayer who is a natural person. Whether the taxpayer is sole trader or an individual earning any income or part of a partnership, a personal UTR number is needed to file a Self-Assessment tax return online or via post. HMRC uses it to identify you for everything relating to your taxes.
The following persons need to file self-assessment tax return SA100:
To know more about self-assessment tax return filing due dates click here. You can also read our article on self assessment to know more about it.
The following persons need to file self-assessment tax return SA100:
To know more about self-assessment tax return filing due dates click here.You can also read our article on self assessment to know more about it.
The tax year for personal tax return is 6 April current year to 5 April of next year.
The deadlines for filing personal tax returns (for tax year 2018-19) are:
| Paper tax return | Midnight 31 October 2019 |
| Online tax return | Midnight 31 January 2020 |
| Pay the tax you owe | Midnight 31 January 2020 |
‘Payments on account’ mean advance payments made for your Self-Assessment tax bill. HMRC assumes that you will continue to earn at the same rate as the previous year, therefore, you’ll pay approximately the same amount of tax in the following year. Each year two payments on account have to be made. Each payment is half the previous year’s tax bill. Each payment is due by midnight on 31 January and 31 July. To know more click here.
The time period for which the tax records need to be kept depends on whether the tax return was filed before or after the deadline.
If the tax return was filed before the deadline: 22 months after the end of the tax year the tax return is for.
If the tax return was filed after the deadline: 15 months after you sent the tax return.
Claiming expenses on actual basis requires the businesses to maintain records pertaining to those expenses. Simplified expenses relieve the businesses from the burden of maintaining records. The business expenses are calculated using flat rates and the resultant figure is claimed as business expense out of the net profits for the year. Once they have claimed simplified expenses you can no more claim actual expenses for the same.
Simplified expenses can be used by:
Flat rates for simplified expenses can be claimed for:
All other expenses are claimed by working out the actual costs.
If you’ve never registered for self-assessment with HMRC ever before, then you need to register for it online on gov.uk website. Once you register, HMRC will set up your self-assessment online service account and send you a letter with your UTR.
You need to re-register online via form CWF1 if you’ve sent a self-assessment return online before. For this you’ll need your 10 digit UTR (Unique Taxpayer Reference). To know where you can find your UTR click here.
Once you register, you will get a letter from HMRC within 10 business days (21 days if you’re abroad) that will have an activation code for your online account which you will need while signing in to your online account for the first time.
Yes, you can make changes to your self-assessment return either online or by post within 12 months from filing deadline for the self-assessment return for the said period.
Examples:
The income tax rates in UK for current tax year i.e. from 6 April 2019 to 5 April 2020 are as follows:
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,500 | 0% |
| Basic rate | £12,501 to £50,000 | 20% |
| Higher rate | £50,001 to £150,000 | 40% |
| Additional rate | over £150,000 | 45% |
The due date for filing self assessment tax returns are:
| Type of Tax Return | For tax year 2018-19 | For tax year 2019-20 |
|---|---|---|
| Paper tax return | Midnight 31 October 2019 | Midnight 31 October 2020 |
| Online tax return | Midnight 31 January 2020 | Midnight 31 January 2021 |
The due date for paying self-assessment tax returns for tax year 2018-19 is Midnight 31 January 2020 and for tax year 2019-20 is Midnight 31 January 2021
You must keep your accounting records for a period of at least 5 years after the 31 January submission deadline of the relevant tax year. For example for tax year 2018-19, the tax return will be filed upto 31 January 2020 and the accounting records need to be kept till atleast 31 January 2025.
Yes, you can make changes to your self-assessment return either online or by post within 12 months from filing deadline for the self-assessment return for the said period.
Examples:
SA100 is the form for carrying out self-assessment of an individual’s income and informing the same to HMRC. It is accompanied with several supplementary forms to detail out income from other sources like UK property, foreign income etc. SA 100 alongwith relevant supplementary forms is called self-assessment return. You can read our article on “SA 100-things every taxpayer should know’ here
Firstly, advisory fuel rates (AFR) are used when company’s car is used by employee whereas approved mileage allowance (AMR) is used when employee’s own car is used for business travel.
Secondly and most importantly, AFR only covers for fuel expense since the employer is already paying for the car. On the other hand, AMA covers cost of insurance, repair, maintenance etc. AFR can be used to figure out how much of the annual business mileage are spent on fuel, regardless of the fact whether company’s or own vehicle is used.
1250L W1 and 1250L M1 codes or just 1250L X code are temporary codes. HMRC applies an emergency tax code if it doesn’t have enough details about the amount of tax the person needs to pay. M1 is used when the pay is monthly while W1 is used when the pay is weekly. 1250L X can apply to either of these. M1/W1 or X code indicates that the tax shall be non-cumulative. In other words, the tax will be calculated based on the only current period’s pay and not on the basis of year to date earnings.
