Registration Limits for New Companies
Research at Companies House shows that 1,867 new companies were incorporated during 2015 in Wolverhampton alone. In total over the West Midlands region 26,952 new companies were formed, an increase of 8% compared to the previous calendar year (25,059 companies).
There are a number of accounting and tax compliance obligations which new companies should consider and today we will highlight a select few.
VAT Registration Threshold
If a business makes taxable supplies for VAT purposes, then the current VAT registration limit is £83,000 (since 1 April 2016). This test is applied on a rolling 12 month basis, so that each month the turnover for the past 12 months must be considered to see if the limit has been breached.
There is a second test for VAT, if the company considers that the limit may be exceed in the next 30 days then it must register for VAT. These tests are quite onerous for many new businesses, therefore the company may register for VAT voluntarily.
Companies with a turnover below £150,000 may wish to consider the Flat Rate Scheme for VAT. In the Flat Rate Scheme, in very broad terms, 20% VAT is added to sales invoices but a lower percentage is paid over to HMRC and this rate depends on the business activity. For many small businesses where customers can re-claim the VAT charged, this scheme is beneficial.
PAYE Limits
If any of the following apply to the business it must register as an employer with HMRC:
- an employee already has another job;
- an employee is receiving a state or occupational pension;
- an employee is paid at or above the PAYE threshold or above the National Insurance Lower Earnings Limit (£5,824 for the 2016/17 tax year);
- the business provides the employee with employee benefits.
If the business is a one-person limited company, then the proprietor is both an employer and an employee. So if any of the conditions above apply then the company must also register as an employer. Since the introduction of RTI (Real Time Information), reporting obligations have increased for PAYE.
Companies House Deadline
Following incorporation, the first set of accounts are due with Companies House 21 months later. For example, a company incorporated on 8 January 2016 will be due to file accounts by 8 October 2017.
After the first year, accounts are due with Companies House 9 months the accounting period end.
The penalties for late filing start at £150 and escalate up to £1,500 after 6 months. If the accounts are late for two years running then the penalties are doubled.
Corporation Tax Deadlines
A company must notify HM Revenue & Customs when the business activity commences, for many companies this will be shortly after incorporation. For small companies, corporation tax will usually be payable 9 months and 1 day after the end of the accounting period. The filing deadline for a corporation tax return is 12 months after the end of the accounting period.
For example, a company that incorporates on 1 April 2016, commences trading immediately and prepares accounts up to 31 March 2017, any corporation will be due by 1 January 2018. The corporation tax return for the year will be due by 31 March 2018. There can be complications where the period covers over 12 months or the company doesn’t trade straight away.
There is an automatic £100 penalty for missing the deadline for filing the return and further penalties if it remains outstanding for over 3 months. Interest is charged on the late payment of corporation tax.
Self Assessment for Directors and Shareholders
In most small companies, the directors and shareholders are the same. Personal tax returns will be required under the self assessment rules to advise HMRC of an Income Tax or Capital Gains Tax liability. Returns are also required if HMRC issue a notice to file one.
Audit Exemption Limits
The limits for audit exemption have increased in recent years but there are instances where ‘voluntary audits’ are required – as condition of bank finance, or to satisfy external investors for example.
From 1 January 2016, the company must meet two out of the three following criteria:
- turnover must be below £10.2m;
- balance sheet total below £5.1m;
- number of employees below 50.
The test includes a ‘prior year’ rule, therefore if the company qualified as exempt in the prior year then it will be exempt the proceeding year. This gives a growing company extra time to prepare for its obligations.
These limits have been briefly described in simple terms, if you are concerned about one of the limits mentioned above or if you would like to incorporate a new company please contact our Tax Director, Jenny Marks.
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