A significant task for the new business owner is ensuring that the business is properly complying with the extensive tax and information filing requirements imposed by the various authorities. Problems and penalties could arise if the new business is not registered with the appropriate tax authorities in a timely fashion. While this post is not intended to be an all-inclusive list of filing requirements, it summarises some of the more prominent requirements common to most businesses.

HM Revenue & Customs It is necessary to notify HM Revenue & Customs of your existence by completing forms CT41G (companies) or CWF1 (sole traders/ partnerships). The form notifies HM Revenue & Customs of your accounting date, your accountant, and also enables a PAYE (Pay As You Earn Scheme) to be set up, which is a requirement if you are to be an employer. If you fail to register within the first three full months of commencing business a penalty of £100 may be levied.

H M Revenue & Customs – NI Contributions Office

Depending on the level of profit, sole traders and partners have a liability to Class 2 NIC, and these are payable either quarterly or monthly by direct debit. Class 2 contributions are at a weekly level of £2.40 (where annual earnings are £5,075 or more for 2010/11) and the necessary form to collect Class 2 contributions should be completed at the same time as the form CWF1. Leaflet CA02 ‘National Insurance contributions for self-employed people with small earnings’ gives full details and an application form for exemption from liability.

H M Revenue & Customs – VAT

You need to consider if it is beneficial to be VAT registered from the outset. If you are registering for VAT, form VAT 1 needs completing, and if you are a partnership, form VAT 2 needs to be completed, in addition to the VAT 1, giving details of all the partners. Alternatively, an online registration process is available on HMRC’s website. If turnover exceeds the compulsory registration limit, £70,000 at 1 April 2010, in any period of 12 months or less Customs must be notified within 30 days of the end of the month in which the threshold was exceeded.

Starting your business as a self employed person is both an exciting and a challenging prospect. One key area you need to ensure is to register as self employed with taxman (HMRC). This post explains how you do this and time limits for you to register.

Time Limits

For National Insurance purposes make sure you are registered within three months from the end of the month in which became self employed. If you do not get around doing this it will result in £100 fine. Further, you will need to make payments of £2.40 per week for Class 2 National Insurance contributions. However, if your earnings are below the small earnings exception level – £5,075 for tax year 2009/10, you are not required to make any Class 2 National Insurance contributions.

How to Register

You have the following options to register:

• Call the Self Employed Registration Helpline on 0845 915 4515 or
• Completing CWF1 or mailing it to HMRC or
• Registering online via the government gateway portal on www.hmrc.gov.uk.

Whichever method you choose to register you will need to provide the following information: full name, address, post code, date of birth, national insurance number and, if you decide to pay your Class 2 National Insurance through a standing order – your bank details.

Joint Notification

Once you have registered, this will act as joint notification of tax and national insurance. You will receive a 10 digit Unique Taxpayer Reference (UTR) and a blank tax return for you to complete for the year 2009/10.

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This is the third and the final blog on business structure that would be suitable for you. The first blog in the this series covered limited companies and the second blog covered partnerships.

Sole trader is the simplest form of business to start where you carry on business on your own account. You are liable to income tax and Class 4 National Insurance on your profits. You can employ people including your spouse for work done.

Your business format is not set in stone forever and you can change between them. It is fairly simple for a sole trader to take on a partner and become a partnership and for a partnership to become a Limited Company. There are however more complications with changing from a Limited Company to a sole trader or partnership.

As a Free Index Finance and Accounting Expert I respond to tax questions on FreeIndex.

One of these question was about records that a cash based busines needs to keep for tax purposes. Here is the link that provides this information http://www.freeindex.co.uk/business-advice/what-documentation-to-keep-for-your-tax-return_1144.htm