A “cumulative” code (like 1250L) calculates tax due by taking into consideration rebate on any overpaid tax or recovery on any underpaid tax automatically. Suppose, if a person is not paid in a particular pay period a cumulative code would automatically give him/her benefit of the tax allowances for the no income period on the next payment but a non-cumulative code would not. In cases where HMRC does not issue a cumulative tax code before the end of the tax year, any overpayment gets rebated when the year is reconciled or when the person completes his/her self-assessment return. One always starts a new tax year with a cumulative tax code.
Property allowance is a tax exemption of up to £1,000 a year available only to individuals with income from land or property. This means that if the rental income is less than £1,000 then no tax is payable and also nothing needs to be informed to HMRC. But, if the rental income is more than £1000 then self-assessment tax return needs to be filed. One needs to choose between receiving the property allowance and deducting the actual expenses from rental income. Claiming actual expenses is advisable if this produces a rental loss, as no loss can be claimed if he/she elects to use the property allowance.
HMRC introduced a system called “payments on account” for assesses who pay most of their tax through Self-Assessment. If the Self-Assessment bill of a person is more than £1,000, then his/her tax needs to be paid on account. But, if more than 80% of one’s income gets taxed through PAYE, then this system won’t apply on him/her.
The people who are self-employed need not pay tax from zero income. They are allowed personal allowance before they start paying tax. Personal allowance refers the amount earned in a tax year before you start paying tax. It is also known as “tax free allowance”. The personal allowance for year 2018/19 is £11,850 and for year 2019/20 is £12,500.
Once a business opts for claiming simplified expenses it needs to stick to it throughout the life of the business or the life of asset regarding which simplified expenses are claimed.
The company Unique Taxpayer Reference (UTR) is issued by HMRC when the company is set up and registered. It is a 10 digit code. HMRC will use the UTR to identify the company whenever it contacts them about tax. The company’s UTR is included in the first letter it receives from HMRC at its registered office.
It is important to note that company’s Company Registration Number (CRN) is not the same as company Unique Taxpayer Reference (UTR). Click here to know the difference between both of them. You can see sample UTR letter here.
A Company Registration Number (CRN) is not the same as company Unique Taxpayer Reference (UTR). While UTR is used when company contacts HMRC, the CRN is used when company contacts Companies House. Also, CRN is public information but UTR is known only to company and is required to be disclosed only in certain specific situations.
CT 603 is a notice HMRC issues to a company to request the filing of a company tax return for corporation tax, including supplementary pages. If HMRC has sent company a ‘Notice to deliver a Company Tax Return’ (form CT 603), then the company must, by law, deliver a Company Tax return (CT 600). The said Company Tax return shall be prepared for the company’s accounting period that is the same as or ends in the period specified in form CT603.
Income in form of dividends paid to a company from earnings on which corporation tax has already been paid by the originating company is called franked investment income.
It relates to companies who’ve made common law claims in relation to tax paid ‘under a mistake of law’. If a restitution award is made, whether as a result of judgment or an agreement, THE INTEREST element of the award will be chargeable to corporation tax at a special rate of 45% instead of normal rate (i.e. currently 19%). This interest is defined as restitution interest. It does not apply to any element of the award that represents the repayment of overpaid tax.
A CT activation code is a 12 digit code which is needed to activate the company’s corporation tax account. Once you successfully enroll for corporation tax online service, you receive a letter containing activation code within 7 days of enrollment. The activation code is valid for only 28 days from the date mentioned on the letter and you need to use it before that. If it expires then you’ll have to request a new activation code online. This can be done by signing in for HMRC online services and enrolling for the services again. But if the code is lost within aforementioned 28 days, then sign in for HMRC online services and ask for a new code.
As per section 1055 of Corporation Tax Act 2009 the company has a surrenderable loss if in an accounting period the company:
For expenditure incurred on or after 1 April 2015 the amount of the surrenderable loss shall be calculated as the lesser of:
Click here to read about R&D tax relief
As per section 1056 of Corporation Tax Act 2009 the amount of the unrelieved trading loss is the amount of the trading loss less the sum of following:
Knowing unrelieved trading loss is used to calculate amount of surrenderable loss
A Company Tax Return needs to be filed within 12 months from the end of accounting period to which it relates.
The corporation tax bill needs to be paid within 9 months and 1 day from the end of accounting period to which it relates.
The Extensible Business Reporting Language (XBRL) is a standard used for tagging business data for computers. It involves applications of computer readable tags to business data such that data is automatically processed by the software. This information is encoded to be machine readable only. iXBRL, or inline XBRL, is a newer version of the language which allows financial information to be presented in a format that is both human readable and machine readable. The data (e.g. Financial Statements) is presented in a normal document format but with XBRL “tags” embedded in the soft copy document. iXBRL thus handles both the presentation of accounts and the delivery of XBRL data in a single file.
CT600 is a form that the companies use to report all the information used to derive the corporation tax liability for the year.
A company tax return contains all the details relating to the corporation tax payable to HMRC. It not only comprises of CT600 and supplementary pages but also Accounts for the period covered by the return and computations showing how entries on the return have been calculated from the figures in the accounts. It is also called corporation tax return.
Yes, you can make changes to the corporation tax return of your company upto 12 months after the tax return filing deadline. This can be done either online or by sending a paper return to HMRC. Suppose you need to make changes in the return for the year ending on 30th November 2017, then deadline for filing the return will be 30th November 2018. Thus amenedments, if any, need to be made upto 30th November 2019.
Currently, corporation tax rate is 19% which shall further reduce to 17% in April 2020.
Yes, you can make changes to the corporation tax return of your company upto 12 months after the tax return filing deadline. This can be done either online or by sending a paper return to HMRC. Suppose you need to make changes in the return for the year ending on 30th November 2017, then deadline for filing the return will be 30th November 2018. Thus amenedments, if any, need to be made upto 30th November 2019.
A company number is officially known as a Company Registration Number (CRN). It is issued by Companies House immediately upon incorporation of a company. It is unique to a company and is displayed on the certificate of incorporation. A company must provide this number whenever it contacts Companies House.
It is important to note that company’s CRN (company registration number) is not the same as company Unique Taxpayer Reference (UTR). Click here to know the difference between both of them.
A worker is involved in off-payroll working when they work for a client through their own intermediary, often a personal service company (PSC), but would be an employee if they were providing their services directly instead of involving the arrangement of providing service through a PSC. An intermediary will usually be the worker’s own personal service company. It could also be a partnership, a managed service company, or an individual.
Inside IR 35: The entity inside IR 35 are required to pay tax & National Insurance Contributions on the entirety of their deemed salary, just like a permanent employee would have.
Outside IR 35: The entities outside IR 35 are deemed to be legitimate companies and they continue to operate and pay tax accordingly (as any other limited company would have).
Following persons shall be covered under IR 35 off-payroll working rules 2020:
There are 5 parties involved in the labour supply chain:
‘Clients’ covered under IR35 wef April 2020 are:
IR35 or off payroll working rules refer to an anti-avoidance tax legislation
designed to collect tax and National Insurance at a rate similar to employment,
where the contractor is an employee in all but name.
Click here to read about IR 35 in detail.
Check Employment Status for Tax service (CEST) is a tool that has been developed by HMRC to help the user in determining the employment status of a person, i.e., whether the said person is employed or self-employed for tax purpose. It is pertinent to note here that the tool assumes there is a contract in place between employer and employee to see whether the engagement can be classed as employment or self-employment. HMRC claims it to provide accurate results and that it shall stand by the result produced by the tool provided the information input is accurate and the tool is used in accordance with the guidance.
A Managed Service Company (MSC) has a separate set of owners and organisers managing a group of contractors. Management Service Company differs from Personal Service Company. MSC manages and controls the affairs of the business, not the contractor. Further, MSC are subject to different regulations by HMRC.
A Personal Service Company is a limited company set up to provide services of a single contractor. In other words it is generally an “intermediary” taking the form of a limited company. This company is generally owned 100% by the contractor, and he/she is usually the sole director too.
Forming a PSC has many benefits. Firstly, the liability of the sole contractor becomes limited. Secondly, it provides a more formal and professional way to present services to their clients. Also, company form of business structure enables managing taxes efficiently.
You can reclaim VAT on following purchases and services made before registering into VAT:
It is worth noting that you can only reclaim VAT on supplies for the business which is now registered for VAT. Also, these supplies must be used for ‘business purpose’ only.
Click here to read more about claiming back VAT.
VAT flat rate scheme is meant for small businesses who do not keep proper bookkeeping. Under this scheme, the VAT payable to HMRC is calculated as a percentage of VAT-inclusive turnover. There are different VAT flat rates for different types of businesses. This scheme is available for businesses with taxable turnover of less than £150,000. Once a business joins the scheme it can remain in it even if turnover exceeds £150,000 up to 230,000 in a year.
A VAT return generally covers period of 3 months. These period of 3 months is called VAT accounting period. However, your VAT accounting period will comprise of 12 months in case you have opted for VAT Annual Accounting Scheme.
Generally, the due date for submitting the return online is 1 calendar month and 7 days after the end of an VAT accounting period. Accounting period varies from business to business. The deadline for businesses which opt for annual accounting scheme is different.
Generally, the due date for submitting the return online and paying HMRC are usually the same - 1 calendar month and 7 days after the end of a VAT accounting period. You need to allow time for the payment to reach HMRC’s account. The due date for businesses which opt for annual accounting scheme is different.
If the due date falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it, unless you pay by Faster Payments.
If you opt for annual accounting scheme you need to file VAT return only once a year. Your VAT accounting period will comprise of 12 months. The VAT return shall be due in 2 months from the end of VAT accounting period.
If you’re covered under the annual accounting scheme you need to make advance payments towards your VAT bill during a VAT accounting period and a final payment once you file your VAT return. HMRC will tell you in writing when your installments are due and how much they’ll be.
| PAYMENT | PAYMENT DEADLINE IF ANNUAL ACCOUNTING SCHEME IS USED |
|---|---|
| Monthly | Due at the end of months 4, 5, 6, 7, 8, 9, 10, 11 and 12 |
| Quarterly | Due at the end of months 4, 7 and 10 |
| Final payment | Within 2 months from month 12 |
If the due date falls on a weekend or bank holiday, your payment must clear HMRC’s bank account on the last working day before it, unless you pay by Faster Payments.
The amount paid as VAT over and above the value of goods purchased or services availed is called input tax. If the said goods and services are used for business purpose, then input VAT so paid can be reclaimed.
When a VAT registered business sells goods or provides services, then it needs to charge VAT over and above the value of invoice at VAT rate prescribed for said good or service. This extra amount so charged is called output VAT.
Value added tax as the name suggests is tax on value addition. It is a tax levied on value added at each stage of supply chain, from production to point of sale. Unlike income tax, which is levied on how much we add to the economy; VAT is a ‘consumption tax’ that is charged on purchase of goods and service i.e. how much we consume. VAT is an ‘indirect tax’ as it is collected by businesses on behalf of government and ultimately paid into government’s coffer.
When goods or services are zero rated they are still called VATable supplies. The VAT rate on such goods and services is zero. Hence, a supplier supplying goods at zero rate can reclaim credit on purchases.
When goods or services are zero rated they are still called VATable supplies. The VAT rate on such goods and services is zero. So if the taxable turnover goes above £85,000 the supplier needs to register under VAT.
The partly exempt business can claim tax credit on capital goods through capital goods scheme. Under this scheme VAT recovery is adjusted based on the taxable use. As the taxable use increases, a further amount of input tax can be claimed and, as it decreases, equivalent input tax already claimed needs to be repaid. Click here to know more about capital goods scheme.
There are three VAT rates prescribed:
Exempt supplies- Some supplies are exempt from VAT. No VAT is charged on goods that are exempt.
VAT is generally recorded, collected and paid by the seller. But, if a transaction is covered under reverse then the VAT will be recorded by the buyer instead of the seller. Thus in such situations, VAT is paid by the buyer directly to HMRC instead of the seller.
VAT reverse charge applies to intra-community EU transactions and with effect from 1st October 2020, this will also apply to construction industry services.
MTD refers to Making Tax Digital. With effect from1st April 2019, all the VAT registered businesses with an annual turnover of more than £85,000 were mandated to maintain their VAT records digitally and file the VAT returns through MTD-compatible software. Businesses with a taxable turnover less than the VAT threshold can voluntarily opt for it. Click here to read more about Making Tax Digital.
Zero rated: The goods and services covered under this rate are VAT taxable and charged to customers at 0%. Though practically no VAT is collected but the businesses are still required to record such sales in their VAT account and report them in VAT return. Also, the best part is that a claim can be made for any INPUT VAT paid while producing/acquiring zero-rated goods. Zero rate is applicable on books, newspapers, motor cycle helmets, children’s clothes and shoes etc.
Exempt supplies: No VAT is charged on goods that are exempt, and such turnover is neither required to be reported in a VAT return nor can you claim back the INPUT VAT charged on your inputs. Exempted supplies include sponsored charitable events, Admission charges by charities, Charitable fundraising events etc. If a business only supplies VAT exempt goods, then such business is neither required nor allowed to register for VAT.
A group of companies connected to each other may choose to file a single VAT return. Such group of companies are treated as single entity and so are called a VAT group.
Making VAT group facilitates two or more eligible persons to account for VAT under a single registration number and allows any one of the eligible persons within the group acting as the representative member.
VAT return is basically a form that depicts the amount of VAT owed to HMRC or the amount they owe to you. It shows total sales and purchases, amount of VAT owed, amount of VAT reclaim, VAT refund from HMRC for a particular VAT accounting period.
Yes, net errors made in previous 4 years can be corrected in later VAT returns if the amount of net error is either:
The difference between the total errors in output VAT and the total errors in input VAT is called a net error.
There are three VAT rates prescribed:
Exempt supplies- Some goods and services are exempt from VAT. No VAT is charged on goods that are exempt.
The different VAT flat rate scheme are as follows:
There are 3 PAYE forms- P45, P60, P11D
P45- It is given to an employee when he/she leaves a job. It provides summarised details and amount of tax and insurance paid by the employee from the start of that tax year until termination of employment. This form includes employee’s tax code that enables employer to calculate the amount of tax to be withheld from an employee’s salary.
P60- It is given to ALL existing employees at the end of every year. It shows the tax they’ve paid on their salary in an year.
P11D- If employee receives any ‘benefit in kind’ then employer needs to submit this form to HMRC. This form records how much each benefit is worth. Employer may provide employee with a copy of P11D.
PAYE payment reference number helps HMRC to identify whom the payment is from and to which month and year the payment relates to.
It is made up of 3 parts- account office reference number of the employer, the end of the current tax year and number of the tax month. If the tax year is 2018-19 then year-end will be 2019 and last two digits, i.e. 19 will become the year code. The month code means the month’s number from the beginning of the tax year, i.e. April-May is 01, May-June is 02 and so on.
For e.g. Account reference number is 123XY45678910
Tax year 2018-19
Tax month is 6th May-5th June
Then the PAYE payment reference number will be 123XY456789101902.
That is [ref: 123XY45678910] [ year end 19] [month 02]
It’s a 13-character reference number that helps HMRC to identify you when you send a payment to HMRC for your tax and national insurance on payroll. It is also called collection reference. This number can be found on
Yes, benefits in kind can be payrolled if the employer has registered with HMRC for using the ‘payrolling employees taxable benefits and expenses service’. All the benefits can be payrolled except employer providing accommodation and interest free and low interest loans. These needs to be reported in P11D even if you’re payrolling other benefits for the same employees. Further, if company car benefits are payrolled then there is no need of P46.
If the employer intends to payroll benefits and expenses then he/she needs to register for payroll before the start of tax year in which he/she wishes to begin running it.
P87 is a form that can be used by employees to claim tax relief for allowable employment expenses. If the allowable expenses are less than £2,500, the employee can claim tax relief through P87 form, but if the allowable expenses are more than £2,500 then these can be claimed only by filing a self-assessment return.
If benefits in kind are payrolled then prima facie there is no requirement of submitting P11D form.
However, all the benefits except employer providing accommodation, interest free and low interest loans can be payrolled. Hence, these need to be reported in P11D even if you’re payrolling other benefits for the same employees.
Further, you need to complete and file form P11D(b) to report Class 1A National Insurance contributions on benefits in kind despite payrolling them.
For the purpose of PAYE, the employer needs to keep the following records:
The records need to kept for 3 years from the end of the tax year they relate to. HMRC may check records to make sure that the employer is paying the right amount of tax. Click here to read more about PAYE and payroll.
EPS refers to Employer Payment Summary. It is basically used to claim refunds/recoverable amounts from HMRC or making declarations to HMRC. Few situations in which EPS needs to be filed are:
EPS refers to Employer Payment Summary. It is basically used to claim refunds/recoverable amounts from HMRC or making declarations to HMRC. Few situations in which EPS needs to be filed are:
FPS refers to Full Payment Submission. FPS is sent to HMRC to inform HMRC about the payments made to employees and the deductions made. It contains information like starter and leaver information, employee details, employee payment and deduction information etc.
FPS refers to Full Payment Submission. FPS is sent to HMRC to inform HMRC about the payments made to employees and the deductions made. It contains information like starter and leaver information, employee details, employee payment and deduction information etc.
Employer Summary Scheme (EPS) needs to be sent to HMRC by the 19th of the following tax month to apply any reduction (for example statutory pay) on what you’ll owe from your FPS.
Full Payment Submission (FPS) needs to be sent to HMRC on or before each payday even if taxes and National Insurance are paid to HMRC quarterly or monthly.
Payroll refers to the process of evaluating employee’s pay, deducting income tax and national insurance contributions and reporting the same to HMRC.
PAYE refers to the system of Pay As you Earn. It is a system used by HMRC to collect Income tax and NI contributions from employee’s pay as they earn it.
In order to simplify the procedural requirements for movement of goods between the EU and the UK post Brexit, TSP have been introduced. TSP aim to make import of goods easier for an initial period of one year to give businesses time to prepare for usual customs procedures while importing from the EU. The businesses registered for TSP will be able to postpone payment of import duty until one month after imports. Further, they’ll be required to give reduced information in the import declaration when the goods are crossing the border and give full declaration only after the goods have crossed the border.
Common Transit Convention (CTC) allows quicker movement of goods across the borders of common transit countries. The common transit countries are EU member states, Iceland, Norway, Liechtenstein, Switzerland, Turkey, North Macedonia, Serbia. The customs declaration and payment of customs duty needs to be paid only when the goods reach final destination. This facilitates cash flow benefits and reduces administrative burdens.
Yes, the companies need to mandatorily report Person with Significant Control (PSC) changes to Companies House as and when they happen. Beside reporting changes to Companies House, companies are also required to maintain a Register of People with Significant Control. If you fail to comply with these requirements you could be committing a criminal offence.
Note: As long as the company is inactive throughout the financial year there won’t be any tax liabilities and it won’t have to file a tax return. However, in cases when company was previously trading you need to call HMRC on 0300 200 3410 or write a letter addressed at Corporation Tax Services, HM Revenue and Customs, BX9 1AX,United Kingdom to tell them that the company is dormant and that you shall thereby not submit any tax return.
Click here to know more about compliances required by a dormant company.
Note: As long as the company is inactive throughout the financial year there won’t be any tax liabilities and it won’t have to file a tax return. However, in cases when company was previously trading you need to call HMRC on 0300 200 3410 or write a letter addressed at Corporation Tax Services, HM Revenue and Customs, BX9 1AX,United Kingdom to tell them that the company is dormant and that you shall thereby not submit any tax return.
Click here to know more about compliances required by a dormant company.
To inform HMRC about the dormant status call on 0300 200 3410 or write a letter addressed at Corporation Tax Services, HM Revenue and Customs, BX9 1AX, United Kingdom.
A company does not have its own physical existence. The Board of Directors is basically the soul and body of the company. As a result anything required to be done by the company under the Companies Act, 2006 is to be carried out by the Directors unless otherwise provided (e.g. Passing resolutions required to be passed at a general meeting etc.). Most important obligations as required to be complied by a Company Director:
A company does not have its own physical existence. The Board of Directors is basically the soul and body of the company. As a result anything required to be done by the company under the Companies Act, 2006 is to be carried out by the Directors unless otherwise provided (e.g. Passing resolutions required to be passed at a general meeting etc.). Most important obligations as required to be complied by a Company Director:
A Person with Significant Control (PSC) is an individual who meets any one or more of the following conditions in relation to a company:
These need to be reported to various authorities. Click here to know more.
The confirmation statement is used to confirm that the information held by Companies House about the company is up to date. It requires information like changes in the name and registered address of the company, directors’ details, the location of statutory records, shareholder or guarantor details, register of people with significant control, and information about share capital. It is to be filed even if there is no change to the relevant details.
Click here to know due date for filing a confirmation statement.
Every company, whether dormant or non-trading, must file a confirmation statement. It is to be filed to Companies House at least once a year, but a company may choose to file it more often.
Yes, you need to file confirmation statement for a dormant company too. This statement provides important company information such as the name and registered address of the company, directors’ details, the location of statutory records, shareholder or guarantor details, register of people with significant control, and information about share capital.
The due date for filing a confirmation statement is 12 months from the date the company was incorporated or the date you filed your last confirmation statement. It must be filed within 14 days from this date. It is to be filed even if there is no change to the relevant details.
Click here to know more about compliances required for a dormant company.
To make a previously dormant company active, inform HMRC within 3 months from the date company starts trading. It can be done by signing in to company’s HMRC gateway account and registering the company as active.
An umbrella company is a standard UK limited company. It acts as an ‘employer’ on behalf of its contractor employees. The recruitment agency shall enter into a contract with umbrella company, on behalf of the contractor who will be carrying out the work for the end client. Another contract, i.e. employment contract is to be signed between umbrella company and the contractor employee. Once the work is completed, the contractor employee shall submit a timesheet to both his recruitment agency, and umbrella, showing the number of hours he/she worked. The umbrella company will raise an invoice to the recruitment agency, which will subsequently bill the end-client. As soon as the umbrella company receives payment from the agency, they can prepare employee’s payroll and pay him/her a salary, allowing deductions for employment taxes, the pre-agreed umbrella fee/margin, personal taxes, and pension contributions (if applicable). They will also reimburse for certain allowable expenses he/she might have claimed – such as mileage.
The umbrella company is created as a special purpose entity to lessen the compliance burden. Instead of working as a contractor to the company yourself and getting stuck in hassles of compliances required to be done by a contractor, one could simply enter into employment contract with an umbrella company and work for the client. In this case the umbrella company shall carry out all the administrative activities like running your payroll, paying taxes and dealing with HMRC etc. Also, you could be able to claim work related expenses, holiday pays, workplace pension scheme etc. All you need to do is submit your time sheet and expenses and wait to get paid; the umbrella company will do all the paper work for you.
From the client’s point of view, it needs not run payroll, provide any employment benefits etc. All these need to carried out by umbrella company only.
A Personal Service Company is a limited company set up to provide services of a single contractor. In other words it is generally an “intermediary” taking the form of a limited company. This company is generally owned 100% by the contractor, and he/she is usually the sole director too.
Forming a PSC has many benefits. Firstly, the liability of the sole contractor becomes limited. Secondly, it provides a more formal and professional way to present services to their clients. Also, company form of business structure enables managing taxes efficiently.
A Managed Service Company (MSC) has a separate set of owners and organisers managing a group of contractors. Management Service Company differs from Personal Service Company. MSC manages and controls the affairs of the business, not the contractor. Further, MSC are subject to different regulations by HMRC.
Company’s accounting records need to be kept for 6 years from the end of the financial year they relate to, or longer if:
Small company is a company which fulfills any two of the following:
To know how to do bookkeeping for these companies click here.
Micro company is a company which fulfills any two of the following conditions:
To know how to do bookkeeping for these companies click here.
Yes, you can extend or shorten the current accounting period by changing the current or the immediately previous accounting reference date. You need to inform Companies House for change of accounting reference date in form AA01. The submission should be done before the due date for filing the accounts of period that you wish to change. This change can be done using Companies House’s software filing or online filing services or by sending the relevant paper forms.
You can request Companies House for extra time for filing your company accounts only in special circumstances. The application for extension must contain reasons for extension and the length of extension requested. It needs to be submitted to Companies House before normal filing deadline. This can be done by dropping a mail at Company House’s enquiries section or writing to:
| For companies incorporated in England and Wales |
Companies House Crown Way Cardiff CF14 3UZ DX 33050 Cardiff 1 |
| For companies incorporated in Scotland, |
Companies House Fourth Floor Edinburgh Quay 2 139 Fountainbridge Edinburgh Scotland EH3 9FF DX ED235 Edinburgh1 or LP-4 Edinburgh 2 |
| For companies incorporated in Northern Ireland |
Companies House Second Floor, The Linenhall 32-38 Linenhall Street Belfast Northern Ireland BT2 8BG DX 481 N.R. Belfast 1 |
The company authentication code is a 6-digit alphanumeric code which is received at the time of incorporation of the company. This code is required to authenticate any document you submit online or making changes to company’s details. It acts like electronic signature for officers of the company. You will generally receive the authentication code via post within 5 days of incorporation.
In case later, if you lose onto your authentication code, then you can simply request for a new one, we can help you with the same free of charge. Click here to view sample letter containing authentication code.
A close company is a company:
If you are filing your company’s first accounts and those accounts cover a period of more than 12 months, you must deliver them to Companies House:
The time allowed for filing company’s first accounts for the subsequent years, to Companies House is:
When a company shortens its accounting period, the new filing due date will be the longer of the following two options;
An annual confirmation statement for a company needs to be filed every 12 months. The due date for filing a confirmation statement is 12 months from the date the company was incorporated or the date you filed your last confirmation statement. It must be filed within 14 days from this date. It is to be filed even if there is no change to the relevant details.
A company which has not commenced trading since incorporation is called a dormant company. While a company which was previously trading but isn't active and trading anymore is termed as a non-trading company.
A non-trading company may be receiving other incomes like rent, interest and/or maybe paying expense like rent, bank charges etc. However, to maintain a dormant status, the company shall not be have any significant accounting transaction.
Firstly, advisory fuel rates (AFR) are used when company’s car is used by employee whereas approved mileage allowance (AMR) is used when employee’s own car is used for business travel.
Secondly and most importantly, AFR only covers for fuel expense since the employer is already paying for the car. On the other hand, AMA covers cost of insurance, repair, maintenance etc. AFR can be used to figure out how much of the annual business mileage are spent on fuel, regardless of the fact whether company’s or own vehicle is used.
Advisory Fuel Rates (AFRs) are the rates prescribed by government for:
Where the fuel cost is reimbursed at AFR instead of actual cost, for the particular engine size and fuel type, then HMRC will accept that there’s no taxable profit and no Class 1A national insurance to pay. Click here to read more about Advisory Fuel Rates.
Current advisory fuel rates (AFR) per mile are:
| Engine Size Petrol | amount per mile LPG | amount per mile |
|---|---|---|
| 1400cc or less | 12p | 8p |
| 1401cc to 2000cc | 14p | 9p |
| Over 2000cc | 21p | 14p |
| Engine Size Diesel | |
|---|---|
| 1600cc or less | 9p |
| 1601cc to 2000cc | 11p |
| Over 2000cc | 14p |
Hybrid vehicles: HMRC treats hybrid cars the same as either petrol or diesel cars for this purpose.
Electric vehicles: If the car is fully electric, the Advisory Electricity Rate (AER) of 4p per mile shall be applied.
If the business wishes to claim the cost of buying and running the vehicles, then it will have to keep records of buying, repairs, maintenance, road tax etc. separately. Instead one can opt to claim such cost of buying and running the vehicles at flat rates. These flat rates are called approved mileage claim or approved mileage allowance. Click here to read more about it.
Vehicle Approved mileage rate per mile
| Vehicle Approved mileage rate per mile | For employees | For sole traders |
|---|---|---|
| Cars and vans for first 10,000 miles | 45p | 45p |
| Cars and vans after first 10,000 miles | 25p | 25p |
| Motorcycles | 24p | 24p |
| Bikes/bicycles | 20p | NIL |
Note 1: Sole traders have a choice to claim for actual expenses instead of claiming vehicle expense as simplified expense.
Note 2: The amount so calculated is the total allowable expense for the whole year irrespective of how many vehicles have been used.
Construction Industry Scheme is a scheme under which contractors deduct money from a sub-contractor's payment and pass it to HMRC. This is a type of reverse charge, whereby the amount so deducted and paid to HMRC are actually advance payments towards sub-contractor's tax and Class 4 National insurance liability.
The Construction industry scheme was introduced in order to prevent the loss of revenue to HMRC which arose as a result of payments between contractors not being properly accounted for tax purposes.
Construction Industry Scheme mandates the contractors to deduct CIS deductions , from the payments to be made to sub-contractors, at either 30% (if the sub-contractor is not registered with HMRC) or 20% (if sub-contractor is registered). The amount so deducted is paid to HMRC and this stands to the credit of sub-contractor's account.
If sub-contractors are not registered, then HMRC does not have any way to verify them since they have no records relating to such sub-contractor. So the higher rate of deduction is meant to encourage sub-contractors to register with HMRC to enjoy the benefit of lower deduction. This would as a result make it easier for HMRC to keep a hold on them.
After deducting the money in Construction Industry Scheme, contractors need to send HMRC a monthly return of all payments made to all subcontractors within the scheme in the preceding tax month. The return needs to be filed irrespective of the fact whether the subcontractors were paid-gross, net of the standard deduction or net of the higher deduction. It should be filed within 14 days from the end of the tax month the deductions relate to.
Yes, exactly. The contractors are merely fulfilling the statutory duty assigned to them by the HMRC. They are actually acting on behalf of HMRC, thereby lowering the latter's burden and ensuring proper accounting of taxes and their payment into government coffers.
The money deducted by contractor out of payments due to sub-contractor is ultimately paid to HMRC as an advance payment towards sub-contractor's tax and Class 4 National insurance liability. So such an amount stands as a credit in the respective sub-contractor's account upon being paid to HMRC.
Yes, the sub-contractor can claim back the money deducted from its payment by the contractor. The way it can be claimed back is different for a self-employed and company.
If the sub-contractor is self-employed then they need to file self-assessment return as usual, recording the full amounts on invoices as income and showing any deductions the contractors have made in the ‘CIS deductions’ field.
If the sub-contractor still owes tax after this, he/she will need to pay it by 31 January following the end of the tax year. If a tax refund is due, then HMRC will pay the money back. Click here to know more.
In case sub-contractor is a company, then they need to claim back CIS deductions through monthly payroll scheme. They cannot claim it in corporation tax return as in case of sole trader. If they do say, they might be penalised. Click here to know more.
In case sub-contractor is company then they need to claim back CIS deductions through monthly payroll scheme. They cannot claim it in corporation tax return as in case of sole trader. If they do say, they might be penalised. To claim the CIS deductions, companies need to:
If sub-contractor company's PAYE bill for the period is reduced to zero and there are still some CIS deductions that could not be claimed back, then these need to be carried these forward to the next month or quarter (in the same tax year). Also, they need to inform HMRC in the EPS that they have nothing to pay.
If the sub-contractor is self-employed then they need to file self-assessment return to claim back CIS deductions . They need to record the full amounts on invoices as income and show any deductions the contractors have made in the ‘CIS deductions’ field.
They need to record the full amounts on invoices as income and show any deductions the contractors have made in the ‘CIS deductions’ field. If the sub-contractor still owes tax after this, he/she will need to pay it by 31 January following the end of the tax year. If a tax refund is due, then HMRC will pay the money back.
No, for a SOLE TRADER the CIS deductions is available to be adjusted against the overall personal tax liability computed at the end of the year. As you know the taxes are payable on profits (income after deducting expenses), you are right in thinking that there should be a refund (at least partial one) every year. But the only exception here is when you fall under the higher income slab and pay taxes at 40% in your annual personal tax return.
For a LIMITED COMPANY, the CIS suffered needs to be submitted through the payroll and can only be adjusted against the overall PAYE liability for the year, and therefore it is very rare to not have a refund. The only essential here is registering for PAYE and then running regular payroll to claim it back.
There are two types of contractors:
Contractors are required to be registered under Construction Industry Scheme (CIS) if:
Subcontractors should register under the CIS if:
A person who performs construction work on behalf of a contractor is called subcontractor.
Contractors need to pay deductions due to be made in each tax month to HMRC within 14 days from the end of the relevant month or within 17 days where payment is made electronically. The payment of CIS deductions need to be made irrespective of the fact whether or not these deductions have actually been made.
The deduction rates prescribed under Construction Industry Scheme are as follows:
If the subcontractors opt for gross payment status, then they are entitled to receive payment from their contractor in full, without any deductions. The subcontractor in such case shall pay the tax and national insurance contributions at the end of the tax year.
